Private equity expectations for SaaS usage-based billing

Summary (TL;DR)

• Private equity investors love the flexibility of usage-based pricing only if it comes with predictable, scalable revenue​.
• Key metrics like net revenue retention (NRR) and predictable cash flows are non-negotiable for valuation​.
• Red flags for investors include revenue volatility, high churn, revenue leakage and any compliance gaps in billing​​.
• CFOs should automate usage-based billing in their ERP to ensure accuracy, ASC 606 compliance and real-time visibility into revenue​.

Usage-based billing is growing more common in SaaS. Customers appreciate paying only for what they use and investors appreciate the growth potential it offers. But here’s the flip side: if your usage-based pricing isn’t designed and managed for predictability, it can become a liability when you’re courting private equity.

PE firms evaluate SaaS companies not just on growth, but on the quality of that growth. 

They bring a magnifying glass to your revenue streams. Are they recurring and reliable? Are customers sticking around and expanding their usage? Is revenue recognized correctly under ASC 606 (if not, investors won’t tolerate that risk​)?

If your billing model makes any of those answers “no,” then your valuation – or even the deal itself – could be at risk.

In other words, adopting usage-based pricing without investor-centric controls is playing with fire. This article draws on insights from private equity investors we interviewed first-hand to help SaaS CFOs ensure their usage-based billing model passes the investor test. We’ll look at what PE firms expect to see, the red flags that scare them off and how to align your billing operations (and ERP systems) to meet those expectations.

What PE firms expect from usage-based pricing

Private equity investors aren’t against usage-based models – far from it. What they expect is that a SaaS company can harness usage-based pricing without introducing volatility or complexity that derails the business. That means they’re looking for:

• Predictability: Investors want to see that even if revenue comes from usage, it can be forecasted with reasonable accuracy. They prize visibility into future revenue over surprises. A usage model should have enough data history or structure (like minimum commitments or tiered usage) to allow reliable projections.

• Retention: On the customer front, one of the biggest metrics is net revenue retention – basically, how much existing customers expand versus churn. If usage-based pricing truly adds value, it should drive more usage (and more spend) from your current customers over time. High gross retention (low churn) and expanding accounts tell investors that the model works.

“On a current customer basis, the big indicator is really net retention... it’s about how you can ensure that a usage-based model is unlocking growth amongst your current customer base.” – Ira Golub, VP at Bregal Sagemount​

• Compliance & reporting: PE firms expect all revenue – even variable usage – to be buttoned-up and audit-proof. They will zero in on whether your billing and revenue recognition processes follow standards like ASC 606. Any hint that your usage billing is misaligned or manually patched together is a major red flag​. No investor wants a surprise restatement down the line.

• Scalability: Finally, investors assess whether your billing operations can scale with growth. Usage-based models generate tons of data – if your systems and processes can’t handle that influx seamlessly, it’s a problem. A finance infrastructure built to automate usage billing and revenue recognition shows investors that you can grow without breaking​.

Red flags that turn investors away

Now let’s talk about what worries investors when it comes to usage-based billing. If your model isn’t properly managed, it can send up warning signs that give PE firms pause. Here are some common red flags:

• Wild revenue swings: Unpredictable usage spikes or drop-offs that make revenues erratic quarter to quarter.
• Billing inaccuracies or leakage: Mistakes that cause some usage to go unbilled (leaving money on the table) or overbilled (upsetting customers).
• Customer churn or contraction: If customers are surprised or dissatisfied with their bills, they might use less or leave, hurting retention.
• Compliance issues: Revenue not recognized according to ASC 606, or an overreliance on manual adjustments – signals of risk in your financial reporting.

“One of the challenges with usage-based pricing is that it can create cash flow unpredictability. CFOs need to make sure their billing model doesn’t introduce unnecessary volatility that makes forecasting difficult for investors.” – Ethan DeSilva, VP at Insight Partners​

Want to understand where these risks really come from? Follow the billing data.

Usage-based models often involve pulling data from product usage logs, applying pricing tiers or rates and invoicing a high volume of transactions. If you’re doing all that in spreadsheets or home-grown systems, mistakes will happen. Revenue leakage (missed billing of some usage) is more common than you might think and it directly hits your top line. In fact, many finance executives report losing up to 5% of annual revenue due to manual order-to-cash processes.

No investor wants to discover that a chunk of your usage never translated into revenue due to system gaps.

And if your billing isn’t aligned with revenue recognition standards, it’s a deal risk hiding in plain sight. Say you bill customers in arrears for usage – are you recognizing that revenue in the correct period? If not, your financial statements might be off. Investors will dig into this and any whiff of improper revenue accounting will raise serious concerns.

CFOs should ask themselves: Does our usage-based revenue fluctuate so much that it catches us off guard each quarter?

If yes, imagine how an investor would feel. The goal is to offer flexibility to customers without introducing volatility that makes your business hard to predict. 

Even the customer experience can trigger investor concern indirectly.

When pricing feels confusing or unstable, customers might push back or churn, creating a ripple effect on your metrics. One investor shared an example of a portfolio company that tried to monetize new AI-driven features purely through usage fees, but customers were so uneasy with the unpredictable bills that the company had to slow down and take a “crawl-walk-run” approach​. 

The takeaway? If your pricing is driving customers away or causing confusion, investors will take note.

How CFOs can align their billing model with PE expectations

These aren’t theoretical risks – but they are solvable. Here’s how CFOs can bring control, consistency and investor confidence to usage-based billing:

• Stabilize the pricing structure. If you’re on a pure pay-as-you-go model, consider introducing elements that smooth out the revenue line. For example, minimum usage commitments or base subscription fees can provide a revenue floor. Hybrid pricing models (part subscription, part usage) are popular because they offer flexibility while maintaining a predictable base​. The goal isn’t to abandon usage-based pricing, but to tame its wildest swings.

• Retention is your strongest proof point. If customers are using less or churning after unpredictable bills, that’s not just a product issue – it’s a billing problem in disguise. Monitor net revenue retention closely and identify if any usage-related issues are causing churn. If a segment of customers is consistently under-consuming and churning, find out why – and course-correct. Investors don’t just want retention – they want signs your model supports expansion within the base.

• Tighten your revenue controls. Audit your billing process end-to-end. Are you capturing all product usage data reliably? Are invoices going out promptly and accurately for every bit of usage? Any gaps here need plugging ASAP. Implement checks or systems to ensure no usage goes unbilled. This might mean tighter integration between your product analytics and billing platform, or setting up automated usage alerts for billing. Every dollar of usage that slips through the cracks is a dollar off your valuation.

• Get ahead of compliance risk. Don’t wait for due diligence to find out you have an ASC 606 issue. Work with your accounting team now to map out how usage is recognized as revenue. If your model involves consumption over time or tiered thresholds, document how you allocate and recognize that revenue in a GAAP-compliant way. Investors may have experts comb through your revenue recognition policies – being able to show a clean, automated, compliant process will build trust.

Notice the pattern? None of this is hypothetical. PE investors will examine the connection between your product usage, billing, revenue and retention. If your systems don’t support that story – or make it easy to prove – the deal gets harder. The right billing foundation, inside your ERP is a strategic advantage.

Why ERP billing automation is a dealbreaker for PE-backed SaaS firms

Most of the fixes we’ve outlined come back to one point: your billing can’t be duct-taped together. For a PE-backed SaaS company, automating usage-based billing inside your ERP is basically non-negotiable.

If your finance team is still exporting CSVs, reconciling usage manually or chasing billing data across systems, that alone raises a red flag. PE firms know those workarounds don’t scale. As usage grows, the cracks widen – and they’ll ask how you plan to manage through it.

“Cash flow management becomes more complex when revenue isn’t fixed. Companies need robust billing automation.” – Ethan DeSilva, VP at Insight Partners​

Automating usage-based billing inside your ERP brings several benefits that investors explicitly look for:

• Accuracy and auditabilitiy: Fewer manual steps mean fewer billing errors. With billing automation inside ERP, every usage event flows through to invoicing and rev rec automatically. No gaps, no delays, no clean-up before board meetings.

• Real-time visibility: Integrated billing means you can pull up up-to-the-minute reports on usage revenue, deferred revenue and customer activity. If an investor asks for a metric, you can retrieve it quickly from a single source of truth.

• Scalability of operations: Whether you have 100 customers or 10,000, an automated system can handle the load without a linear increase in headcount. That operational leverage (more revenue with relatively flat G&A costs) is exactly what PE firms love to see.

• Tighter close cycles: With billing data in ERP, month end becomes faster, repeatable and investor-ready – no scrambling to explain mismatches across systems.

This is why investors often ask pointed questions about your billing stack during diligence. They’re checking for gaps – but also gauging how ready your finance function is for the next stage of growth. If your infrastructure can’t keep up with your pricing model, it will hold you back.

Investor-grade billing is the new SaaS standard

For CFOs of SaaS companies, the message from private equity is clear: flexibility is great, but predictability, compliance and scalability win the day. Usage-based billing isn’t a strike against you – unless it’s unmanaged, unpredictable or unreconciled.

If you suspect your billing model or processes aren’t up to investor standards, don’t wait for a PE due diligence process to uncover the cracks. Challenge your team to shore up those areas now:

• Can we confidently forecast next quarter’s usage revenue?
• Are we capturing every dollar of usage and recognizing it correctly? 
• Could our billing stack handle 5x the volume – without adding headcount?

These aren’t just finance questions – they’re strategic questions that could decide whether you land that next round of funding or a lucrative exit. The CFO’s job is to make sure the company’s exciting growth story is backed by solid, predictable fundamentals.

And the best part: achieving that predictability doesn’t mean sacrificing growth. With proper billing automation and ERP integration in place, you can have the best of both worlds – agile pricing that drives growth and the financial discipline that investors reward.

“Even after 12 months of using ZoneBilling, I am still surprised every day by the level of visibility that the reporting capabilities give me, whether it’s a saved search or something else.” – Sandro De Ciccio, VP Controller at Power Factors​

Full visibility. No surprises. That’s the benchmark – and investors expect nothing less.

FAQs

What do private equity investors expect from usage-based pricing in SaaS?

Investors expect to see predictable growth. They like the upside of usage-based models, but only if the revenue patterns are manageable and forecastable. They want to see strong customer retention (ideally net revenue retention above 100%) and a pricing model that can scale without breaking the company’s finances or operations. Essentially, flexibility for customers shouldn’t come at the cost of financial stability for the business.

How does usage-based pricing impact a SaaS company’s valuation or investment potential?

Usage-based pricing can be a double-edged sword. If managed well, usage billing can boost valuation by driving higher net expansion revenue – existing customers paying more as they use more – which is a very positive signal to investors​. It shows product-market fit and growth within the customer base. On the flip side, if usage revenue is unpredictable or causes customers to churn, it introduces risk and will likely lower your valuation. Investors will discount a company with erratic or declining revenue, because it makes future cash flows less certain.

What red flags in a billing model could turn off PE investors?

The big red flags that investors don’t want to see in a billing model are revenue volatility and poor retention. If month-to-month revenue jumps around with no predictability, that’s a serious concern​. High churn (customers leaving or downsizing) is another, especially if it’s tied to your pricing model or billing issues. Investors also worry about things like revenue leakage (if you’re not billing all of your usage accurately) and compliance problems (e.g. revenue not recognized correctly). Any sign that the billing process is ad-hoc, overly manual, or error-prone will raise eyebrows during due diligence.

How can finance leaders align billing operations with investor expectations?

To align billing operations with investor expectations, start by eliminating surprises. Put measures in place to stabilize revenue (for example, add a base charge or usage minimums) so forecasts stop whipsawing. Invest in customer success to ensure your usage-based model is driving usage up, not down – you want expansion revenue, not contraction. Tighten up billing processes to plug any leaks; make sure every unit of usage is captured and billed. And ensure all of this flows through your financial systems cleanly (following standards like ASC 606). In short, make your billing boringly predictable – routine, accurate and scalable.

Why is automating billing inside the ERP so important for PE-backed SaaS firms?

Embedded billing in ERP is the linchpin for scalability and accuracy. Private equity backers want to know that your finance infrastructure can handle rapid growth. Automation inside the ERP means usage data, billing and revenue recognition are all connected, which greatly reduces errors and delays​. It provides real-time visibility into financial metrics, so you can answer investor queries on demand and close your books faster. It also frees up your finance team from manual drudgery so they can focus on strategy and analysis. In the eyes of investors, a company that has billing on autopilot – with solid controls – is far less risky than one relying on spreadsheets and hope.