How do you succeed with usage-based pricing ?

usage based billing

ELIOTT STERNE

Approx. reading : about 11 min

What is usage-based OR PAY-AS-YOU-GO pricing?

In today’s ever-changing markets, the demand from customers to maximize the benefits they derive from using a product is driving a shift in the way companies price and sell their products.

The subscription and sharing economy places more emphasis on transparency, personalized pricing, and real-time tracking. This quickly established itself in the B2B SaaS industry, which is experiencing a transformation of its pricing models like never before. Increasingly, customers are choosing to pay only for what they use because it is affordable and requires a lower initial commitment.

Organizations that quickly change their pricing model to include usage-based pricing can attract a wider range of customers, thereby gaining an edge over the competition.

Usage-based pricing allows businesses to increase revenue, experience better customer loyalty, and build better relationships with their customers.

Usage-based pricing is a pricing model in which customers are billed based on their consumption or the use of a product or service. Since customers pay for what they use, charges may fluctuate each time period based on actual consumption.

While usage-based pricing has recently become popular in the B2B SaaS industry, it’s not a new concept. Pay-as-you-go pricing has long been used by utilities such as electricity and water companies, and telephone companies that offer pay-as-you-go plans.

Recent technological advancements in artificial intelligence (AI) and precise customer tracking have popularized usage-based pricing in software as a service (SaaS) and infrastructure as a service cloud providers. (IaaS).

These advancements in cloud computing have enabled SaaS companies to accurately calculate usage charges in real time for the most complex usage scenarios, including data, API calls, minutes, SMS, downloads, etc. with a robust usage-based billing platform.

What are the main benefits of usage-based pricing

Usage-based pricing is popular because it offers many benefits for both customers and businesses. 

Aligning price with usage is welcomed by small B2B customers because it means a low initial cost, and the price only increases as usage increases with the growth of the business.  This pricing model also makes your product more affordable and creates a larger market for the product. 

The main benefits are:

How do you succeed with this pricing model ?

When moving from recurring billing to usage-based billing, there are many dimensions to consider, such as the different types of customers and the variability in their usage.

As you build a usage-based pricing model, you will find customers with lower usage, which can lead to lower revenue.

To compensate for any lost revenue, you can structure your pricing model to include base charges and usage charges only when they exceed a minimum usage amount previously set by your plan.

For customers with heavy use, their prices may go up and in these cases, you should let the customers know about these changes and why in advance so that it doesn’t look like you are trying to extort money. additional. In these cases, it is important to be transparent about the new pricing model and to spread the price increase. Make sure you are consistent and fair in your pricing policies.

It is also an opportunity to create more modularity in your product portfolio in order to develop your ARPU (Average Basket per User) while limiting the cost of entry to use your solution.

SaaS companies exploring a usage-based model should plan for both go-to-market challenges and operational challenges with pricing and billing.

Below are a few suggestions that will help you succeed with usage-based pricing:

1. Identify the correct usage metric

The usage metric you choose should be scalable and predictable, which means customers should be able to predict how much they’ll be billed so they can budget accordingly.

One of the steps you can take to make your business successful with this model is to tie the value of your services to pricing. You need to understand where customers see the value of your product and adjust the prices accordingly. This is also known as results-based pricing, where you structure your pricing based on the actual value of your product as well as your customer’s perceptions of that value.

Identify what constitutes “use” for your product and how best to charge for that use. Usually for SaaS or IoT companies it is based on technical metrics like data, API calls, minutes, etc. Also, determine how you will charge for usage. 

Some companies charge based on the amount of data used, the time spent using the data, or the number of times a particular service has been used. User fees can also be set based on a mixture of different factors.

2. Ensure transparency of invoicing

Unlike recurring billing, your customers will have to pay a different amount each month with pay-as-you-go pricing based on their usage. To avoid any disputes or complaints from customers, you should ensure that your invoices include the following usage details:

Providing usage billing details ensures that your customers have clarity on their bills, improving your customers’ experience with your brand.

47% of customers cancel due to a lack of clarity in the billing!

ABIGAEL TECH. RESEARCH – WHY EVEN LOYAL USERS CANCEL !

3. Inform customers when usage allocation stairteps are reached

As you bill your customers based on their consumption, it is necessary to have systems in place to alert your customers in the event of a sudden increase in usage as it affects their billing amount. This will allow them to monitor and budget their usage and costs.

Most large companies want to monitor service consumption by department so that they can budget costs accordingly. Usually, they like to set up predetermined consumption thresholds for each department. Your usage billing platform should be able to properly track usage data and alert your customers with an email notification when their usage is approaching a certain threshold so that your customers can then decide to suspend. services or upgrade their plan for this period.

Your billing platform should be able to track and identify customers who consistently exceed their usage limits, which your sales team can then use to offer an upgrade or sell a different pricing plan.

Surely you don’t want to surprise your customers with a surprisingly high bill if they unintentionally exceed their allotted usage thresholds. 

Therefore, it is important that your management platform enables your teams to design thoughtful overrun policies that make customers feel in control of their spending.

4. Provide the right mix of subscription and usage-based pricing

As you bill your customers based on their consumption, it is necessary to have systems in place to alert your customers in the event of a sudden increase in usage as it affects their billing amount. This will allow them to monitor and budget their usage and costs.

Most large companies want to monitor service consumption by department so that they can budget costs accordingly. Usually, they like to set up predetermined consumption thresholds for each department. Your usage billing platform should be able to properly track usage data and alert your customers with an email notification when their usage is approaching a certain threshold so that your customers can then decide to suspend. services or upgrade their plan for this period.

Your billing platform should be able to track and identify customers who consistently exceed their usage limits, which your sales team can then use to offer an upgrade or sell a different pricing plan.

Surely you don’t want to surprise your customers with a surprisingly high bill if they unintentionally exceed their allotted usage thresholds. 

Therefore, it is important that your management platform enables your teams to design thoughtful overrun policies that make customers feel in control of their spending.

In conclusion

By offering a consumption-based pricing model, SaaS companies efficiently acquire a wider range of customers and improve customer retention. 

If your solution is highly scalable, quantifiable, and customer usage is variable, this pricing strategy may be a great choice.

Succeeding with usage-based pricing also requires a billing platform with the most modern technology, flexible enough to adapt to any pricing model and grow with you.

DOTSHA API-based billing system can easily adapt to any business or industry scenario, allowing you to stay competitive while growing your business.

Contact one of our billing experts to help you set up usage-based pricing for your business.

About dotsha

dtosha delivers the first subscription-to-cash automation platform designed to put every subscription-based or usage-based business on autopilot … from early subscription to cash collection!  

Your business can scale fast without turning its back-office into a mess! 

Keep growing faster… we’ve got your back !

All-In-One platform that unify {Pricing}+{Check-in}+{Billing}+{Payments}+{Dunning}+{Reporting} while the MRR just keeps growing, dtosha’s plaform is an easy to use and quickly implemented cloud-based platform that augment your existing information system with robust API integrations in order to deliver optimal automation with minimal code. You will forget we are there!

ELIOTT STERNE

Approx. reading : about 11 min

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