TL;DR: Customers only hate paying via credits when the systems are designed badly.

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Monday Price Point:

Credit models are popular - up 126% YoY according to our friends over at PricingSaaS.com.

Also in the last year I've started to hear "Customers hate credit models".

I personally don't think so.

I think, however, that customers hate:

• Not knowing how credits translate into usage.
• Not knowing how credits translate into $$.
• Not having a clear, real-time credit balance they can look up.
• Having no idea how many credits they will need or use.
• Being pressured to commit to purchase high volumes up front.
• Losing credits when they don't roll over.
• Paying high overage rates for credit top-ups.
• Having zero control over who in their org can spend credits.
• Worse: having zero control over who in their org can sanction buying more credits!
• Not knowing how to expense credits on their P&L or carry them on balance sheets.

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And of course customers hate this. All of the above is unnecessary and counter productive.

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It is caused by commercial teams launching credit models without have a clear understanding about the mechanics, the volume-variability over multiple periods, how to structure terms, revenue recognition, pressure to 'hit a quarter' etc. - so they launch them using the old tool-box of license sales !

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They force customers to commit to high volumes. Charge high overrages on top-ups. Do not invest in tooling to create transparency. Force revenue recognition within the year, making credits not fully roll over.

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Credit models are a way to restructure risk and cashflow in the customer relationship. It works because risk is lower for customer - but not as low as pure usage based, because you get the cash upfront.

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If you launch it wanting to have it as predictable and fixed as a traditional seat-based license model, you will make a 100 small decisions in the execution that will A) erode all of the strength of the credit system by making it risky for customers and not risky for you and B) make customers hate you.

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So don't.

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Revenue recognition and usage risk is a feature of credit systems - not a bug. Lean into it.

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As promised: a point about pricing every Monday. ​

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