Myth vs. Reality: How to Tell if a Vendor Truly Supports Usage-Based Billing

As usage-based pricing models have grown in popularity among companies of a wide range of sizes in just about every industry, one troubling trend has developed in the billing landscape: many vendors advertise themselves as usage-based billing experts when, in reality, they’re capabilities extend to only the most basic models.

Businesses that invest in usage-based platforms to replace their legacy systems, only to find their new system is less robust than they’d hoped will quickly find themselves resorting to similar manual interventions and costly maintenance and customization efforts they were trying to leave behind.

Here are four important factors to ask a potential vendor about in order to determine whether they’re truly offering complex usage-based billing support or just scratching the surface.

Types of Usage Models Supported

One of the key advantages is usage-based pricing is that it’s not one-size fits all. The variations in usage type are what makes these models so powerful for businesses looking for customizable ways to meet customers’ unique and changing needs. But not all “usage-based” systems are equipped to handle the full breadth of these models. So, when you’re talking with a potential vendor, ask them to go into detail about which types of usage-based billing models they support. We go into depth on the different models in this blog post, but here are a few to look for:

Mediation Engine

One of the biggest challenges of usage-based models (especially when you’re employing multiple models to support customers) is that usage data comes in many formats that must be normalized, aggregated, and standardized before it can be converted into charges on an invoice.

While performing these conversions manually is theoretically possible, it becomes more difficult, expensive, and time consuming — not to mention vulnerable to human error — as usage volumes increase and grow in complexity. In other words, it hinders growth rather than supporting it.

The key to efficient, accurate data conversion is a powerful mediation engine that automates the process. Good mediation solutions will have business rules that can be added on top, enabling you to aggregate events or clean up data to ensure you have good input coming into the system. You can read more about effective mediation in our data sheet so you’re prepared to ask potential vendors about their mediation capabilities.

Revenue Recognition Capability

The billing process doesn’t end when the customer enters credit card information and clicks “pay.” The business must be able to record the revenue once it’s been earned, creating accurate general ledger entries to keep the books up to date. As with mediation, revenue recognition gets more complicated with the volume and variety of usage events, and not all usage-based vendors have the ability to automate and streamline the process.

You’ll want to look for a rules-based revenue recognition engine that will ensure standardization and traceability of all revenue entries and set you up for success during audits. Here are a few specific capabilities to ask about, for starters:

• Daily revenue recognition management including aggregation into service periods, agreement length, customer lifetime metrics and milestones
• Tracking on the transition or summary level, or by segmented journal entries
• Automated recognition based on current and future guidance
• Application of deferrals, triggering events, revenue catch up, and contract allocations per your company’s revenue recognition criteria
• Support for multiple general ledgers and ERP solutions

Learn about Gotransverse’s native revenue recognition engine.

Billing Expertise & Partnership

Finally, because of the complex and evolving nature of usage-based billing models, a quality provider is both a vendor and a partner, working hand-in-hand with businesses to implement and configure the new system, and offering ongoing, expert support. Ask potential vendors about how they work with clients, and if it sounds like a hands-off relationship, consider that a red flag. Look, instead, for vendors who pair clients with customer success managers from the very beginning, and who provide access to leadership-level support as needed. These are the vendors who consider themselves to be partners, and who will be invested in your success.

At Gotransverse, we support usage-based billing in all its nuance and complexity, and we pride ourselves on strong working partnerships with of our clients. For an in-depth look at our capabilities, we invite you to tour our platform today. Then, to learn more about whether Gotransverse is the right usage-based billing partner for your organization, you can request a demo to speak with one of our experts.