The concept of subscription billing has changed drastically in recent years as customers become more accustomed to being billed with them. The next evolution for the process could very well be the adoption of metered pricing models.
The idea of metered billing is hardly a new one; metered billing is how consumers pay for their water, gas (for their house and car), and bandwidth, among others. Even so, the potential of metered pricing hasn’t quite made its way across the subscription landscape just yet. That is to say software as a service, over-the-top content, subscription boxes, Internet of Things devices, and more.
What kind of potential does metered billing have? Well, metered billing allows businesses to accurately charge their customers based on how much they use their products. That helps companies to better manage the costs that come with providing those products and services. IoT manufacturers, for example, can leverage metered billing to pay for the server space they need to maintain their services.
Metered billing also allows customers to pay for only what they use, so they don’t feel like they’ve wasted their money.
This sounds like a great win-win situation, but the only way for a business to succeed with a metered billing model is to take a strategic approach to the whole thing. Here are five things that every company must consider when they deciding whether to implement metered billing structures.
1. Whether Their Product is Suited to a Metered Billing Structure
Can the product/service you provide be broken down into individual units. If it can, then what elements or components are the individual units based on? Customers must be able to easily understand those elements so they aren’t shocked when they receive their first metered bill.
2. How Well do Your Customers Understand Metered Billing?
Metered billing can only work well when customers understand what it means and it meets their expectations. If businesses bill their customers based on the resources they use, then they have to ensure customers understand how the different resources are defined and how their consumption affects prices.
Imagine a streaming service that uses usage-based billing. While it makes sense to charge by data used, customers may feel that they should be charged by how many videos they watch or songs they listen to. Customers may be confused about how their bill matches up to what they have consumed.
If you would have difficulty explaining a metered billing system to your customers, then perhaps you should go for a traditional subscription billing model.
Of course, it’s entirely possible to combine the two approaches. Several businesses have already done this by charging base prices through subscription fees and then adding on usage-based prices for things like overage charges.
It’s also possible to create tiers by grouping together products and usage terms into categories, with each tier having its own price. This gives users some flexibility while ensuring they get billed in a way they understand.
3. How Does Customer Consumption Affect your Costs?
How much can a single customer affect overall operation costs? What about the entire customer base? Are your customers directly responsible for a heightened electricity bill or for using more bandwidth?
Metered billing is a good fit for businesses where customer consumption has a drastic impact on operating costs, particularly if you deliver products and services continuously.
4. How Often do Customers Make Purchases?
If the average customer makes one purchase within a set time period, then you probably can’t sustain metered billing. You would have to stagger payments from customers to give you a predictable revenue stream each month to stay on top of cash flow. That’s a strategy you can be sure the customers won’t like or agree to.
With that said, a business can thrive with metered billing if customers regularly purchase your products or access services. The precise frequency of usage where metered billing makes sense is unique for each individual business. Subscription billing experts like Tridens can help you to understand when metered billing would help increase revenue, as well as helping determine the best price for units.
5. How Many Units of your Products Do Customers Use?
Metered billing is best when usage between customers varies a lot. People who use your product or services a little will pay less than those who use a lot, which leaves everyone feeling like they’ve paid a good price for what they’ve consumed.
If customers tend to use the same amount of product on a consistent basis, it makes metered billing systems less effective. Customers can feel like they are getting a fair price for what other people, not them, have consumed.
Metered Billing and Subscriptions
We predict that metered billing will only become more popular with consumers demanding greater flexibility from subscription services. Tridens Monetization, the Subscription People, can help you to put together the very best billing structure for your business. Whether you need subscription plans, metered-based billing, or some combination of the two, you can count on us.
Get in touch today to see how we can help develop or improve a metered billing model for your business.