When you run a subscription-based business, your billing system needs to be tailored to that subscription model. And usage-based billing is one of the most popular pricing models for subscription businesses.
As we move through a more and more personalized consumer space – with targeted ads, cookies, automated marketing personalization, and more – it may be time to evaluate your billing system to help keep your operations efficient and optimized for the next generation of customers.
Common Types of Usage-Based Billing
Usage-based billing is just that – your customers are paying for the service or product amounts that they use. This allows for fluctuation in the need for your offerings without losing customers. Some of the most common usage-based billing industries include utilities, electricity, and internet access in your home. But the popularity of subscription businesses is growing. It’s a convenient way to “set it and forget it” – this includes everything from groceries to healthcare needs,
One unique feature of usage-based billing is the low barrier to entry. Much like a free trial or freemium model, usage-based billing allows your customers to engage with your products and services at a level that best suits their financial situation and level of need. This creates less friction for your new customers – it builds trust in your brand and allows them to create their optimal experience, all without little adjustment on your end.
There are several different types of usage-based billing to choose from:
- Flat Rate – Much like the USPS flat-rate shipping boxes, this usage-based model provides unlimited access or usage for a single fee, usually billed monthly, quarterly, or annually. Examples include Amazon Prime, Netflix, and Sirius XM.
- Allowance – This model sees customers pay a specific rate each period, which provides up to a certain amount of goods or services. Examples of this include attorney retainer fees, cell phone data plans, specific Internet packages, and the like.
- Tiered Pricing – This is a type of volume discount billing system that allows bigger markdowns for buying in bulk. Many car insurance plans work this way – they offer monthly billing and an option to pay for 6 months of coverage in one transaction and save a few hundred dollars, for example.
- Threshold – This type can be used in tandem with other models, but the basic principle is that once the customer hits a threshold for goods or services used within a set period, they are notified that they must choose either to pause the goods or services until the period starts over (e.g., a new month begins) or they choose to increase their payment to match the higher usage.
- Stored Value – Think of this usage-based billing type like a prepaid credit card. Customers can preload their account with a certain number of credits or dollars, and withdraw at each usage. Arcades often use this system, as do many forms of public transportation.
- Pay-As-You-Go – This is one of the most common forms of usage-based billing and it means your customer pays for the units used at the end of a given period. This often includes your water bill, gas, electricity, and other utilities that vary widely by household and by individual.
- Multi-Attribute Pricing – This model uses more than one criterion to determine the final price. This includes things like Uber, which uses trip time, distance, and other factors to determine the price of a single ride.
There are also many great and unique benefits to usage-based billing models.
The first is a low barrier to entry. Because the products and services being used are priced based on that usage, someone who uses fewer units will not be charged the same as someone who uses more units. This creates a better customer experience and increases brand trust because users feel they are always getting what they pay for.
This also leads to more flexibility for customers and providers. Users can start with a smaller package or subscription and test out your company’s offerings. You don’t have to worry as much about refunds and customer complaints because they have more autonomy over their purchase. Once a customer is familiar and happy with the lower tiers, they can increase their commitment easily, which entices them to continue purchasing from you, and it increases your revenue without having to find new customers at the lower tiers.
It also helps customers feel less restricted. Many of us are using products and services that we found online, and that means our customer experience must include one of the following:
- A deep trust in the company we are purchasing from, or
- The ability to stop service or opt out easily.
Removing these restrictions by implementing a usage-based billing model can help potential customers move more quickly through your marketing funnel.
From a business operations standpoint, usage-based billing can improve your cash flow. By generating regular invoices, you can create a more predictable revenue cycle.
Lastly, usage-based billing allows you to pivot – and businesses of all shapes and sizes are painfully aware of how important it is to be able to implement changes as markets do. The ability to adapt to new customers, new markets, and new channels can change the way your business traverses success – and failure – to foster continuity and scalability.
Flexible Payment Processing Options for Your Business
Your usage-based billing system can be implemented through ReliaFund’s recurring payment processing software. Use the system for one-time billing, monthly billing, and more. Creating an integrated payment system that can be used no matter what season or service style your business goes through can offer you peace of mind.
Accept different forms of payments – from credit cards to checks, and ACH processing – and set your usage-based business model up for success today! Check out our payment processing services and feel free to contact us with questions.