Subscription-based billing is considered to be a simple and effective pricing strategy, and there are a lot of advantages to using it. With that said, many businesses are opening their eyes to the more complex but also more flexible and creative, pricing package option, consumption-based billing.
Consumption-based billing isn’t as popular as other kinds of billing. It doesn’t get as much attention as subscription billing; companies shouldn’t overlook the potential of consumption-based billing or usage-based billing. Consumption pricing models are based on how much a customer uses over fixed fees and transactions. It gives enterprises the ability to monetize user behavior and put together hybrid pricing packages that offer a combination of the best of subscription-based services and one-time purchases. They use metered consumption to provide more choice and a better overall customer experience. These consumption-based models offer flexibility and value to consumers and businesses alike.
Table of contents
In my time as the Chief Strategy Officer for a cloud-based billing solution, I’ve seen many companies see a considerable increase in revenue streams from adding consumption business. Metered billing like this has been used by the telecom industry to add some variety and differentiate from traditional subscription plans. Media industries and transportation industries have revolutionized their customer base by allowing people to pay for a single view or ride. The potential of consumption-based billing is only limited by the imagination of the company employing it.
Consumption-based billing also allows companies to gather plenty of data on how a user engages with their products and services through the consumption model. Through usage-based billing, companies can offer better quality offerings to customers through different, more personalized customer experiences.
The obvious downside is that it isn’t as easy to implement this consumption-based billing. Proper utilization will take a lot of power, including automatic rating, data mediation, and invoicing. It’s also up to the individual business to configure their billing system for the specific industries and applications that they cater to. Not configuring the system means that finance teams are unable to unlock the potential of these usage-based strategies fully.
Proper implementation of this model type requires committed leaders at the head of forward-thinking organizations. High-tech companies that are ready to move beyond basic subscription models should undoubtedly consider using consumption-based billing.
Consumption-Based Billing Offers a Competitive Edge
Consumers have never been as empowered as they are right now. Offering consumption-based packages and pricing for your service means that you can better incentivize consumers to choose your goods and services in the saturated market.
Consumers have plenty of information at hand, and they are easily able to compare prices and offers from different competitors. If there is a vendor that doesn’t provide an attractive and affordable pricing plan for them, they are likely going to choose a competitive service that does. Most businesses also give customers free access to some base-level features to prove their value before customers make a financial commitment.
Fortunately, these consumption-based models can be employed in a variety of different ways. Consumption-based billing can be used to augment any existing models by allowing for add-ons, or they can be used as an entirely new pricing model. They provide customer-centric pricing options, and there are several different ways to calculate “usage.” Consumption-based models, when combined with extra features, create some competitive, differentiated packaging to push businesses to new heights of success.
An SaaS company, for example, could find they want to charge their corporate clients based on the number of users who access particular services. Marketing automation platforms may wish to to invoice users based on the number of lists sent out or the number of subscribers. Cloud-based CRM providers may use a freemium model where clients receive free access to basic features but have to upgrade to access premium features based on how much they use those features. There are an endless number of ways that a business can take advantage of consumption-based billing to create and optimize additional revenue streams.
Enterprises that provide their consumers with consumption-based pricing models offer a level of choice and flexibility in regards to paying for the products and services those consumers use. It also allows businesses to get real-time insight into what their customers want and how they behave. This knowledge enables them to test and refine services without having to overhaul their existing operations completely.
However, a consumption-based billing model is only as valuable as the billing platforms that support them. It requires a lot of agility and adaptability to properly deploy a complex usage-based model in an industry, no matter the industry.
Best Practices and Considerations with Usage-Based Models
Keep in mind that accurately tracking customer usage for given products and services isn’t always straightforward. Usage data generally comes from systems that can’t be accessed easily, and the information can be challenging to translate into a monetization model correctly. That’s where mediation – which is taking in and normalizing data for other purposes – comes in.
Here are some of the best practices to evaluate how much effort would be required to implement a consumption-based model;
Ensure that your business can access the consumption data from an upstream system and automatically charge consumers accordingly
Test billing systems to ensure they can mediate raw data and assign it to the right customer account at the right price
Ensure that the billing process can be audited appropriately and documented for the purposes of troubleshooting
While it is true that consumption billing isn’t always simple, your team should evaluate the benefits of adopting such a model as well as the potential difficulties of doing so.
Evaluate Consumption-Based Billing Methods for your Business
If you are looking to go beyond the essential subscription or fixed-price billing method, then you should certainly consider taking advantage of the agility and flexibility afforded by a consumption-based pricing model. Consumption-based models allow you to provide flexible and personalized offerings to customers that suit their needs. The finance team at your organization can easily implement a usage-based model and use it to adapt to the constantly-shifting economic landscape quickly.
With the global marketplace becoming more and more crowded, using consumption-based billing vies your organization a competitive edge by offering a wide range of different pricing options. Securing more business in the future will depend on more than just offering stellar products and services. It will require offering flexible and creative product packages to attract the kinds of customers you need. Focus on Your Business While We Take Care of the Technology