Why Every SaaS Company Should Have Usage-Based Models as Part of Their Business

Over the last few years, more and more SaaS companies have made the shift from one-time licenses to simple subscription models and then on to usage-based models, blending the traditional offerings into a more flexible, elastic billing model that charges customers for exactly what they need. And this model is becoming so popular that, according to Gartner, 30% of enterprise solutions will be billing on a pay-per-active-usage-basis.

What Is Usage-Based Billing & Why Are So Many Organizations Making the Switch?

Also known as consumption-based billing, usage-based models pair basic subscriptions 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.

For an example, consider your cell phone bill. You’re charged a base subscription rate, but any add-ons like extra data, messaging, or minutes cost extra. Now, other industries are catching on, and companies like Amazon, General Electric and Progressive Insurance are making the shift to “the billing model of the future.”

And these usage-based models offer a variety of benefits for businesses and their customers.

1. Maximizing Revenue

No matter how you cut it, simple subscriptions and one-time licenses are apt to leave a lot on the table in terms of revenue potential. Some clients will use your products relatively infrequently, but others will be online all day every day, sharing logins with teammates, harnessing, adding and manipulating data — essentially living in your SaaS solution. While traditional subscriptions and licenses mean your organization earns the same flat rate no matter how much a client uses the product, usage-based billing models enable businesses to continue earning revenue from those clients who use their platforms more frequently and in more ways than the average buyer. Charging a base subscription fee with additional fees per extra seat, extra unit of data entered or extra hour, dramatically increases your organization’s revenue potential.

2. Lowering the Barrier to Entry

On the other hand, usage-based billing opens the door to more clients who may not be able or willing to commit to a traditional subscription fee. Charging them a lower base rate and then billing them only for what they use gives them the opportunity to test out your organization’s product in a low-risk way. Once they grow to love the product, they’ll start relying on it more and increasing their usage. Soon, those hesitant testers will become loyal users, and your business’ customer base will have grown significantly.

3. Tracking User Preferences to Improve Offerings

Tracking usage for billing purposes offers another advantage: businesses can track their customers’ preferences in order to enhance their offerings. What features are they using most? What features are they ignoring? What other SaaS solutions are they integrating with yours? This data helps your business identify what to prioritize, what to build and where to stop spending resources. And more importantly, it allows your business to react to — and even anticipate — customers’ needs and preferences, staying ahead of the competition by improving your offerings before they even get a chance to look elsewhere.

4. Identifying Cross-sell & Up-sell Opportunities

Similarly, this data can be used to help the sales team identify opportunities to offer relevant features, packages and bundles to users who may not be taking full advantage. By identifying usage patterns such as which features customers are frequently using together, the sales team can suggest Feature B to a customer who is currently only using Feature A, for example. They can also put together bundles that pair popular features with one that might not be selling as well yet, or even offer discounts based on demand. All this usage data is a goldmine of opportunity for businesses to increase revenue by offering customers more of what they find valuable.

5. Improving Customer Retention

Finally, detailed usage data allows businesses to identify customers who show signs of cancelling their subscriptions or losing interest in the offerings, and make them a priority. Once an “at risk” customer is identified, the customer service team can reach out to learn about their experience — what’s going well, what they’re missing, etc. — in order to solve any dissatisfaction before it leads to lost customers, lost revenue and possibly poor word-of-mouth and online reviews. Sometimes a little extra attention is all that’s required to turn a tentative user into a loyal customer, and keeping a sharp eye on usage is an invaluable way to enhance customer service.

Implementing Usage-based Billing

The benefits of usage-based billing for SaaS organizations are crystal clear. But with this new territory comes the need for a billing system that’s powerful enough to track, record and bill for high volumes of usage data and flexible enough to juggle a variety of rating models and unique customer needs.

Fortunately, intelligent billing platforms, like the one from Gotransverse, are designed specifically to help businesses maximize both revenue and customer experience through usage-based billing.

To learn more about how intelligent billing can give your organization an invaluable competitive advantage, tour our platform and schedule your personalized demo today.