The shift to the usage economy is rapidly expanding across industries, as companies move away from outdated models to capitalize on new revenue opportunities. Traditional subscription models that lock customers into long-term contracts are becoming less effective. In today’s market, customers demand customized billing services and refuse to pay for unused services.
Flat-rate plans offer predictable revenues but miss a growing market segment. Agile companies recognize that complex usage billing models have a significant business impact. By adopting hybrid models, businesses can enhance margins, retain clients, and predict churn through automated analytics, ensuring long-term success.
Explore the examples below to see how various billing formats can drive revenue growth and effectively meet customer needs.
One-Time Charge
This pricing model is perfect for customers who prefer to pay only once for a particular service, ideal for irregular and fluctuating purchases. Examples include Hallmark's e-card download service and purchasing software on Amazon without a licensing fee.
One-time charges also help digital service providers capture incremental income from premium services. Common examples include airlines charging for in-flight entertainment, Netflix offering additional content for a one-time fee, and eBay selling APIs to enhance existing inventory for merchants and developers.
Recurring Subscription
In a rapidly changing market, recurring client subscriptions remain a constant revenue booster for many companies. Examples include annual magazine subscriptions and cable services. Spotify and Apple Music monetize through membership plans for individuals and groups.
Recurring subscriptions are particularly effective for security companies, providing dependable services like home monitoring through video surveillance, home automation and security information management. As noted by Security Sales and Integration Magazine, diversifying revenue streams with recurring subscriptions can increase total revenue and ensure consistency.
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.
Outcome-Based Pricing
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.
Conclusion
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.
Ryan Susanna /
Ryan is a seasoned telecommunications expert with a broad background in both the service provider and software vendor sides of the business. Ryan is currently responsible for worldwide sales at LogiSense. During his tenure, Ryan has held executive level positions including Senior Sales Executive, and Director of Sales. In these roles, he has provided strategic sales, product, and market guidance for our next generation IP service management solutions.
