Billing & Monetization

SaaS Usage-Based Pricing Explained

March 01, 2022

When it comes to billing and subscription models, one size does not fit all. As the SaaS market advances to over $145B in 2022, SaaS usage-based pricing (also known as metered billing or consumption billing) has officially emerged as a practical, modern monetization tool that’s agile, scalable and cost-efficient. Advocates of this subscription model say they see positive customer feedback, accelerated revenue growth and more efficient business practices.

So, how does SaaS usage-based pricing work? You might not be familiar with the term, but you’re certainly familiar with the concept. At its core, SaaS usage-based pricing is designed to align pricing with customer usage. Think of things like your monthly utility bill or a ride share service, like Lyft, that gets you from point A to point B. You’re only charged for the products or services that you use. It’s different from the standard subscription-based monthly gym membership you signed up for (and then forgot all about). The SaaS usage-based pricing model is designed to be dynamic, capturing data from multiple sources and places, as it happens, in real-time.

Implementing A SaaS Usage-Based Pricing Model

The concept of SaaS usage-based pricing vs subscription billing might be simple, but the reality of implementing this changing model into your business revenue stream can prove challenging. It’s important that you consider the implications of having a product with robust mediation capabilities to manage the data, understanding the integration with your legacy billing systems and the need to still offer traditional billing models.

One of the most frequent challenges of SaaS usage-based pricing is estimating it’s complexity across your entire organization. If your different departments aren’t aligned to simultaneously transition to this billing model, it can present a roadblock for your business.

Access to Real-Time Data is Key

The process of collecting customer usage data is defined as mediation. This means your business will be sorting and interpreting data, often in different formats and within different programs. Without sophisticated systems in place to guide your business, this process can become complex and cumbersome. The key is finding, and using, clean and sorted data from a trusted source that utilizes mediation to manage the data.

Once your data is sorted, the process of rating begins. This is where your business summarizes and assigns prices based on usage to your customer. As you can imagine, this process can be different depending on each industry and billing cycle. For example, a SaaS database service for businesses bills their customers based on a fixed user-based license fee. Then they have a variable fee tied directly to the amount of data users access in a given timeframe. Knowing how to sort and rate this data quickly and efficiently is key in order to clearly explain those charges to the customer.

Once the data is sorted and rated, a clear bill with precise calculations can help your customer understand their usage habits. Ultimately helping them make key decisions, such as whether they should upgrade to another tier of service. It’s easy to see why SaaS usage-based pricing, while complex, has the potential to provide a better customer experience and give your business the opportunity to grow and diversify your revenue stream.

Getting Started With The Right SaaS Usage-Based Pricing Partner

So, how do you take your first steps towards embracing SaaS usage-based pricing? BillingPlatform provides a single-system solution that solves many of the issues surrounding setting up and streamlining this complex process. Contact our experts to learn more about leveraging our expertise in mediation and our leadership in billing management for your organization.

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