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What is Usage-Based Billing?

By December 30, 2019July 3rd, 2020No Comments

Usage-based pricing has been used by companies for ages. In the modern business landscape, where more companies are delivering cloud-based subscription services, the opportunity to extend this model to the world of SaaS is immense.

Usage-based billing models are incorporateed into your subscription-based business matter not only for revenue but also for customer satisfaction. In a world where reducing subscription churn and keeping customers happy is key to long-term success, usage-based billing can be a key pricing model.

Usage-based billing explained

Usage-based billing is when customers pay for the resources utilized each month, rather than a flat rate. The simplest form of usage-based billing is a linear billing model, which employs tiered pricing as a way to differentiate from basic and premium users. For example, when you sign up for a service, you might see three different pricing packages, each with different features. This is an example of linear billing and can actually be considered usage-based.

Aside from tiered pricing, the usage billing model can also be in a “price per item (rate)” method. For example, your electricity bill varies based on the amount of kWh used. Using a meter, the electric company reads the number every month and bills you a set dollar rate per kWh. As your usage goes up, so does your bill, and vice versa.

Advances in billing technology have extended this method to other types of businesses. Subscription-based SaaS businesses, for example, can leverage modern billing platforms to meter user activity and bill accordingly.

The benefits of usage-based billing

Usage-based billing offers several key benefits to both the company and the customer, making it an attractive option for any subscription-based business. The benefits of usage-based billing go both ways, giving customers a lower barrier to entry while also rewarding the business for cultivating power users.
How can usage-based billing help your subscription-based business?

Here’s a closer look at some of the benefits this billing model offers:

  • Power users: Usage-based billing allows businesses to charge more from the customers who heavily use their services, covering the costs associated with providing features to them on a regular basis. For example, a power user is likely to require more assistance from technical support teams, so usage-based billing makes it easy to cover these costs and ensure your business turns a profit.
  • Low barrier to entry: For customers who don’t want all the bells and whistles you have to offer, usage-based billing gives them the opportunity to pay for a basic tier of service. Instead of signing up for a fixed-rate subscription plan that includes features they don’t need and will never use, your customers will be able to select a basic plan that saves them money.
  • Scalable: When a customer first signs up, usage-based billing allows them to subscribe without committing to your service. As they use it, they are billed accordingly and, if they like your service and want to scale up their usage, it is easy to adjust their bills each pay cycle. This makes it easy for customers to join without fear of being locked into an expensive subscription they aren’t sure they will really use.

In the end, usage-based billing means your business gets paid for the services it provides and offers customers an easy way to initially sign up for your subscription service. It’s a win-win that improves customer satisfaction and ensures a healthy revenue stream that covers your expenses and guarantees a profit.

How can Ubersmith enable usage-based billing?

Ubersmith offers a billing platform suited to the needs of modern businesses. This includes built-in capabilities necessary to extend usage-based billing to your customers.

For subscription-based SaaS businesses, Ubersmith can monitor customer usage on a variety of metrics. Things like cloud-based resources bandwidth, or the amount of support time each customer requires are just some of the items you can monitor and bill for. These metrics are critical when engaging in usage-based billing so you can properly charge customers based on the demand they place on your infrastructure and organizational resources.

Additionally, with Ubersmith you can set a base fee as well as charge for usage on top. If you want to reward your power users (since they are the biggest source of revenue in a usage-based billing model), Ubersmith also offers a built-in discounting ability. Through Ubersmith, you can even set up your own pricing tiers, based on how many users require access to your service.

Monitoring usage is automated with Ubersmith. The platform tracks user activity and sends the appropriate bills based on the parameters you’ve set up in the system. Automated billing reduces the need for manual labor, which would commonly result in duplicate data and costly human errors.

Allowing your customers to pay for what they use makes it easier to onboard new clients and boost customer satisfaction. When users know they aren’t leaving money on the table for your service, retention becomes easier. For your business, usage-based billing ensures that the customers that place the most demand on your team and infrastructure are charged accordingly. With your costs covered and your customers happy, everybody wins.