Traditionally, enterprise organizations across a variety of industries have operated under a “one-size-fits-all” approach when it comes to billing models. From one-time purchases to simple subscriptions, these traditional models have pigeonholed both buyer and seller into a “what you see is what you get” relationship that causes two things to happen:

• The vendor’s earning potential is capped at its standard purchase or subscription prices.
• The customer may not feel as though the value of the product is worth the price, particularly if there are features he or she is paying for but not using.

When a vendor’s revenue is maxed out and customers are unconvinced of value, growth is likely to slow and stagnate. In recent years, vendors have realized the limits of this approach. The solution? Increase your revenue potential and improve customer engagement through more sophisticated, usage-based billing strategies.

What Is Usage-Based Billing?

Also known as consumption-based billing, usage-based billing models merge the traditional offerings by coupling basic subscription services with additional, pay-as-you-go offerings, and they can take on a variety of structures, from simple usage fees to more sophisticated rating models, based on a business’ specific needs.

You’ve seen this model with your cell phone company for years. You pay a base subscription rate, but you can also purchase extra data, messaging or minutes. Now, other industries are catching on, offering customers the opportunity to pay for exactly what they need, when they need it. Forrester reports that 84 percent of companies are currently leveraging usage-based pricing or plan to within the next two years.

So why make the switch?

3 Advantages to Usage-Based Billing

There are many reasons for companies to add usage-based offerings to their traditional models, with advantages for both vendors and customers. Here are three key benefits:

Increase Revenue Opportunities

With simple subscription models, the revenue growth chart looks more or less like a straight line, with every new customer adding the same amount of revenue per month. Offering usage-based add-ons, however, allows companies to leverage that predictability and take advantage of the additional earning opportunities. When customers can “pay as they go” for additional features and functions on top of the base subscription, the vendor can bring in more revenue, and that growth chart becomes much more exciting.

Attract and Retain Customers

“If you have a customer that has specific needs, why would you want to turn away their business by saying ‘sorry, this is the only way we can sell?’”

- Jim Gearhart, Senior Director of Sales and Marketing IT, Zendesk

On the customer side, usage-based models offer two key benefits. First, they further lower the cost of entry, allowing potential customers to “test drive” key features, components and products—paying for only what they use—before they commit to a full annual subscription. This allows vendors to attract clients that may be more risk averse by letting them try before they buy.

Second, usage-based billing gives customers the flexibility to choose packages and pricing models that match their needs and allow them to see exactly what they’re paying for in any given period. For example, Recent research from Key Bank finds that less than 30 percent of companies are meeting their customer retention goals, but believe usage-based billing could be the advantage they need to increase those rates and improve their business. 

Gain Detailed Insights to Maintain a Competitive Edge

Finally, usage-based models give vendors much deeper access to customer usage insights. Whether a vendor is market testing a potential new feature or planning to repackage existing capabilities, usage data paints a clear picture of how much customers value each product feature, which ones they might be willing to pay a premium for and which ones aren’t worth the vendor’s further investment in time or resources.

This level of transparency allows businesses to respond more quickly to customer needs and market shifts, releasing new features and repackaging existing ones to more effectively serve customers and stay ahead of the competition.

Whether you’re selling widgets, consultation services or enterprise software, usage-based billing offers a huge competitive advantage for businesses across industries. If your organization is ready to adapt its traditional billing models to improve revenue potential and customer engagement, take a tour of the Gotransverse platform today, and call us to schedule your complimentary, personalized demo.