In today’s fast-paced business world, staying flexible is the name of the game. With technology zooming ahead and customers expecting more bang for their buck, businesses are facing a choice between the tried-and-true billing methods and something a bit more cutting-edge – enter metered billing. Forget about those one-size-fits-all pricing plans; now, savvy businesses are catching on to the benefits of metered billing systems. This change isn’t just about keeping up with the times; it’s about giving companies the power to fine-tune their revenue strategies, make customers happier, and outshine the competition.
In this dive into the topic, we’ll unravel why jumping on the metered billing bandwagon could be the game-changer businesses need for long-lasting success in today’s ever-evolving market.
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Visualizing Fixed-Rate Pricing
Services provided by SaaS businesses lend themselves extremely well to fixed-rate subscription pricing models due to their inherent intangible nature. However, as SaaS businesses begin to scale and expand, flat-rate pricing models tend to become unsuitable and limiting.
Drawbacks of Fixed-Rate Pricing
Fixed pricing models involve charging the same price at the end of each billing cycle. It’s a fairly simple approach to pricing and is widely adopted across many SaaS businesses. While it can’t be said that such a pricing strategy has no benefits whatsoever, there are some serious drawbacks to it.
- Not Conducive to Scalability: Growing businesses are characterized by changing customer demands. As the volume of service consumed rises, the pricing should also follow suit. However, fixed pricing does not allow for this and customers pay less while consuming more.
- Limited Room for Pricing Strategies: Due to its simple nature, fixed pricing offers a limited scope for applying innovative pricing strategies that help maximize profit.
- Uncovered Operational Costs: SaaS businesses face operational costs when providing a service to businesses, and as customers consume more of the service, the variable cost also rises. Yet, these costs remain uncovered in a fixed-cost model.
Such disadvantages prevent your business from reaching its potential. Thus, it is imperative for any SaaS business looking to expand to switch to a metered billing model.
What is Metered Billing?
Metered Billing is a sub-term in the overarching umbrella of usage-based billing. As the name suggests, usage-based billing charges customers according to the amount of service they have consumed. Metered billing is a much more specific term and is calculated by multiplying units of service consumed in a billing cycle and a predetermined per-unit price. It is a fairly old-school concept, as household utilities have always been billed using the metered model, but it is also conducive to SaaS businesses.
Advantages of Metered Billing
The biggest advantage of metered billing is that it is mutually beneficial to both customers and businesses. This ensures future success for the business, as this billing model values both customer satisfaction and maximized cash flows. Here are some advantages explored briefly.
- Usage Patterns: Metered billing software records in-depth customer usage. This helps in obtaining crucial insights into customer usage patterns, and businesses can pinpoint which specific features of the SaaS service are being used. This can help businesses in future planning and optimizing their features to maximize cash flows.
- Fair Billing: This method ensures that the generated invoice is fair to both the customer and the business. A metered billing system will give a fair outcome to both parties, guaranteeing that businesses are not leaving revenue on the table under overconsumption and ensuring that customers are not overpaying for the service in case of underconsumption.
- Better CRM: The additional advantages of metered billing stem from the equitable billing model. Firstly, it helps maximize the Customer Lifetime Value (CLV), which refers to the amount of revenue a business earns from a customer throughout the cycle of purchases. If a customer consumes more of a service, metered billing ensures more revenue and thus increased CLV.
It also allows increased customer retention and avoids unnecessary customer churn. Additionally, metered billing can be paired with other forms of billing, and such hybrid billing models can suit the needs of more niches. It can even be paired with flat-rate billing so customers can be charged extra for consuming beyond a particular volume.
Considerations Before the Shift
Shifting to metered billing is greatly beneficial to SaaS businesses. However, at the same time, it is prudent for businesses to consider a few factors to ensure if the replacement of the billing model is worth it.
- Conduciveness to Product: Some SaaS businesses offer services that are too complicated, making it difficult to break their consumption down into neat units. Due to this, it is difficult to measure and monitor usage accurately, making it unconducive to metered billing.
- Employing Robust Measures: Another factor to consider is whether a metered billing software can be incorporated easily into the business. Metered billing needs to be accurate to ensure maximum customer satisfaction, so it is important to integrate robust billing software.
- Predictability: One of the advantages of fixed-rate billing is that it gives an accurate figure for future revenue. However, this benefit is not afforded by metered billing because the revenue will change based on customer usage.
What’s Next
Metered Billing adds to the value metrics of a business by adding the quality of perceived fairness. In the long term, it ensures customer loyalty and maintains repurchasing. Despite the few caveats, the shift from a fixed pricing model to a metered one is the step in the right direction for businesses.
