Once upon a time, subscriptions were reserved for print magazines and newspapers. But today, consumers can buy just about anything as a subscription, from music and movie streaming to groceries and pet food to cosmetics, at-home workouts, and cozy socks.

For businesses looking to build predictable recurring revenue, the subscription service is a dream. But how much longer until consumers reach their limits? Those $9.99/month fees are easy to “set and forget” while we enjoy our favorite things, but they add up quickly. In fact, a recent survey found that the average American spends nearly $240 per month on subscriptions, but very rarely realizes just how much they’re shelling out. And while some of those services (like Netflix or the New York Times app) may be put to good use every day, others, like those gym memberships that were gathering dust even before the pandemic started, are simply siphoning money.

As consumers tighten their belts and shave off excess costs during this period of economic uncertainty — or as they simply become aware of the total expenses of their various services — it’s likely that subscription services will begin to lose some of their charm, and this booming market may start to sag. But does that mean businesses will have to revert back to one-off sales and give up their recurring revenue?

Not at all.

Instead, we hope to see savvy companies future-proofing their revenue with usage-based, consumption, or pay-as-you go pricing models that combine the best of both worlds, giving the business the security of recurring revenue (with additional opportunities for growth on top) while allowing customers to pay for only what they use.

What Is Usage-Based Billing?

Also known as consumption-based or pay-as-you-go pricing, usage-based pricing models offer customers the ability to pay for what they use (often, though not necessarily, coupled with some kind of subscription), and they can take on a variety of structures, from simple usage fees to more sophisticated rating models, based on a business’ specific needs.

While many businesses still pair their usage-based offerings with a standard subscription, we wouldn’t be surprised to see those subscriptions start to disappear in the coming years. Consider the carshare phenomenon. The sharing economy saw perhaps its fastest acceleration (no pun intended) in the transportation industry, as the notion of paying for individual trips in Ubers, Lyfts, and Car2Gos gained ground among vacationers, business travelers, and people who simply prefer not to be tied to their own vehicles. While some companies, like ZipCar, still charge base subscription fees, most offer “access” for free and charge customers based on time, mileage, or some combination of the two.

This model is gaining ground in a variety of industries, and as “subscription fatigue” sets in, usage-based billing will be a powerful competitive advantage for any business that’s already embraced it.

(Learn how some of Gotransverse’s customers are leading the way with usage-based pricing.)

Advantages of Usage-Based Models for Businesses

For businesses, the advantages of supplementing subscriptions (or replacing them altogether) with usage-based pricing include increased agility and added revenue opportunities.

These models increase agility by offering businesses powerful, real-time insights into exactly how and how often customers are using their goods and services. Are they using several services together? Those could become a “bundle.” Are they consistently neglecting a particular feature? Perhaps it’s time to retire that one. 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 feature, which ones they might be willing to pay a premium for, and which ones aren’t worth further investment of time or resources.

This depth of insight means not only that businesses can maximize the value they provide customers, but also that they can respond more quickly to changes in customer needs or shifts in the market, more effectively staying ahead of their competition.

The growth in revenue opportunities comes from the added flexibility of usage-based models. While standard subscriptions provide fantastic stability, the fact remains that the resulting revenue is the same every month. But when customers can add on additional features, services, and products that provide unique value (even if that means paying less for a slimmed down base subscription), then that revenue ceiling disappears and the vendor can bring in significantly more revenue.

Advantages of Usage-Based Models for Consumers

On the customer side, usage-based models lower the cost of entry even further than a standard subscription, and they provide the flexibility to pay for exactly what they need.

The lowered cost of entry allows potential customers to test out features, components, and products they’re interested in, paying for only what they use rather than committing to a full subscription or lifetime license. Hesitant buyers will be more likely to sign on (and convert to happy, lifelong customers) if the initial risk is low. That way, if it doesn’t work out, they haven’t busted their budgets.

In terms of flexibility, when customers can pay for only what they need, when they need it — and forget the rest — they’re more likely to stick around. Consider that gym membership. What if, rather than paying $65 per month no matter what, you could pay only for what you need? The charges could be per day or per piece of equipment used, by the minute or by the rep. But however they’re figured, you’re only paying when you’re working out.

Allowing customers to pay for the packages and pricing models that meet their specific needs — and to see exactly what they’re paying for at any given time — is a powerful way to increase satisfaction and retention rates and grow revenue.

The standard subscription model has revolutionized the way businesses interact with customers, but it will eventually run its course. Usage-based and consumption-based pricing will be the next wave, giving businesses and consumers more flexibility and control than ever before, and empowering customers to stay ahead of trends and continue growing revenue, however the market shifts. The Gotransverse platform is built with usage-based billing in mind. To learn how we can help you future-proof your business, we invite you to take a virtual tour of the Gotransverse platform today. Then, when you’re ready, request a demo to speak directly with one of our experts.