Recurring revenue models have become mission-critical for businesses looking to drive growth. And yet, these models lead to more complex billing needs as producing invoices requires converting consumption and service rates into dollars owed. As a result, MGI Research notes, 70% of organizations report that data challenges are the primary reason their billing projects fail. Why is that? According to Gotransverse founder and CEO James Messer, “Many of these same organizations deal with the problem using manual processes, which leads to erroneous billing. It’s a classic case of garbage in/garbage out.”

This month in Forbes, Messer wrote about the solution to this data problem that’s creating a roadblock against growth for many businesses. That solution, of course, is mediation: the conversion of units consumed into fees charged. Doing this right ensures accurate billing, which prevents revenue leakage, enhances the customer experience and leads to bottom-line growth. And for most companies, doing it right requires shifting to a modern billing platform with a robust mediation engine.

We invite you to read the full article in Forbes, but we’ll share the highlights here.

Understanding Mediation

Messer begins with an overview. “Mediation in billing,” he says, “converts usage or consumption data into a format that pricing engines can use.” Then, he outlines the five functions required for a mediation engine to provide the data necessary for accurate billing and consumption analysis:

  1. Aggregation: Breaking a single event into multiple events that a billing system can process.
  2. Correlation: Compiling aggregated data into a single event.
  3. Validation: Confirming each event field (time, data, usage, etc.).
  4. Augmentation: Converting the validation codes to a format the billing system can use.
  5. Transformation: Creating transactional records for customer billing and other analytics.

We’ve all seen meditation in action on our cell phones and utility bills, where minutes, bytes, and kilowatts are converted to dollars under various usage-based models. But mediation can tell businesses about more than just invoice values. “In telecommunications, for example,” Messer says, “customers are billed for the time they are connected, from when a call is answered to when the parties hang up. However, additional time is used when the network circuit is in use to establish the connection and disconnect the call. While this time cannot be billed, it should be accounted for to ensure that network providers meet service-level agreements (SLAs) and that network time isn’t wasted.”

Additionally, mediation data can be used to establish rates by measuring consumption during peak times, understanding customer usage patterns, and identifying potential revenue leakage points. And, of course, this is critical in more than just the telecommunications industry. Messer provides several examples in his article with usage-based and recurring revenue opportunities in just about every sector.

Mediation and the Bottom Line

Next, Messer outlines five ways effective mediation can increase a business’s bottom line.

  1. Greater pricing flexibility: A powerful mediation engine empowers businesses to employ complex billing models such as tiered pricing (offering service bundles, volume discounts, and service rates based on consumption levels) or multidimensional models like you might see on a Lyft ride that combines charges for both miles and minutes.
  2. Customer loyalty: Many usage-based billing models incentivize customers to subscribe while guaranteeing revenue for the provider. One of the big ones here is stored-value billing, whereby customers prepay for services (like you've seen with a public transit pass or a Starbucks card). Messer notes that many companies—cable television and other providers—have begun incentivizing customers further by offering discounts for prepaying.
  3. Automated billing: A real-time mediation engine can use automated, rules-based workflows to make the data manipulation processes faster and more accurate, delivering invoices more quickly, ensuring revenue recognition is timely and accurate and enabling customers to log in and check their consumption status at any time.
  4. In-depth analytics: The data a mediation engine provides empowers businesses to create more accurate revenue projections and understand which resources are being consumed (and, in turn, which offerings are most attractive to customers and how they might be enhanced further).
  5. New business models: When considering new revenue models, the mediation engine can help run "what-if" scenarios to understand the feasibility and make educated decisions. Then, it can help implement those new models quickly to avoid missed opportunities.

A mediation engine that is accurate, efficient, and agile is the foundation of successful recurring and usage-based billing. As Messer says in closing, “Your mediation engine is the tool that lets you experiment with new profit models, and the mediation analytics are what give you control over business revenue.” We invite you to read his full Forbes article here. And when you’re ready to learn more about whether Gotransverse’s platform—with a world-class mediation engine built in—is right for your organization, contact us for a complimentary demo.