When you think of usage-based billing, which industries come to mind? Not a new phenomenon by any stretch of the imagination, metered billing has deep roots in utility and communications companies, but until recently it wasn’t widely adopted outside of these industries.
Also known as pay-per-use, a usage-based pricing model charges customers only for the products or services used. With the ability to bill customers (B2C and B2B) for usage only, whether that’s clicks, API calls, downloads, seats, text messages sent, minutes used, bandwidth used, product usage, etc., and enabling companies to attract a larger customer base by removing up-front financial purchasing barriers – what’s not to love, and why aren’t all businesses using this pricing strategy?
Is Metered Billing Right for You?
Do you sell multiple products and features, making it nearly impossible to determine units of usage or are the products you sell rarely used? If so, usage-based billing may be the perfect pricing strategy for you if you have the right tools at your disposal.
That is, of course, if you’re able to restructure your business model. For example, let’s assume you sell electric scooters. Since they range in price from $800 to over $3,000, they aren’t exactly flying out the door. Instead of just selling the vehicles, you could also rent them and charge based on mileage, time rented or a combination of usage parameters. This gives you the opportunity to collect revenue every time a scooter leaves your store, instead of it being a one-time transaction.
3 Ways to Capture More Revenue with Usage-Based Billing
Still not sure if switching to a usage-based pricing model is right for you? Let’s take a look at three ways metered billing can help you maximize your revenue potential.
1) Be responsive to customer needs: Usage-based pricing is based on gaining a deeper understanding of your customers’ behavior and then capitalizing on it. Because this model offers insights into usage patterns and trends, you’ll be in a better position to anticipate the current and future needs of your customers. For example, let’s assume that you’re seeing trends where customers aren’t accessing the features that your software offers. Although this may be due to a few reasons, one of the primary causes is a lack of knowledge and understanding. By knowing the reason customers aren’t using the features, you can put educational processes in place, like training documents, videos or webinars. Once customers understand the benefits of the features, they’ll be more apt to use them, which you’ll be able to bill for.
On the opposite end of the spectrum is increased usage. For this example, we’re going to use a digital newspaper subscription. With the ability to track the number of articles accessed, you’ll be able to identify customers that are exceeding their plan and offer them either billable a-la-carte options or a higher-priced subscription plan that provides access to more articles.
2) Make acquiring your products affordable: At a time when most of their competitors were selling expensive premise-based hardware, which made it cost-prohibitive for smaller and start-up companies to have access to customer relationship management (CRM) solutions, Salesforce entered the market with a subscription-based cloud service. By offering their applications as a software as a service (SaaS) and charging per user, they made obtaining these solutions cost-effective for companies of all sizes. With various applications and different purchasing plans within each application, they clearly illustrate how usage-based billing can generate ongoing revenue.
Another company that was early to market with a usage-based cloud computing model is Amazon Web Service (AWS). Let’s face it, businesses require secure and reliable servers, storage, networking, etc. Previously when companies needed storage they would have to build and maintain it, which of course is labor-intensive and expensive. Alternatively, they could purchase cloud storage, but many times that meant signing a contract for more storage than what they needed. AWS offers customers a variety of products and charges are based on usage. When a customer’s usage increases or decreases, prices are automatically adjusted and billed accordingly.
3) Eliminate up-front investment: No one wants to purchase more than they want or need. Why buy a movie that you’re only going to watch once? By the same token, who wants to pay for an entire CD when there’s only one song that you’ll ever play?
Coined the on-demand economy, consumers and businesses alike want convenience, speed and simplicity with minimal up-front cost and a low commitment threshold. As illustrated above, AWS and Salesforce have profited by giving customers only what they want, when they need it. Similarly, why purchase a car when there are rideshare platforms such as Uber? By eliminating long-term commitments and up-front investments, you’ll see an uptake in potential users.
As you can see, today’s digital economy has opened the door to a host of metered billing opportunities. Often called a disruptive pricing model, companies that are taking advantage of it are reaping the rewards. But, what if you’re lagging behind your competitors in adopting this win-win pricing strategy?
To be at the forefront, you need to adopt the billing plans that customers want. And right now that means usage-based pricing. In the Deloitte article – Align Price with Use – nine patterns of disruption are described in detail, and examples are provided on how companies are capitalizing on the disruption by changing their business model.
The Race for Metered Billing, Why Now?
As discussed earlier, usage-based billing isn’t new however it was typically only used by a few industries. So, why has it now become the billing strategy that companies are embracing? In one word – technology, or to be more precise technology advancements. In just the last few years we’ve witnessed an increase in Internet connectivity speed, more robust cloud computing and affordable device sensors, which are providing businesses with the ability to better track and bill customers based on their usage.
Another technical advancement that is providing businesses with a wealth of game-changing, usage-based billing opportunities is the Internet of Things (IoT). IoT technology enables companies to access a wide variety of data. Data that is needed to accurately track and charge for usage.
Let’s take a look at a practical IoT application by returning to our electric scooter example. Equipped with a sophisticated sensor, once the scooter is rented data such as route or location, ride duration and mileage is tracked. This data is sent in real-time to the company’s billing platform so that billing events can be processed, the customer accurately invoiced, and payment applied.
Capturing and ingesting this much data from various sources, monetizing IoT device data, and automating revenue recognition isn’t an easy feat. This is where mediation comes into play.
Accelerate Revenue Growth with Mediation
One of the most important steps in the billing process, mediation collects, translates and monetizes data. Let’s take a closer look at this often overlooked, but vital component of your billing strategy.
The biggest challenge to capitalizing on metered billing is in your ability to accurately capture and monetize usage. You need to be able to map and monetize all kinds of data from numerous sources, regardless of its format. Mediation enables you to normalize the data and then route it to your billing system for billing, invoicing and reporting. Without this key component, you won’t be able to determine who the usage events belong to, what products were used, the quantity of services used, or when the services were used.
Unlock Your Full Billing Potential
Are you tired of the manual effort it takes to track and calculate usage, or does the thought of integrating a third-party mediation platform send you running for cover? When you combine billing with built-in mediation, you can quickly take advantage of the market opportunities that usage-based pricing provides. With a mediation engine built into the billing platform, BillingPlatform can help you turn your raw data into revenue.