Recurring and Usage-based Billing
Despite technological advancements, the payments industry faces new challenges due to lockdown. The result of this is that conventional recurring billing is gradually disappearing, leaving room for usage-based billing.
Usage or consumption-based billing has been around for a while. For instance, utility companies already use smart meters to charge consumers for electricity. Another example is telecom companies offer “pay-per-use” subscription plans.
What Is Consumption-Based Billing?
Example
A telecom provider charges recurring fees for the services it offers.
Text messages, phone calls, and Internet traffic are covered. If the consumer surpasses any of these limits, what happens next? They will incur extra fees. A minute of calls or gigabytes of content will be priced differently than a subscription.
The example of usage-based billing software can be handled by subscription billing software with minor adjustments. Nevertheless, IoT platform providers face more challenges compared to telecom businesses. They have to manage multiple services, provided on different devices to customers. This cannot be handled by legacy recurring billing and invoice software. In such cases, usage-based billing is more effective.
3 Elements Of The Model Implementation
Pricing plan. To maximize the benefits of usage-based pricing, you need a truly flexible pricing strategy. If a customer uses a large amount of your product or service, they should be charged more (as with the previous example). Additionally, you can attract a great many new customers who only need just a small portion of your product.
Customer behavior. You must carefully track user behavior in order to develop an agile pricing model. Taking the heavy user category, for example, you have to know how much they are willing to pay and how much they spend. Therefore, sophisticated customer intelligence is an essential component of a feasible usage-based billing model.
Consumption metering. Measurement of product consumption must be done with clear units and indicators for the value of your product. Moreover, these metrics and indicators have to be measurable and predictable.
If you want your billing system to be cost-effective, you need to integrate all of these components.
Our payment specialists are available to provide tailored advice on how your specific business might take advantage of implementing our usage-based billing system.
