Start small when selling capacity and watch revenue grow
This week SaaS cost optimisation platform Vertice published their monthly Cloud Spend Insights report.
In it they explain that while budgets are tight, cloud spending continues to increase at 35% year on year.
Much of this is being driven by incremental spend in compute, machine learning and storage services.
Think AWS, Azure, Google Cloud, Snowflake, Databricks and more…
These are typically platforms where you pay as you go, or pre-buy capacity that is drawn down as you add more data and more workloads.
It is very difficult for buyers to estimate their future usage on these platforms - as they become more popular around their organisation more demand comes in and initial estimates are quickly out of date.
Vertice reports that half of all organisations are spending more on cloud than they had budgeted.
Great oaks from little acorns grow
Take a look at this slide from Snowflake’s Investor Day in June 2023.
It shows that for their customers that currently bill over $1m of annual revenue their median starting point was between $100k and $150k depending on when they initially signed up.
Put another way, once customers are on board they become addicted and consistently add in more data and more workloads resulting in higher spend.
It is difficult to leave an amazing product
When you have a great product, and you charge by consumption, the customer sells to themselves, and it is very difficult for them to reduce consumption or totally leave the platform.
Organisations are trying to optimise their costs by ensuring data and workloads are not duplicated, and this is visible in Snowflake’s Q2 results from August ‘23:
Net Revenue Retention describes the existing customer base’s spend year over year - and you can see this is trickling down from a peak of 178% to 142% in Q2.
Even with cost optimisation programs, customers are still growing their spend with Snowflake - just not at the pace they were 18 months ago.
As a side note, I remember watching a TV program about a self-storage container business.
The owner was describing that is was such a powerful business because in order to cancel you had to physically come and remove all your items and put them somewhere else.
This friction keeps many customers that might not like the monthly fee but can’t deal with the hassle of moving.
I see many similarities in consumption based data platforms!
Start small and focus on finding valuable usecases
Whether you are selling compute, storage, esignatures, or payments any consumption-based model grows revenues by continuing to uncover high value use cases around the customer’s business.
The key word word is value - if the popularity of your product means that low value workloads are brought onto the platform then questions start getting asked about the increased spend and the return on investment.
You’ll start to hear:
“Do we need to do this on the platform?”
“Could we consolidate this into one job?”
“Let’s push back that team’s roll-out until the next financial year”
I look at this in more detail and provide some suggestions as to how to maintain your growth with a consumption based model here:
The consumption model is a very powerful way of growing a significant business over a longer period of time.
Definitely one to look at in your own revenue engine.
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RevOps Impact Playbooks - I’ll help you implement one or more tactical processes across your revenue teams - content, referrals, testimonials, adoption and more.