There’s no questioning: when it comes to the services SaaS companies are offering, we’re in a buyer’s market. Whatever problem they’re looking to solve or gap they’re looking to fill, today’s customers have a variety of options available to them, and they have the luxury of searching until they find the vendor that best meets their needs. So it follows that, as consumers become more and more selective about the brands they work with, SaaS businesses are working harder than ever to earn and maintain customer loyalty.

And a critical piece of that relationship is a vendor’s ability to provide customers with the services they want, when and how they want them. In short, SaaS organizations are realizing that they can no longer rely on their traditional, “one-size-fits-all” subscription models if they want to keep their customers coming back (and bringing their friends). As a result, they’re abandoning old-school, simple subscriptions in favor of more sophisticated usage-based models.

What is usage-based billing? Briefly, it’s a more flexible model that pairs a traditional subscription with additional, pay-as-you-go offerings, and it’s gaining ground among SaaS companies in every industry. (Learn more.) According to Forrester, in fact, it’s the billing model of the future:

"Usage-based billing models are proving their worth, and more firms are looking to adopt them to reap their benefits. Our survey shows that 72% of respondents who are not using a usage-based model today plan to within the next two years."

And it’s no wonder these models are becoming more popular, as their benefits touch so many aspects of the businesses adopting them, from revenue to customer experience to research and development.

5 Key Advantages of Usage-Based Billing

On the fence about making the shift? Here are a few of the biggest ways usage-based offerings are empowering growth in SaaS organizations.

Revenue Growth

We’ve written recently about the ways simple subscriptions alone artificially cap a SaaS business’ revenue potential, but the long and short of it is that, with a simple subscription model alone, SaaS companies are missing out on serious earning power. From lowering the barrier of entry for new customers to increasing cross-sell and upsell opportunities to gaining deeper insights that guide product evolution, adding usage-based offerings on top of the base subscription gives SaaS businesses an opportunity to significantly increase the bottom line.

Industry Disruption

Gartner reports that, today, 89 percent of companies believe customer experience will be their primary basis for competition. And by adding innovative new offerings designed to meet customers where they are and fulfill each user’s specific needs, SaaS organizations are giving themselves a significant leg up over other players in their fields. Customer experience is often the deciding factor when prospects are evaluating solutions, and billing models are at the core of that experience.

Customer Recruitment

We mentioned above that usage-based models can lower the barrier of entry for prospective new customers, and that’s especially true for the “next generation” of buyers, as 62 percent of millennials cite value and price as their top criteria for trying out new brands. Pairing subscriptions with “add-on” usage-based items gives existing customers the flexibility to try new features at low risk, and it provides a point of differentiation for new customers looking to get the most value from their investments.

Experimental Solutions

While these add-ons provide a “test-drive” opportunity for customers, they also offer vendors the freedom to experiment with new services and solutions. Charging customers for only what they use encourages both sides to try new solutions with little risk, testing and proving the value of the new offering while creating incremental upside for the business.

Market Leadership

Finally, the Economist reports that 80 percent of companies are seeing a change in how their customers want to pay for services, and 50 percent are changing their pricing models as a result. Usage-based offerings are shifting from “nice to have” to “must have” as competitive differentiators. Soon enough, SaaS companies that aren’t working to stay ahead will fall behind.

80 percent of software vendors will adopt hybrid pricing models by 2020, according to Gartner. Is your organization ready to join the movement, transform the customer experience, and maximize revenue potential? We invite you to take a tour of the Gotransverse platform today, and call us to schedule your complimentary, personalized demo.