Metered billing has been steadily growing in popularity, with more and more businesses starting to adapt to its model.
It is now a mainstay in most SaaS billing software, making it relatively easy to implement.
Although it is popular for good reason, if you’re thinking about trying out a metered billing model for your business you should take it step by step. In fact the first thing that you should do is fully understand what metered billing is all about – and when it should be used.
“What is Metered Billing?”
To put it in simple terms, metered billing is a type subscription billing that is based on usage. In other words customers are charged based on their actual usage rate.
Make no mistake this model is not new and has been around for some time, as evidenced by utility bills such as water or electricity. It can take on various forms however – such as fully usage based billing, or charging a monthly minimum with additional fee based on usage.
The main reason why metered billing is attractive is the fact that customers love it. Unlike other models it feels fairer to them seeing as that they’re paying only for what they need – and not wasting any money on things that they don’t need.
For businesses that often translates into an increase in customers, as well as an increase in revenue from heavy users that have high usage. Seeing as it benefits both businesses and consumers, it is essentially a win-win.
“When Should Usage Billing Be Implemented?”
Before you decide whether or not to start using metered billing, you should first consider whether or not it is suitable for your business.
The fact of the matter is that not all businesses can successfully take advantage of metered billing. More to the point, if your business and the product it provides aren’t suitable – you won’t be able to benefit from it.
To determine if you should implement metered billing, there are a few areas you should look at:
How can the usage be broken down?
The main prerequisite for a metered structure is that the usage must be able to be broken down into specific units. Ideally the units of usage should be easy to identify and understand.
For example in mobile phone plans the usage can be charged based on the duration (i.e. call minutes).
What affect does usage have on costs?
For metered billing to feel ‘fair’, the usage needs to correspond with operating costs. If it does not, customers may question why you’re charging them for it in the first place.
For example in web hosting packages the usage of storage space and bandwidth directly adds to the operating costs of the service.
What is the frequency of units being used?
Metered billing works best when the frequency of units being used is high, such as on a continuous or daily basis. If it isn’t high there may be other models that are more appropriate, such as individual purchases or pay-as-you-go.
For example electricity usage can be tracked continuously, meaning that its frequency of usage is very high.
How much does the usage vary?
One often overlooked factor is that metered billing is perfect when the usage for different users varies quite a bit. That way the heavy users pay more, while others do not – making it feel fair.
If the usage doesn’t vary much a simple monthly subscription may do the job just as well as metered billing.
Suffice to say usage based billing works best when the usage can be broken down, affects the cost, and is both frequent and varied.
Conclusion
At this juncture you should fully understand what metered billing is, and when it should be used. That should be more than enough for you to look at your business and its products or services, and decide whether or not implementing the model is a good idea.
Keep in mind that you explore different types of usage based billing and find the one that fits your products or services best. It may take a bit of planning on your end, but it will help you ensure that the metered billing model you implement is the best fit.
Photo by Austin Distel on Unsplash
