What Does ‘Usage-Based Billing’ Mean?

Computers and the internet provide users with a long list of conveniences and options. In the past, enterprises and individuals had to invest in different software to facilitate their work. Now, they can avail of other resource usage options.

Thus, more large companies, small businesses, and individual users can access more computer applications without spending too much. At the same time, they can access tech support easily.

The option that is gaining more traction today is usage-based billing. This option, called metered billing, is similar to your electric and water bills, ride-sharing bills, or text message service.

However, with usage-based billing, the amount you pay varies depending on your use. In software-as-a-service (SaaS) businesses, usage-based billing offers several benefits.

The basics of usage-based billing

Usage-based billing is the newest pricing model in SaaS billing. In this method, the service provider tracks how much the customer uses the service or product so the company can prepare an accurate billing.

In this pricing model, the customer only pays for what they used in a billing cycle. As a result, this method is more economical compared to a fixed amount per billing period.

In SaaS billing, this particular monetization model includes product value metrics, such as charging based on marketing contact, sales agents, or hosts. In addition, the provider can also have value metrics according to the stability of the revenue.

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Convenience to users and providers

Usage-based billing benefits both the supplier and the consumer. The pricing model allows SaaS firms to set a price and bundle the service with other products according to the demand for products and services and the ongoing trends in consumer purchasing.

On the side of the customers, usage-based billing ensures they pay only for the specific service they use. Thus, the pricing model helps SaaS providers gain customers and grow with them.

The companies allow customers to try the firm’s products and keep their expenses low. If they are satisfied with the service and the prices, the providers can have loyal customers, and they will be willing to use the service even if there are price increases.

Usage-based billing allows product customization, allowing the provider to upsell and cross-sell other products a customer needs besides the essential services.

With a usage-based pricing model, the provider can quickly determine each customer’s usage of products and services. Conversely, it allows them to identify customer preferences and needs.

With this information, SaaS providers can enhance their products and services to give their clients an increased user experience. In addition, they can improve their products to anticipate new customer demands.

Moreover, they can provide several profitable pricing levels to match every aspect of their clients’ lifecycles.

Benefits of usage-based billing scheme

The popularity of usage-based billing involves several business benefits. Here are a few of the benefits.

1. Improved customer experience

The usage-based billing method offers a better deal to with users at the low to medium level. The billing scheme is more affordable because they only pay for their consumed resources.

It is also beneficial to those companies that only use the service seasonally. Moreover, with a transparent billing policy, the provider shows the company’s commitment to its customer and financial accountability, which help build customer loyalty and trust.

2. Growth in revenue

The scheme allows the provider to optimize its revenue generation as it can have more options to become more efficient, utilize upsell opportunities, and help customers succeed.

As a result, subscription-based customers become more loyal. Moreover, they become more engaged in using the service, which allows the provider to increase its revenue.

3. Provides greater customer appeal

Usage-based billing provides customers with more flexibility and additional time and money savings. One of the most significant benefits of the billing scheme is customer appreciation.

Since they can use the business applications based on their budget, they understand that they will receive transparent and fair pricing that aligns with the value they get from the product. They know they can utilize the service as much as possible based on their present needs. Likewise, they know when to cut back.

4. Easy-to-understand plan

The SaaS provider bills the customer according to their usage. Thus, the client can quickly track, control, and anticipate their expenses.

This plan provides transparency and makes it easier for the provider to prepare an accurate billing. The client can decide whether they are ready to increase their usage as their business grows.

5. Usage growth

With usage-based pricing, most companies start small to get a feel of what the specific service can do for them.

Then, as they adapt to the system, they see the opportunity to increase their use and still control their expenses.

Further, it also improves the revenue of the SaaS provider, as their customers get more confident in using usage-based services.

The price the customer pays directly links to the service’s value. Likewise, the provider finds it easier to measure customers’ growth, allowing them the chance to skew their services specific to each customer while communicating the value of their product to their customer base.

6. Flexibility in pricing strategies

SaaS companies can offer different pricing strategies based on the customers’ requirements. For example, they can offer monthly or annual plans, which they can determine according to each customer’s historical usage data.

Moreover, it will provide the marketing teams more freedom to create bundled pricing models to introduce new services or products.

7. Communicate the value of discounts

SaaS providers can acquire more customers because a usage-based pricing model appeals more to companies wanting to use superior products without spending too much.

With usage-based options, the product is already there. All they need to do is determine the pricing model they can afford, and they can access the product immediately. On the part of the SaaS provider, they can offer bulk discounts if the client increases usage.

It is easier to work with a usage-billing system compared to setting up and working with a traditional billing and payment scheme. In addition, the system is customizable and can help smaller companies that need to track their operating expenses.

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