In the subscription business market, there are different billing models that companies opt for. The choice of the billing model is important for every company is important because it directly links with revenue generation. Also, it is not a rule to follow just one billing model. Today, many subscription businesses try out a mix of billing models and opt for the one that helps them satisfy customers and earn more revenue. They keep on experimenting with billing models to keep getting sustainable recurring revenue.
In this article, we are going to discuss the details of one such billing model that is popular among the subscription business community which is the usage based billing model.
What is Usage-Based Billing Model?
In the past few years, subscriptions and usage based billing have emerged as the most preferred billing models for retailers and customers both. Usage based billing model has its foundations in the subscription billing business mode. Subscriptions are offered where the recurrent needs of customers are to be fulfilled. For instance, people need groceries, schools, and universities recurrently. So, they are offered subscriptions. They keep paying the subscription fee as long as they are using the product or services.
However, some subscription businesses need to calculate the usage of their customers, then they monetize services or products based on the usage. For instance, internet service providers not only charge their customers recurrently but also they need to monitor the usage of their customers. Customers are offered usage-based subscription plans.
How the Usage Based Billing Model Works?
The first step in usage-based billing is the ongoing observation of a customer’s use of a good or service, frequently via meters or other tracking devices. Customers’ usage information is captured in real-time as they use the service, and rates are defined for various consumption units. At the conclusion of a billing cycle, the total cost is calculated by multiplying the collected consumption data by the applicable rates.
The consumer is then required to pay for the services they have used during that billing period by receiving an invoice that has been prepared and mailed to them. This continuing and adaptive pricing strategy connects expenses with actual usage by repeating the payment cycle.
Which Subscription Businesses Can opt for Usage Based Billing Model?
There are certain businesses to which usage based billing model can outperform, however, for others, it is not recommended at all. For example, for SaaS platforms that offer products as services, usage based billing is the best billing model. Other than these, here is the list of businesses that can do the best with the usage-based billing model:
- Telecommunication services providers
- SaaS companies
- Utilities providers
- Gym and fitness centres
- Car sharing services
- Cloud computing & hosting services
- Data analytics services
- E-books and e-magazines
So, these businesses and many other that offer similar products and services can earn revenue and go to the top by opting for the usage-based billing model.
Reasons To Adopt the Usage-Based Billing Model
Coming towards why businesses prefer usage-based billing model.
- The most important factor is the affordability. It is an affordable billing model for customers. It is better for customers to pay subscription charges rather than a one-time fee.
- Secondly, businesses have a better chance to scale and grow when they opt for a usage-based billing model. The flow of recurring billing is maintained. The revenue and profit that businesses need to grow business beyond borders is earned easily with the usage-based billing model.
- Price customization is another important reason to opt for usage-based billing. It allows retailers to improvise pricing as and when required. Then businesses can offer their customers a price that can help them multiply the revenue.
- When businesses adopt the usage based billing, they can monitor customer data. Based on this data monitoring, they can offer their customers personalized subscription plans and pricing plans as well.
Usage-Based Billing Platform
Now is the time to introduce the usage-baed billing software. No doubt, usage-based billing is one of the best billing models. However, one needs the best usage based or metered billing software to harness the power of this billing mode. These specialized software help subscription businesses in billing, payment processing, and revenue management. In short, they can help businesses manage everything from a single platform. If required, you can get other applications, software or payment gateways integrated with the core usage based billing software.
By now, you would have a clear idea of what is the usage based billing model and how it is helping subscription businesses in beating the competition. If you are looking for software that can help you implement the usage based billing SaaS model, then SubscriptionFlow is a trustable name in the market. You can schedule a demo to see how it works.
