Usage-based billing

Increase revenue and customer satisfaction

With intelligent pricing strategies, companies can increase their revenues, often with a positive effect on customer satisfaction. Usage-based billing (or metered billing) is being introduced as a pricing instrument in more and more companies. Learn more in this guide:  

• Which forms of usage-based billing can be applied
• Which industries apply usage-based billing strategies
• What to look out for when introducing usage-based billing
• What are the advantages and disadvantages of usage-based pricing
• How usage-based billing software supports you in billing on a per-use basis

Usage-based billing: A brief introduction 

With metered billing, you opt for accurate and transparent billing of your product and service offerings, and thus for a recurring business model. Prices can be adjusted flexibly or even dynamically according to different trigger events, such as personal usage intensity or supply and demand. Over time, the understanding of customer behavior and benefits also grows. These insights in turn provide valuable information for further product development.

This makes it easier to control the development of turnover. And usage-based billing is also beneficial for customers: no commitment, but flexible use as needed and without hidden costs corresponds to the zeitgeist of pay-as-you-go and as-a-service offers.

The different forms of usage-based billing 

Depending on the service and product as well as the target group, you can use different forms of metered billing. You can design these individually and combine them with each other:

• Instant payment

You know it from car sharing, temporary internet access abroad independent of your own mobile phone provider, or your food delivery: you consume a service that is paid for directly online with the order.

• Rolling billing

Metered billing can be implemented over different time periods. Monthly or quarterly billing can also be purely usage-based. However, too long periods are counterproductive from an entrepreneurial point of view, as this means that you have to advance payments.

• Tiered Pricing

Incentives need to be created for returning buyers: As consumption increases, better prices can be offered for certain contingents. But also differentiation of product use, for example according to functionality, lends itself very well to graduated prices.

• Fixed flat rate plus usage-based costs

Traditional subscriptions can also include a usage-based component: Amazon Prime is probably the most popular example of access to a product world that is paid for monthly on a fixed and ongoing basis, and where the actual use of products and services is charged additionally. Usage-based billing models are becoming increasingly important in the platform economy.

• Prepaid credit

Another form of metered billing is prepaid credits that are available for the use of products and services. Here it is important to pay particular attention to revenue recognition methods. Because when revenue is recognized is fundamentally different from when the actual service is provided, and this in turn has accounting implications.

The cross-industry boom of pay-per-use

Usage-based billing is getting more and more important across a growing number of industries and sectors. Here are some examples:

• Industrial sector and manufacturing

In the industrial sector alone, growth rates of up to 35% are forecast for usage-based business models by 2025. The Internet of Things offers new opportunities for service and product design: machine usage and server capacities on demand will probably become the future industry standard.

• Insurance and financial sector

Usage-based billing also plays a central role in the innovation of insurance and financial products. Because product bundles that are billed according to actual use offer enormous up- and cross-selling potential!

• Energy and telecommunications providers

Usage-based billing has been established in the energy and telecommunications industry for decades. But here, too, modern usage-based billing software changes a lot in the implementation of pricing strategies, especially with regard to the customer experience and the automation potential in accounting and customer service.

• And more industries

The list of industries that apply usage-based pricing models could go on and on: First and foremost, online retail, the fast-growing mobility sector and progressive healthcare providers. SaaS and hosting providers as enablers of the digital transformation have of course also incorporated pay-per-use models into their business models.

5 tips & tricks for the introduction of usage-based billing 

However, in order for your company to benefit maximally from a usage-based billing strategy, there are a few things to consider:

1. Don’t make your usage-based pricing models too complex so that the customer benefit of transparent, easy-to-understand billing is always maintained.
2. Use the possibilities of flexible and dynamic price adjustments cautiously, because unfortunately, this can also very quickly lead to a loss of customer trust.
3. Include discounts and promotions in your usage-based pricing models not only to increase first-time purchases but also to develop existing customer relationships.
4. Offer your customers clear invoices: Depending on the product and service, it is important to weigh up the provision of individual and collective invoices. Self-service portals with easy access to service records create real added value for customers.
5. When selecting your usage-based billing software, make sure that the solution can map usage-based billing processes holistically, can be integrated with third-party systems, and is scalable.

The advantages of usage-based billing 

You can recognize a successful implementation of metered billing by the fact that:

• You gain more new customers through non-binding service and product use
• Customer satisfaction and loyalty increase through the recurring use of the service
• Turnover planning and control are becoming increasingly precise and effective
• Usage-based billing key figures are regularly analyzed by sales, marketing, product management, and customer service for the further development of the company
• The degree of automation in accounting and customer service increases despite flexible pricing models

The challenges of metered billing 

However, keep the following requirements in mind when implementing usage-based billing strategies:

• The shift from existing pricing models to usage-based pricing strategies requires massive technological and process changes
• The added value of usage-based billing models is not always self-evident to customers for all products and services.
• The ease of switching providers, even with a high quality of service, can be adversely affected by aggressive pricing policies of competitors and other external factors

Success factor: Usage-based billing software 

One thing is certain: if you want to apply usage-based billing, you need a platform that supports you along the entire value chain. Billwerk+ is the leading subscription management and recurring revenue platform in Europe. After a technical implementation phase, Billwerk+ can be used and further developed independently by business users.