Logo churn is running at 18%. Net revenue retention is at 88%. The sales team is closing new logos but the renewal conversations are stalling. Before you rebuild the product or reprice the sales team, check the contract structure.
In most cases, the pricing model is the bottleneck.
What changed in 2025
Enterprise and mid-market buyers started treating annual SaaS contracts the way they treat capital equipment purchases: anything requiring a committee approval and a forward budget commitment gets deferred. Buyers did not stop buying. They stopped committing.
A twelve-month prepaid contract requires procurement sign-off, legal review in some cases, and a finance team willing to book a forward obligation. A monthly contract requires a credit card and a department head. The product is identical. The approval path is different by an order of magnitude.
When budgets tightened in Q3 and Q4 2025, that difference showed up in renewal conversations. Customers who had renewed automatically for three years suddenly wanted to evaluate at the end of the term. That is not a product signal. It is a buyer behavior signal.
What usage-based pricing actually requires from a finance perspective
The shift to usage-based or hybrid pricing looks like a product and sales decision. It is also a finance decision, and the finance work needs to happen before you reprice a single contract.
Revenue recognition changes. Under ASC 606, usage-based revenue is recognized differently than a flat subscription. If you have investors or lenders reviewing your financials, the timing shift matters. Your revenue recognition policy needs to be updated before you sign the first usage-based contract.
ARR and MRR calculations change. Your ARR number becomes an estimate rather than a contract value. Investors and board members will ask how you calculate it. You need a defined methodology — most companies use trailing 12-month annualized — and you need to apply it consistently before the next board meeting.
Cash flow modeling changes. A usage-based model back-loads revenue relative to a prepaid annual. Your 13-week cash forecast in month one of a new cohort looks completely different than month twelve. Model the ramp before you commit to the structure, not after the first cohort renews.
The analysis that drives the decision
The right answer is not always full usage-based pricing. For most companies, a hybrid model with a usage floor outperforms both extremes. It gives buyers a lower commitment threshold while giving you a revenue floor to model against.
The way to get there is a scenario model: keep annual contracts as-is, move fully to monthly, move to hybrid with a usage floor, move to usage-based with an annual true-up. The model shows ARR trajectory by scenario, cash flow timing by cohort, and break-even month for each structure. That analysis is what gives you a defensible answer before you change anything.
It takes about a week to build.
If your net revenue retention is below 100% and you have not stress-tested your contract structure, that is the right place to start. Book a strategy call.