Giving Recurring Revenue New Life with Consumption-Based Models

From media streaming to groceries to transportation to monthly boxes of just about anything you could ever want to buy, subscriptions have taken over consumers’ lives in a big way. And the convenience of these models made them even more popular in 2020 as they allowed folks to continue using their favorite products and try out new services even as they were sheltering in place.

However, we’ve recently seen a new trend begin to emerge: subscription fatigue. Deloitte reported last year that nearly half of consumers are less than enchanted by the vast number of subscription services available, and last month TechCrunch declared the death of subscription-based SaaS pricing.

What’s driving this trend? On the consumer side, it can be attributed in part to a lack of discernible value added by additional subscription purchases. (After all, once you’re paying for Hulu, Netflix, Amazon Prime Video, HBO, Disney+ and Showtime, would adding one more streaming platform really enhance your viewing options, or would the overwhelming number of options lead to analysis paralysis?)

On both the consumer and the B2B side, the economic fallout of the pandemic has led to tighter budgets than ever before, and buyers are combing through their books to cull all but the most valuable expenses. Underused subscriptions aren’t making the cut — sometimes because they aren’t distinct enough from other products and services, and sometimes because the one or two top features don’t justify the overall cost.

How Can Businesses Preserve Recurring Revenue as Subscriptions Decline?

For businesses, the advantage of the subscription model is the predictability of recurring revenue, which improves forecasting abilities. Fortunately, the decline in the popularity of simple subscriptions doesn’t mean the end of recurring revenue. With customers protecting their budgets and seeking maximum value for their costs, many businesses are turning to usage- or consumption-based models, which allow customers to pay for only what they use while still providing businesses with all the benefits of recurring revenue — and additional growth potential to boot.

As TechCrunch put it, “The usage-based model allows a customer to start at a low cost, minimizing friction to getting started while still preserving the ability to monetize a customer over time because the price is directly tied with the value a customer receives.”

Let’s unpack a few of the key benefits of these models — for businesses and customers alike.

Consumption-Based Models Lower the Barrier to Entry

One of the primary benefits of usage-based billing for businesses is that it enables potential customers who might be priced out of a full subscription to access the features they’re most interested in at a fraction of the cost. Once they have a foot in the door and are shown the value of the products and services firsthand, the “land and expand” model kicks into gear as these new customers are taking advantage of more and more of a company’s offerings. Soon, the company finds itself with a rapidly growing base of customers who’ve gone from testing the waters to diving in headfirst — and encouraging others to join them.

Customers Have More Control and Businesses Have Better Insight into User Preferences

Have you ever paid for a month or two with a streaming service just to watch one particular show? Or, conversely, have you ever put off seeing a movie you were really excited about because the platform it was on didn’t offer much else you wanted to see? Under a usage-based model, you could have cherrypicked what you wanted to watch rather than paying for an all-access pass you didn’t really need or want.

Today, customers are looking for that kind of control in the majority of their purchases. Businesses want to pay for only the features they’ll use, and B2C consumers don’t want to shell out for products that will go to waste. Usage-based offerings fulfill that desire for more intentional spending, enticing customers to go ahead and buy what they need rather than forego the purchase altogether.

But the benefits aren’t just for the buyers. By allowing customers to pick and choose what they buy based on what they’ll actually use, businesses open the door to deeper user insights than ever before. They can see with crystal clarity which features are popular, which products and features might lend themselves to bundles or packages, and which ones need retooling or may have become obsolete. All this data enables businesses to make more educated decisions about research and development investments and pricing and bundling, among other things.

Paired with Subscriptions, Consumption-Based Add-Ons Break the Revenue Ceiling

While consumption-based offerings can be powerful on their own, they can also pair with simple subscriptions to create a beneficial balance of predictability (subscriptions) and growth (consumption-based add-ons). A simple subscription can give customers the most basic feature at a lower price point, and a library of a la carte, usage-based add-ons can enable them to customize their purchase to maximize the value they’re paying for.

For the business, separating the “extra” features from the basic subscription removes the revenue ceiling that limits bottom-line growth imposed by subscription-only models. You still get the predictability from the foundational subscription, but as the value and variety of the consumption-based features increase, so does the revenue. In addition, this division makes it much easier and quicker to test and launch new products and offerings separate from the subscription.

In times of disruption and change, the most resilient businesses are the ones that can adapt quickly to shifting customer demands. Today, that means embracing usage-based pricing to grow revenue and empower customers to pay for what they need when they need it. To learn how Gotransverse enables complex consumption-based and hybrid billing models, take a virtual platform tour today. If you like what you see, request a demo to speak with one of our experts about whether Gotransverse is the right billing partner for your organization.