The data you collect is an untapped well of profitability and insights from which you can build new revenue streams, make informed business decisions, and scale your business. Commonly known as data monetization, Gartner describes data monetization as “the process of using data to obtain quantifiable economic benefits.” Regardless of the industry, companies across the globe are generating unprecedented amounts of data. In fact, IDC believes there will be 55.7 billion connected internet of things (IoT) devices by 2025, and that these devices will generate almost 80 billion zettabytes of data. But it’s what you do with that data that enables you to grow and profit. And to capture the benefits, you need a data-driven monetization strategy.
What is a Data-Driven Monetization Strategy?
Publications such as Forbes, HBR, and industry analysts like Gartner and McKinsey & Company have promoted the importance of data monetization since the early 2000’s. So, what exactly is a data-driven monetization strategy and what does it consist of? First and foremost, it’s a plan that aims to generate revenue via your platform(s), audience, content, or other sources. There are a number of ways to think about a monetization strategy – both internal and external. Let’s look at some of the most common data-driven monetization strategies for each of these groupings.
The internal data monetization strategy includes using targeted marketing campaigns to upsell or cross sell, improving inventory and transportation with supply chain management, and using data and analytics to hire and retain staff. Examples of the external data monetization strategy include selling access to your platform(s), selling software licenses, selling ad space, offering in-app purchases, creating benchmark reports, selling contact information lists, selling address and property data, and providing access to academic research or survey results – behind a paywall. While these aren’t exhaustive lists, they do include some of the most frequently used strategies.
Whether internal or external, data monetization strategies involve making measurable business improvements and/or informed decisions that are based on data. As a software as a service (SaaS) organization, how can you leverage the data you’re accumulating to profitably grow and scale the business?
Harness the Power of Your Data
SaaS businesses are extremely familiar with using a variety of pricing models and strategies to sell their software. Let’s look at some of the most popular pricing strategies and models that SaaS organizations are using to monetize their data.
From a pricing strategy perspective, there are five common strategies.
1) Competitive pricing
This monetization strategy requires knowing what your direct competitors are charging for similar software offerings. The goal is to increase your customer base by pricing your software cheaper than the competition. Typically, SaaS organizations that use this strategy will raise prices once they onboard a significant number of clients, however they will keep prices below average market rates to avoid customer churn.
2) Cost-plus pricing
The cost of manufacturing the product is the baseline and a fixed percentage is added to the cost. While it typically ensures that the product will be sold at a profit, it doesn’t take into consideration the perceived value of the product.
3) Penetration pricing
Similar to competitive pricing, this monetization strategy sets prices low initially in order to attract a large customer base, create brand loyalty, and gain a competitive advantage.
4) Price skimming
The opposite of penetration pricing, SaaS companies price their products at the highest possible rate that they believe customers will pay. The price is then gradually and incrementally lowered to attract subsequent groups of targeted customers.
5) Value-based pricing
This pricing strategy requires the SaaS company to have a thorough understanding of their customers’/prospects’ perceived value of the product. Obtaining this knowledge entails comprehensive market research and is typically used by organizations that offer sophisticated software and leading-edge features.
Your Strategy Needs the Right Pricing Model
While determining the right monetization strategy is essential, it’s only half of the equation. The other component that requires careful consideration is in choosing an appropriate pricing model. Here are the most popular pricing models used by SaaS organizations.
Provides free access to a specific set of functionality/features. However, if users require more functionality/features, they upgrade to a paid subscription for the additional access, services, functionality, features, etc. For example:
- $0 for access to basic services
- $12.00 per month for additional access or services
The simplest pricing model to deploy, customers are charged a fixed price that does not increase or decrease regardless of how many times they use the app, how many users access the software, usage time, or any other factor. For example:
- $9.99 per month for streaming services
Enables SaaS companies to move beyond simple subscription-based pricing models. Usage-based pricing provides the flexibility to bill and rate on any aspect of your offerings such as clicks, API calls, downloads, seats, text messages, minutes, bandwidth, etc. Usage-based pricing offers three pricing models – pay-as-you-go, tiered pricing, volume pricing – enabling you to develop the most creative usage-based billing models and providing customers with the ability to pay for only what they consume.
- Pay-as-you-go pricing: Customers pay for exactly what they use.
- Tiered pricing: Pricing is based on the corresponding tier. Charges are based on different levels of access to your services. For example:
- Starter plan: $25.00 per month.
- Basic plan: $50.00 per month.
- Pro plan: $99.00 per month
- Volume pricing: Price-per-unit is based on the highest tier reached.
Pricing is based on the number of users or units used during a billing cycle. For example:
- 1 – 9 units/users: $10.00 per user / per billing cycle
- 10 – 9 units/users: $8.00 per user / per billing cycle
- 20 – 29 units/users: $5.00 per user / per billing cycle
While the above describe the most common SaaS pricing models, there are others that give SaaS businesses the opportunity to develop innovative models that help maximize revenue potential and grow the bottom line.
By combining traditional pricing models such as flat-rate, recurring, subscription, and usage-based, you’re able to give customers the pricing options they want. For example:
- Subscription + one-time charges: Combine subscription fees and one-time charges such as ad-hoc product sales, installation charges, late fees, etc.
- Subscription + pay-as-you go: Combine subscription fees with the ability to pay for additional usage of a product or service such as downloads of a premium service.
- Subscription + overage: Charge a subscription fee for a set usage amount. When usage is exceeded, charge for additional usage using flat or variable fees.
- Multi-part pricing: Combine a base subscription fee with a fee for a package of services and charge one-time fees to try a new service.
This pricing model gives you the power to define creative models that enable you to get the most from your products and services. For example:
- Formula-based pricing: Provides the ability to calculate the price for a product based on a formula that takes multiple conditions/attributes into account.
- Time-based pricing: Use effective dates and/or time of day the service is used to determine the rate to charge.
- Demand-based pricing: Also known as surge pricing, this billing model allows the price to fluctuate based on customer demand.
- Event-based pricing: Provides businesses with the ability to automatically send invoices in response to specific events that are defined based on usage or other related account or product changes.
While the growing amount of data breeds complexity, it also is opening the door to new ways to approach your monetization strategy. Thankfully, recurring subscription management and billing systems simplify the process, so you can monetize your recurring revenue pricing strategies and fuel growth.
Use Your Monetization Strategy to Set Yourself Apart
Pricing software can be tricky. However, a data-driven monetization strategy helps you set the right price for maximum revenue generation and competitive differentiation. Doing this, however, requires you to be able to aggregate and analyze usage data from any source and transform it into revenue potential – in real time.
As businesses begin to brace themselves for the tsunami of data that is at our doorsteps, SaaS companies will increasingly depend on built-in mediation engines to collect and convert data from any source, normalize the data, and use the data to develop and deploy innovative pricing models. BillingPlatform delivers the industry’s only next generation solution that puts you in control of managing and growing your revenue. Our solution not only delivers all the pricing strategies and billing models needed but it enables you to quickly and efficiently leverage the data you’re collecting. That way you’ll generate new revenue streams, make intelligent business decisions, and – ultimately – scale the business. Don’t just take our word for it, talk a walk through BillingPlatform with our guided tour!