M3ter pulls in $14 million to expand its usage-based pricing tools for SaaS businesses

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The concept of SaaS as a business model changed the game in technology by moving users away from buying software outright and paying for the availability of services on time-based subscriptions, usually with a monthly or annual price. Today, a London-based startup called M3ter, which is building tools to take the next step in that evolution – more granular, usage-based pricing – is announcing funding due to strong demand.

The company has raised $14 million – a Series A it will use to double down on new markets like the US and build more technology for its users. Notion Capital is leading this round, with Insight Partners, Union Square Ventures and Kindred Capital – all previous backers of last year’s $17.5 million seed round – also in the round. The company doesn’t disclose its valuation, but CEO and co-founder Griffin Parry tells me it now estimates it has about a 3-4 year runway.

M3ter came out of stealth just over a year ago – a debut that coincided with the announcement of that seed round – and in that time the company has grown 375%.

Its customers today are mostly technology companies built around API calls, a natural fit for usage-based pricing models, and they include payment company Paddle, ID verification company Onfido, and fraud prevention start-up Sift.

And indeed, the whole concept of starting a company to help other tech companies adopt and adapt to usage-based pricing stems from the founders’ own experiences: Parry and co-founder John Griffin previously founded GameSparks, a game development engine based on usage-based pricing. That startup was eventually acquired by Amazon’s AWS — arguably the granddaddy of popularizing usage-based pricing for APIs through its cloud services platform.

One of the unique aspects of usage-based pricing is the granularity it offers customers – they only pay for what they use. At its core, that’s something that’s proven more popular, especially in the current lean times, where companies are more cautious than ever about how they spend money, possibly at the cost of being less focused on simply budgeting based on predictable spending.

And while it’s certainly not ubiquitous among all SaaS businesses, it’s certainly grown in popularity.

Research from OpenView found that 45% of SaaS vendors will adopt usage-based pricing by 2022, compared to 33% the year before. The forecast for 2023 was 55%, but as Parry pointed out to me, that figure has been revised to 61%, in addition to another 10-15% growth if you add in the companies that have said they are considering it.

(Unsurprisingly, M3ter isn’t the only company looking to take advantage of this. SF-based Metronome, backed by some Bay Area heavy hitters; and more legacy companies like LogiSense are among those building usage-based pricing platforms as well .)

“Software companies today view pricing as a strategic lever,” says Parry. “As a customer, you don’t want to leave money on the table and you also want to focus on more efficient cultivation.” Efficient in this sense essentially means by spending as little money as possible to get there.

In the past, he continued, it was about predictability and knowing each month you paid a certain amount for a service, “but things have gone the other way.”

Parry admits there’s still a significant cultural shift among SaaS companies, particularly those who may have already built their business around time-based models — growing pains likely not unlike those faced by software companies when they first started out. switched from selling software. ready-to-use software to products sold through subscriptions.

But on the other hand, the introduction of usage-based billing also means opening the door to more granular data about what customers use and how they use it, which in turn can inform not only what you offer them, but also what the SaaS provider builds and invests in as a company.

To that end, M3ter will use some of the funding to continue developing more advanced proprietary tools. They include a data science product called Cost Allocator.

Based on feedback M3ter has received from its users, it will let customers calculate gross margin performance per user, which Parry explained to me will help them figure out how to adjust prices accordingly. (The idea here is that you can create rewards or lower prices for those who use more of a service, or charge more per use for those who aren’t power users.)

Pricing Experimenter and Usage Forecaster are also products in development. Respectively, the first of these allows M3ter customers to test pricing models in real time with simulations based on data sets it has collected; and the latter will apply similar modeling to determine what a company might make under different business evolution scenarios. All of this can also be used to help companies determine pricing levels, as well as developing more nuanced approaches with different users, including continuing to offer some of them more traditional SaaS packages if that proves to be a better option.

The startup’s approach to product development, working with its customers to build what they want, ties in closely with the fact that M3ter itself is ultimately a usage-based company as well, trying to cater to what its customers are. doing.

Some of the products its clients build using its platform include database startup ClickHouse which offers usage-based pricing for its cloud offerings; and Chargebee subscription management platform that offers event metering, usage-based pricing, and billing capabilities.

As I mentioned above, today’s customers are mostly tech companies built around API calls, but there’s a clear opportunity to see this into all sorts of other products, from entertainment consumption to anything a person engages with online or in an app . .

“As pricing becomes a strategic priority for more software companies, the one-size-fits-all approach seems increasingly outdated,” Notion Capital’s Jos White said in a statement. “m3ter’s technology will enable this transition to more usage-based and intelligent pricing. The company’s co-founders have already built a solid foundation with an exceptional team and product, as well as deep engagement and alignment with their early customers and partners.”

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