Four Key Opportunities to Succeed in Usage-Based Billing
Businesses are always looking for innovative ways to win over more customers and retain them. The pricing and billing options that businesses offer to their customers play an integral role in determining their overall success. Introducing usage-based billing or usage-based monetization is a unique option that can appeal to customers irrespective of the growth stage of their business or its size.
Initially, companies begin with a simple billing strategy that involves charging customers on a recurring basis for continuous services. This can be managed through recurring billing software. However, a company must be flexible enough to accommodate the varied billing needs of customers. Usage-based billing is charging the customers a fee directly proportional to their consumption.
Usage-based billing or metered billing is becoming increasingly popular as a strategy particularly in industries that offer Saas subscription services. When we talk of a consumption-based billing model, it is not always a formula-oriented approach like the typical amount = price * quantity.
To achieve maximum success from usage-based billing model, there are a lot of factors that must be taken into consideration.
4 Key Ways to Succeed at Usage-Based Billing for Your Business
The best SaaS billing software will scrutinize all these elements and ensure that it is followed for best results with metered billing. So here’s how to make usage-based billing work for your business, your customer and your bottom line.
Determine the billing process based on data
Amongst other things that are required to make the usage based billing successful for your business, is deciding the value metrics at the outset. You have to ensure how you are tying the value of your services to the pricing. You will have to identify how to best charge for your services and how you want to define the term ‘usage’. The challenges arise specifically in cases where the usage is in an intangible form. For some services, the usage could be defined based on the amount of data used, while for the others it could be based on the period of access. You may also choose to define the usage based on the number of times a particular data or service has been accessed. The usage can be determined based on a single factor or the blend of a few factors.
Select the Right Usage-Based Pricing Models for Your Customers
Under conventional billing models, customers were charged a fixed price for many tenures. Some customers also preferred it as a certain amount of predictability helped them in budgeting. However, with the evolution in customer needs, there is more emphasis on the value derived. They are now willing to pay only for the services that they use. Thus, this calls for an optimal usage based pricing model that is the right blend of fixed as well as variable components. The model also needs to complement the value that the customers derive from using the product.
The process of designing the right Usage Based Pricing models would involve identifying the nature of services or products offered to the customers and picking up the billing pattern for each of them. This could involve single-use billing, flat-fee, subscription-based billing, quantity-based billing, or consumption-based billing. The key is to determine the right blend of billing according to the products or services used by the customers over a period. The billing period can also vary according to the usage duration of each service.
Establishing the best recurring billing pricing strategies has dual benefits. It ensures that customers derive maximum value, whereas the businesses get more access to customer data and their usage patterns. They can later utilize this data to pitch customized offerings to them and increase revenue streams.
Ensure Transparency for Usage-Based Billing
Opting for consumption-based billing means that a customer would have to pay a different amount every month depending on his usage. To increase accountability among customers, businesses need to offer complete transparency to avoid any conflict due to variations in the bill in each period. Customers should be able to see their usage as well as the rate per unit or service for counter-assessment. This is only possible if the Saas subscription service is aligned to the other enterprise systems of the customer. This integration could be through native APIs or any other means. The objective is to ensure that there aren’t any major discrepancies in the usage data of your business and your client.
Once you have access to the accurate data regarding usage, you can apply the appropriate billing rate to the same. There should be enough transparency regarding the pricing and you can also notify the customer if any drastic change is observed in their usage pattern. If the change in usage pattern is observed consistently over a period, you can offer a different pricing structure to them.
Customize Billing for the Customers
The usage based billing can be confusing at times for the customers. Therefore, the businesses must present the bill in a clear and lucid format. The bill must contain the major components such as the service they opted for, the rate per unit, their usage in exact terms, the period of the service, and the total charge that they have to pay. The customized billing is a great way for the client to understand the true value that they are deriving from the metered billing system. Besides, they must also be able to identify how opting for this model of billing is also financially lucrative for them.
Providing a highly detailed bill to customers ensures better customer engagement. Once your business scores on that quotient, you can align your offerings to customer preferences and have a long-term relationship.
Usage based billing is one of the best ways to ramp up your revenue and enjoy stronger customer relationships over a lifetime. If you are not yet offering this service to your clients, you are limiting their discretion and the growth potential of your business.
However, implementing this form of pricing strategically can be slightly challenging. To make the best use of the metered billing, you must opt for a Saas subscription service that constantly evaluates the value metrics for your offerings as well as the pricing models. Maintaining constant communication with the customers and keeping them updated indeed goes a long way in strengthening trust and the brand image of your business.
Read more about 3 Key Strategies to SaaS Pricing
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