Something big is happening in the software world. The comfortable, predictable world of annual subscriptions is disappearing faster than your cell phone’s battery when it’s at one percent.
Sam Jacobs, CEO of Pavilion, recently pointed out in a provocative LinkedIn post, "AI will destroy SaaS as we know it. We will still build great companies, but they won't be SaaS."
He's right.
Chargebee’s latest market research shows that 73% of software companies that responded planned price changes in 2024 — but they're not just tweaking numbers — they're completely rethinking how they make money.
The old world of software was simple. Companies paid for seats yearly, revenue was predictable, and everyone understood the model.
As Jacobs puts it, "Part of what made SaaS so beautiful was a combination of the simplicity of the business and its corresponding predictability." That predictability made investors happy, too. They could ignore everything else and focus on annual recurring revenue (ARR). It was so valuable that companies tried to label all their revenue as "recurring" — perhaps even when it wasn't.
But AI is changing all of that.
Buyers don't want to pay for seats anymore. They want to pay for what they use and the value they get. And this changes everything about how software companies work.
We’ve entered a new pricing stage in the SaaS maturity curve, and the pursuit of predictable revenue growth will enter a new chapter in 2025. The most savvy SaaS companies aren't waiting to see what happens next. They are being proactive with pricing strategies and experimenting early and often to see what works.
Having an innovative product and hoping people will pay for it won’t cut it.
Adapting to changing markets demands a flexible pricing strategy, but don't be swayed by eye-catching headlines (maybe like the one for this article!) declaring "subscription pricing is dead" or "usage-based pricing is the future." Let your customers be the ultimate litmus test of your pricing strategy through their behavior and feedback.
It’s important to remember that pricing isn’t one size fits all. Value-based pricing isn't always synonymous with usage-based pricing. While usage-based billing (UBB) often serves as a proxy for value pricing, it can sometimes undermine value perception. Salesforce has gone all in on its Agentforce offering, and in its commitment to tying it to end-user value, it’s currently charging $2 per conversation.
Kyle Poyar recently posted on Linkedin about why many investors are gun-shy when it comes to usage-based billing. He said, “It's not that they're necessarily less predictable. And it's not that they're inherently worth less than traditional SaaS. It's that they're (typically) more complicated to unpack. This means more work is required for investors to get comfortable.” Poyar shares four things you can do to help them get more comfortable and jokes, “Or we can just go back to seat-based subscriptions for everything.”
The secret is picking a pricing model that fits how customers use your product.
When you sell software directly to users — like an AI writing tool — charging per person often works best. You might add extra fees when a company needs more seats.
But switching to pay-per-use for something like an AI writing tool could backfire — people would worry about costs every time they write something, and they'd be less likely to try new features.
When your software talks to other software instead of people, charging based on how much it's used often makes more sense.
The real trick to getting pricing right is ensuring it fits your business's needs and monetization plans. Feel free to try different approaches, and pay close attention to what your customers do and say.
When you change how you charge customers, you need to be upfront about it. Most software companies have kept their pricing under wraps, letting sales teams handle the details and the tough negotiations. But newer pricing models work better when you're open about costs. This builds trust, reduces lengthy price negotiations, and helps everyone work faster.
Before you shake up your pricing, though, you'll need to tackle some common challenges.
Many companies find their billing systems can't keep up with newer ways of charging customers.
Older systems often struggle to:
The fix? Look into modern billing tools that can do all this while working smoothly with what you already have.
Switching up how you charge takes careful explaining to avoid confusion. You'll need to:
You need reliable numbers if you're charging based on usage or results. This means:
New pricing brings new challenges, such as:
Different pricing affects everyone.
Start small — try changes with new customers or one group first. Keep talking to your customers about what's working and what isn't, and be ready to adjust as you learn.
Companies are getting comfortable with different types of income:
The key is to show that you can make steady money, even if it's not from traditional subscriptions.
Snowflake offers a masterclass in this new world. They've figured out how to make usage-based pricing as reliable as old-school subscriptions. Jacobs points out, "They call it ARR and NRR, but that's not what it is... they've figured out how to present what is non-recurring revenue and create an aura of 'recurring-ness' about it that implies a level of revenue quality."
Other companies are following suit, finding new ways to:
As you scale, you must think about how you continue to evolve and monetize your offerings. Do you have upsell and cross-sell offers, or is everything priced as a monolith? The way you monetize as you scale will impact your future.
In an evolving market, successful companies are not the ones that react to the change but proactively strategize to adapt to changing market conditions and customer expectations.
So, what sets these smart companies apart?
Chargebee’s 2024 State of Subscriptions & Revenue Growth report shows successful companies are:
While many SaaS companies focus intensely on customer retention, there's a counterintuitive approach gaining traction: deliberate customer churn.
Known as strategic churn, this practice involves purposefully letting go of ill-fitting subscribers who negatively impact key business metrics — from customer satisfaction scores to profit margins and product development speed.
As the market has dramatically shifted from prioritizing pure growth to emphasizing efficient scaling, forward-thinking revenue growth leaders are embracing strategic churn to improve profitability and ensure sustainable success.
Companies find their best customers:
Meanwhile, lower-value customers often:
Simply put, we can get better at finding and keeping the right customers.
The changes we're seeing are just the beginning. To stay competitive, you'll need to prepare your business for new ways customers want to pay and what they expect in return.
Tracking yearly revenue alone won't tell you the full story anymore. Smart companies are paying attention to a broader set of numbers that show the real health of their business.
SaaS isn't dying; it's changing shape.
As Jacobs said, you have to "figure out how to present your company in a way that underscores the predictable nature of what you do, even if what you do isn't technically ARR."
Success today means:
The companies that win will not be stuck in old SaaS habits. They will be the ones who know how to give customers what they need and build steady income in fresh ways.
Adapting to SaaS changes means rethinking growth strategies. Discover how subscription models can thrive with the right approach.
Edited by Shanti S Nair
Kim Courvoisier is a Silicon Valley content leader who has spent over 15 years steering content initiatives for startups at every growth stage. When she's not championing the Oxford comma or crafting puns, she's developing high-impact content strategies that deliver measurable results.
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