The shift to the usage economy is on the rise across countless industries worldwide, as companies move away from old, cookie-cutter paradigms and mine assets to monetize budding revenue opportunities. The traditional subscription economy that locks customers into long-term relationships will increasingly be a death trap for companies that refuse to innovate with usage-based billing models.
In our age of customized product offers, is it any surprise that customers want bespoke billing services? Various usage-based monetization examples are proof customers don’t want to pay for services they don’t use, and increasingly refuse to sit back while their resources go to waste.
While recurring, flat-rate plans are a popular model for companies seeking predicable revenues, they won’t cover a considerable per cent of the market. And that percent is getting bigger.
Today, successful, agile companies understand that the business impact is greatest with increasing application complexity of their usage billing.
This is why companies are experimenting with a range of hybrids that rely on existing, usage-based business models. In other words, they are implementing effective progression plans that move customers from simple subsidies and consumer payment to more sophisticated bundles of service and models.
Doing so helps ensure robust margins on every transaction, and helps client retention in the long run: When customers want to cancel their subscription, companies have to be agile enough to move them to a usage model, rather than let them churn away. They must also think a few steps ahead, and predict churn via automated analytics of usage behavior.
Take a look at some of the examples below to learn about gaining revenue momentum and meeting customers’ needs across a variety of billing formats.
This pricing model is ideal for customers seeking to pay only once for using a particular service. It’s appropriate for attracting customers with irregular and fluctuating purchases. Hallmark e-card download service is one example of this usage-based billing, as is buying a software package on Amazon without a licensing fee.
One-time charges are also a great instrument for digital service providers to capture incremental income from a premium service added to their existing product offer. There’s no shortage of one-time, usage driven examples across a plethora of industries: Airlines charge passengers for their in-flight entertainment, including Wi-Fi, movies and music; Netflix offers additional content for an extra one-time fee; eBay sells APIs designed to enable social sites, merchants and developers to boost existing inventory they offer their customers.
As customers’ needs rapidly continue to change, and technology players disrupt the rules of the game, one thing remains constant for a number of companies aiming to boost revenue: recurring client subscription. Usage-based billing examples where customers pay regularly can be found across various industries: time-honored annual magazine subscriptions, utility, cell phone and cable subscription. Spotify and Apple Music are cases in point – they are able to monetize recurring revenue through various membership plans for individuals and groups.
Recurring subscription is especially well suited for security companies, whose clients seek ongoing and dependable service, such as home monitoring through video surveillance, home automation and security information management. As pointed out by the Security Sales and Integration Magazine, it’s imperative for a security company to diversify its revenue stream to boost overall revenue. When companies combine an assorted selection of recurring revenue into their product fold, they can boost total revenue, and ensure a more consistent revenue stream, as seen in this example.
Pay as you go
The pay-as-you-go billing model enables customers to pay for usage of a particular service, instead of locking themselves into a recurring service fee. It’s potentially suitable for infrequent or temporary users whose rate of use doesn’t justify paying a full fee. Because of its flexibility and competitive advantage, pay-as-you-go is increasingly chipping into the old billing model of huge licensing fees and capital expenses.
Smart metering is a usage-based billing example model that fits the pay-as-you-go format. According to a consultation paper published by Ireland’s energy regulator on the National Smart Metering Programme, it enables energy providers to sell their customers energy in advance through small amounts of credit which customers can add to their electricity or gas meter. The provider can automatically cut off the customers’ energy supply if they run out of credit, while customers can look at a screen of their meter to monitor their credit status, so they never run out.
Another pay-as-you-go, usage-based example is Amazon EC2, a cloud-computing platform that enables users to design resources they want, and charge only for those used. It’s a great option for users who want specific CPU, memory, storage, operating system, security, networking capacity and access controls, including any other software required to operate their environment.
The outcome-based pricing strategy empowers companies to establish their pricing, not based on their particular offer, but based on the end results clients obtain from using their merchandise or service. It’s applicable in a range of industries from insurance and office equipment to mining and aerospace manufacturing. To cite Price Water House Coopers, instead of purchasing a copier and ink cartridges, a company pays for each page the copier produces. Similar examples can be found in the arena of digital services.
Digital marketing agencies are paid based on their client’s achievement of a certain goal, such as boosting customers or expanding in a certain market. Insurance companies use plug-in devices or native software to trace your driving behavior, then base their bill and risk evaluation by the volume and safety of the driving data collected.
The advantage for customers in the examples illustrated above is the transfer of operation risk from the buyer to the seller. If the marketing agency doesn’t perform, the client doesn’t pay. The benefit for sellers is that it discourages switching and promotes recurring customers. Both are encouraged to collaborate and act as partners because they have to strive towards a shared goal in order for the relationship to work.