More and more companies are now embracing event-based billing, and this is good news for consumers. With this type of monetization, customers are no longer bound by subscription deals and confined within the limits of fixed service plans.
We all know about subscription billing because we see it being utilized by various companies offering a wide range of services – from internet service providers to telecoms to streaming platforms like Netflix. With this type of subscription-based monetization, businesses can formulate pricing plans that could conveniently cast a net over as many consumers as possible.
However, such a pricing matrix leaves no room for customization. A specific subscription plan benefits both the company and those customers who can consume the maximum of whatever the plan is offering. Those who need only a minimum of the offered service under a particular plan would feel shortchanged, while those who need a little bit more of it would either have to avail of the higher-level plan or be forced to make do with the shortage.
What is Event-Based Billing?
Event-based billing is a more sophisticated form of metered billing where customers are charged based on billable events or based on the precise amount proportional to their consumption. It is also called usage-based or consumption-based billing.
This type of billing puts businesses at an advantage over competitors who still rely on subscription plans. A growing number of price-sensitive consumers want a clear alignment between the amount of service they consume and the amount they are charged. By applying an event-based billing method, companies will be able to meet customer demand and present a pricing model that would appeal to a broader clientele.
Succeeding at Event-Based Billing
If you are thinking of implementing event-based billing for your business, here’s how you could make it work for you and your consumers:
1. Determine value and establish usage-based pricing
In determining your value metric, you also need to align it with the value that you give to your customers. Common value metrics include user value, data value, and events value.
- Will the value increase for a customer according to the number of users they have?
- Will the value increase for a customer according to the amount of data that they access?
- Or will the value increase for a customer according to the number of events that they process?
Once you have identified your value metric, you can establish your usage-based pricing scheme.
Offer a pricing model that will allow your customers to avoid paying fixed charges and instead pay only for what they actually consumed. Of course, your usage pricing will also depend on what kind of service you are offering. Will your pricing be according to the number of minutes your customers have streamed a video online? Or the distance they’ve traveled? The range of internet speed they are enjoying? The amount of data? Or perhaps the number of users in a month?
There are six usage-pricing categories you could choose from:
- Per-Unit Pricing. You charge a per-unit fee that is billed right after use. Think Uber or Amazon Web Services’ pay-per-API.
- Overage Pricing. You give customers some units included. One example is minutes of calls per month. If your customer exceeds the quantity of included units within a certain billing period, the amount used is charged on a per-unit basis according to the overage price.
- Volume Pricing. You charge customers a price that is based on the volume they purchased. One example is the billing used for API calls for SaaS, where customers make anywhere from one to 1,000 API calls, and they get charged a flat rate of $.10. If they go anywhere from 1001 to 10,000 calls, they get charged $0.15 per call.
- Tiered Pricing. You charge customers an incremental fee in tandem with an increased volume. Simply put, this pricing method is the same as volume pricing, but the price builds up. For example, you charge customers $0.023 per GB for the first 50 TBs of storage, and when they’ve used that up, the next 50 TBs would cost $0.022 per GB.
- Tiered with Overage Pricing. This is similar to tiered pricing, but you apply it in conjunction with overage charges for units used beyond the units of the final tier. You apply a tabulated approach to determine the proper charges to bill your customer.
- Multi-Attribute Pricing. You charge customers through different or a combination of metrics. Example: rates based on distance traveled for a particular type of car. Or hourly rates for weekdays and another set of hourly rates for weekends.
2. Capture customer usage
Now that you have determined and established your consumption-based pricing approach, you will be accountable for providing customers a higher level of transparency (where their consumption and applicable charges are concerned). Since their bill is not fixed and is now fluctuating each billing period, you will need to show them accuracy in your calculations.
For you to do this, you will need to track your customers’ consumption records. You need to set up a fool-proof process of collecting these records and of cleaning and routing them. This is possible if you integrate your billing system with your other enterprise systems that report usage consistently throughout a billing period. This step is complex, and the only way to handle it is to collect your customers’ consumption data in a structured manner.
It would help if you made sure that usage data records are clean because this, in turn, ensures that the invoices you send to your customers are accurate. Otherwise, you run the risk of error-prone invoices, revenue leakage, and an unpleasant customer experience.
3. Rate customer usage
After you collect your customers’ usage records and after you’ve summarized them, you need to assign a price or value to derive charges. This is called customer usage rating. The rating process can be complicated if your pricing model is multifaceted. A large subscriber base will also add to the complexity.
Your ability to rate customer usage in as near as real-time as possible will be significant for your business and your customer. Also, having a reliable point-in-time measure of usage and running charges will allow you to send notifications to your customers as they approach their data limits or reach pricing thresholds.
With this kind of information made available to them, customers are better equipped to decide whether to use less data or make budget adjustments. These threshold notifications also save customers from unexpected or surprise overage fees, which will ultimately help you give them a positive customer experience.
4. Bill the customer
Once the rating process is done and you have set accurate charges at the end of the billing period, you are now ready to bill your customer.
You may want to do agile billing for this step. Compared to traditional billing platforms, agile billing is a flexible cloud-based billing model. It is ideal for complex event-based billing models. However, at the same time, it will satisfy you and your customer at the point of transaction. You will be able to match your customers’ payment needs with flexible payment solutions.
An agile billing platform will allow for a speedy and friction-free payment process for you and your customers.