The Right Usage-Based Billing Mix

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( — March 11, 2020) — For a very long time, traditional billing was the norm until the calls for a democratized billing model became louder. Today, usage-based billing is gradually gaining traction in the world of business as enterprises seek out ingenious ways to expand their sales margins,eliminate waste, and also secure the trust of consumers through a more transparent pricing process.

Usage-Based Billing

Usage-based billing is an innovative model that only charges consumers for services used and nothing more. Before the service is used, the consumer is aware of the cost per unit, and the more of the service used, the more he or she gets to pay at the end of the billing cycle. This pricing model is a complete throw-off from the traditional form that charges a single price for product usage regardless of the consumption of the individual.

Different Pricing Models to consider

Before you utilize any automated platform or even adopt a usage-based billing approach, you first need to know some of the common pricing models in use today. As a business owner, you may choose to use one or more models depending on the nature of your product and the consumption habits of your customers.

  • Tiered Pricing Model

This model is one that allows service providers to offer the same or different products spotting different features. If you offer a service with varying features, you may opt for a Tiered pricing model and price each package accordingly. With this model, your customers can make a choice from among the available alternatives.

  • Per-Unit Model

The Per-Unit Model is relatively straightforward. Under this pricing approach, a specific price is attached to a unit of the product, and the final price paid by the consumer is obtained by multiplying the number of units used during the consumption cycle by the amount per unit. Internet access providers use this model, e.g., the price of 1 gigabyte of data multiplied by the total number of gigabytes used.

  • Volume Pricing Charge Model

Under this model, consumption is broken down into volumes and prices ascribed to them. Also, called a discount ladder, there are different prices under each volume tier, and a user pays a fee for using unit volumes under each tier. Also, note that each volume has a starting unit and an ending unit. Crossing from the ending unit of a lower-tier into a higher tier attracts higher charges.

  • Multi-Attribute Model

A multi-attribute model uses different metrics to cost consumption. The metrics used could be the time of day, the duration, product feature, etc. This model offers service providers the flexibility to charge for their products and services at a rate that guarantees them the greatest returns.

  • Overcharge Model

Providers who wish to allow consumers a certain volume of service usage exceeding the approved limit may use this model to secure extra revenue. When using the service in real-time, if the user exceeds the set limit, the service is not discontinued but still left open. At the end of the cycle, an overcharge fee is added to the final cost. Companies use this model to secure extra revenue from customers who want to continue usage for a specific period.

  • Tiered with Overcharge Model

This model is similar to a Tiered model, albeit with a slight difference. Although different tiers are in play, an overage fee is placed on consumed units that exceed the final tier in a category. This model may be used if a Tiered or an Overcharge model cannot be used in isolation.

Reasons to adopt Usage-Based billing over recurring billing.

To counter the negatives of traditional billing models, usage-based billing is of the essence. The benefits your business stands to gain far exceeds the demerits, if any. Here are some of the benefits of usage-based billing.

  • Earn consumer trusts 

Each year, businesses lose fortunes in litigation fees and fines due to legal cases brought against them by customers and consumer protection agencies. If you go for a usage-based model over a traditional one, it improves your social standing and acceptability as consumers will trust your brand more. Customers who are charged for only what they consume tend to become repeat customers.

  • Flexibility 

Charging a flat fee for your service may restrict the options available to users. Usage-based billing, on the other hand, offers them flexibility since they have the option to choose from among different product features and prices.

  • Understanding consumer behavior 

Usage-based billing also aids your team when designing products and features that suit the requirements of individual customers. With the information obtained from consumption patterns, you can offer more of what is highly demanded and less of what is least demanded. Furthermore, you can also structure prices to suit the financial capacity of users.

  • Increase revenue

Offering multiple products and price features makes your product more affordable to different sections of your customer base. Different product varieties would help you secure revenues that would be lost if several featured options were non-existent.

Usage-based billing is the present and the future of product pricing. With the Tridens Monetization platform, your business can utilize one or more of the pricing models discussed above to boost sales, predict consumer behavior, and expand your customer base by offering affordable pricing for your products.