Usage-Based Billing & SaaS Businesses: A Perfect Match
Did you know that your billing and pricing options are crucial in determining your organizational success? Whether you are a startup, a growing company, or an established enterprise, the right billing option will either support or hamper your growth. In such scenarios, usage-based billing could be your best bet, especially if you are a SaaS (Software as a Service) business.
There are many reasons why usage-based billing and SaaS are a match made in heaven. The pay-as-you-go model for businesses is not only ideal but also considered the standard for SaaS.
Usage-based billing has been around for quite some time. Also known as metered billing and pay-per-use billing, usage-based billing was long implemented by utility and communication companies.
Basically, the billing model functions as per this concept: To charge customers based only on the products or services they use. So, yes, usage-based billing is predominantly for B2B customers who can be charged on the following usage based on the number of:
- API calls
- Text messages
- Products used
- Bandwidth usage
Charging customers only for what they have already used is an enticing way to expand the customer base because it eliminates all upfront costs, which can be a barrier to many users.
What usage-based billing does is charge the users based on a flat fee and charge them excess only when the usage exceeds the limits. The consumption-based billing model goes beyond the formula-oriented approach of multiplying price by quantity to determine the amount. It is one of the main reasons this billing model is particularly popular amongst organizations offering SaaS subscription services.
However, there are numerous factors that need to be carefully considered to achieve optimal success with usage-based billing models.
Succeeding With Usage-Billing: What To Do & How To Do It
Togai, the metering and billing platform advises that for successful implementation of usage-based billing in your business, the following steps are crucial:
1. Use your data to decide your billing process.
The very first step to take is to decide your value metrics and tie the value of your services to the pricing. You need to determine the most effective way to charge for your services and establish your own definition of the term ‘usage’.
The biggest challenge in determining your value metric arises when the usage is for an intangible service, such as data usage or period of access to a service. In such scenarios, you can determine the usage based on the frequency of accessing a specific data or service. Also, the usage can be determined based on a single factor or a blend of a few factors.
2. Prioritize your customers to determine your usage-based pricing model.
Conventional billing models that charge customers a fixed price for multiple tenures may not deliver the desired results. Mainly, customer needs have evolved incredibly from what they were in the past. Hence, your billing model should now prioritize the product or service’s value because that is what customers emphasize.
So, when designing your UBP model, you should:
- Assess the types of services and products provided to customers
- Determine the optimal billing patterns for each one
You can choose any of the following options:
- Subscription-based billing
- Quantity-based billing
- Consumption-based billing
- Flat fee billing
- Single-use billing
Or you can simply opt for Togai, a user-friendly billing, pricing, and metering platform that seamlessly supports multiple pricing models and provides a plethora of benefits for both customers ( in terms of value) and businesses ( in terms of understanding usage patterns and accessing customer data.)
3. Make product acquisition affordable.
This criterion is best explained with an example: Salesforce made its market debut with a customer-friendly subscription-based cloud service when other organizations were selling expensive premise-based hardware. The exorbitant costs did not align financially with many startups and smaller businesses.
In this scenario, Salesforce has made it cost-effective for companies of all sizes to acquire its solutions by offering them as Software-as-a-Service (SaaS) and implementing a per-user charging model.
Salesforce has determined that usage-based billing can generate sustainable revenue with multiple applications and multiple purchasing plans within each application.
4. Make usage-based billing fully transparent
One aspect of consumption-based billing is that customers may pay various amounts every month depending on their usage. To make billing more accountable, businesses should maintain complete transparency for two reasons:
- To prevent any billing variations that may cause conflict with customers.
- To give customers a full view of their usage and the price per unit or service.
This will give you access to accurate usage data, which you can use to implement the right billing rate. Also, you should notify your customers of minor or significant changes in your usage patterns. If there is a consistent change in customer usage patterns, you can offer a different pricing structure that suits them.
5. Respond immediately to customer needs and queries.
One of the most important aspects of value-based pricing is understanding your customers’ expectations and behavior and capitalizing on it. The value-based pricing model allows you to:
- Understand your customers’ current needs
- Anticipate your customers’ future requirements
- Understand and know your customers
- Identify trends that remain inaccessible to customers
Such measures will give you enough information and time to devise and implement awareness campaigns with the help of videos, webinars, and training documents. By creating awareness, your customers will use the features and increase your sales.
6. Prioritise customization for billing.
When implementing usage-based billing, it is best to opt for customized billing primarily because usage-based billing may not always be clear at all times. Businesses must, therefore, present their billing in a transparent, clear, concise, and lucid manner.
It must have the following details:
- Services or product names
- Rate per unit
- Amount of usage of the product or services ( in exact terms)
- The payment amount in total
With such clear, customized billing, your customers can understand the value of your products and services and analyze how usage-based billing financially benefits them.
Usage-Based Billing: Billing Your Way to Business Success
Usage-based billing requires a lot of research and groundwork to be successfully implemented. There’s a lot of customer data to be collated, monetized, analyzed, and derived. However, once it is successfully implemented, usage-based billing helps foster and solidify a solid customer base, increase your revenue, build your brand image, and establish lifelong communication with your customers.