Are you at a point when you have to select the appropriate billing model for your business? If your answer is yes, you have to consider trying out a metered billing model. The first thing you should do is understand what metered usage is all about, step by step. This article will give you a perfect insight into metered usage with examples, benefits, risks, and challenges. It will help you make a more informed decision about whether metered billing is the right choice for your business.
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What is metered usage?
Metered usage is a technique where customers pay for a product or service based on its usage. It means that with metered use, your business can charge your customers based on their consumption during the billing cycle instead of explicitly setting fixed quantities.
Metered billing is a perfect fit for businesses where customer consumption drastically impacts operating costs. Typically, customers will subscribe to the product plan under metered billing, including a base price for a specific usage limit. Once they cross this limit, they can be charged extra for every additional consumption unit.
Examples of metered usage
Metered usage is a billing structure that charges users based on their monthly (weekly, yearly,…) usage, such as the amount of storage space they use or the number of API calls completed within that month. Typically, metered billing incorporates a unit of usage and charges a fixed amount per unit.
First, let’s look at a company that provides cloud storage services. Under the Basic plan, a customer can use up to 100 GB of cloud storage and gets charged $50. If the storage usage exceeds 20 GB, the customer will be charged an extra amount (overage price) for the units they used over the limit. You can set these additional units to 1 GB, 10 GB, or any other amount they put in the pricing plan.
The second metered usage example is where your business charges the customers based on their actual product or service consumption during the billing cycle instead of explicitly setting quantities. Imagine if you run an email SaaS (Software-as-a-Service) business. You can measure how many emails your customers send per month, and after that, you can bill them for the total number at the end of the month.
With the ability to charge customers (B2C or B2B) for their usage only, companies can attract a broader customer base with metered billing principle, no matter if you want to charge:
- API calls,
- text messages sent,
- minutes used,
- bandwidth used,
- product usage,
- and many more.
Key factors to consider
Most individuals these days are interested in spending less money on the same things or cutting budgets based on their consumption. Before you decide to start using metered billing, you should first consider whether it is suitable for your business and if metered usage impacts your business. It can be a compelling and worthwhile opportunity to explore if your company is a good fit for implementing metered usage. Metered usage is convenient for both: businesses and customers.
Benefits for company and consumers
With metered usage, customers are charged based on the actual usage of the product or service. Therefore, they don’t feel like they are being charged unfairly for the features they don’t use. That’s because customers can see the specific value of their actions and consumption. They know that the more they use your product or service, the more they’ll pay. It also helps them feel that they are in control, as they are accurately paying only for what they use.
On the one hand, business owners can better understand customer behavior and consumption, their audience’s actions, and how they think and feel. Analyzing customers’ behaviors allows companies to understand what the consumers want and need and, most importantly, why they think this way.
The insights that metered usage can offer your business can improve more than just customer lifetime value; they can help you understand the need for potential future developments. Your revenue grows along with your happy customer base. Usage based billing allows you to gain additional revenue since customers are charged for every unit of extra usage.
Risks metered usage business models
If you consider implementing metered billing into your business model, you must know that metered usage also comes with risks. For example, with metered usage, it’s hard to predict the revenue because you don’t know how much your customers will use the product. The highest risk comes with selecting the right partner! The integration of metered usage into your system requires a team of highly skilled and experienced developers. It could be very challenging to set it up due to custom design and configurations. Also, a system like that must operate 24/7, without any problems. If the system fails, you as a product or service provider can lose revenue and, more importantly – customers. That’s why you should always choose a reliable and experienced partner with proven references and satisfied customers, a partner like Tridens.
Determine the right pricing model
In our blogs, we have already written about the different usage based pricing methods, but we must mention it again. We know that it could be challenging to choose the right type/method of pricing by metered usage for your business. Below are some ways of pricing by usage that Tridens uses.
You need to think like your customers and base your decision on the consumer data generated. Understanding that will help you choose the right pricing option and determine the best price for your product or service. Carefully check the various product or service pricing types since every model has its advantages. With our experience, we can help you in making this decision.
Are you ready to integrate metered usage into your business model? Tridens can help you create the best billing platform for your business, whether you need subscription plans, metered-based billing, or any combination of these two.
Get in touch to see how Tridens Monetization billing software can help develop or improve a metered billing model for your business, as well as help determine the best price for units.
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