More SaaS Businesses are Adopting Consumption and Usage-Based Billing Models
One of the biggest trends among software as a service (SaaS) companies this 2024 is the adoption of consumption and usage-based billing models.
In fact, OpenView Venture Partner’s 2023 report on the matter notes that, as early as last year, upwards of 61% of SaaS businesses have already shifted to some degree of this pricing approach. This is in line with another movement we previously reported on in our On the Lookout: FinTech Trends 2024 post, wherein we shared that more fintechs are pivoting to serve a smaller subset of customers. This includes those entities who are willing to pay via subscription models, which highlights how more businesses are interested in more diverse pricing approaches outside of the more traditional fixed one-time transactional setups.
Understanding the consumption and usage-based billing landscape
As its name implies, this billing model involves the client paying only the equivalent of what they’ve consumed. In other words, this price is not set and can vary per billing period. Given that handling these pricing models requires precision and flexibility, most companies that pursue this model use tools such as the enterprise consumption billing software at SOFTRAX.
Designed to successfully deploy billing models that meet the most complex consumption or usage-based pricing models, this revenue management software expertly ties in value metrics and terms of customer use. As a result, it automatically maintains details like usage details such as minimums, maximums, and overages before auto-billing clients during the predetermined payment dates. This helps SaaS companies maximize monetization and payment completion while minimizing the risk of lost revenue.
That said, because this billing effort is based entirely on ever-changing usage, SaaS companies are also having to invest in more customer service representatives. As explained in CustomerThink’s customer service in usage-based pricing article, weak customer service can stall profitability since clients are much less likely to settle payments and continue their business if their queries and concerns are unresolved. With this in mind, several SaaS businesses have embraced AI-powered support systems.
For example, predictive AI technologies like natural language processing (NLP) can study all customer tickets and use that to forecast client concerns effectively. This proactive ability allows agents to create solutions as early as possible, ensuring that they’ll only need to make minor tweaks per client. In the long run, experts believe that all SaaS companies that use the consumption and usage-billing model will also have a dedicated customer service team behind it.
Benefits of adopting a consumption and usage-based billing scheme
The biggest perk that moving to a consumption and usage-billing model has for SaaS companies is the promise of upscaling.
In an interview with Diginomica, the CEO of the analytics firm DOMO explained that adopting this scheme helps expand a business’ overall market. For one, consumers will be more drawn toward this payment approach since it allows them to explore more company-wide services with less financial risk.
An example of this can be observed in Zendesk’s outcome-based pricing model, which is a new take on the basic consumption and usage-based billing format. Through this, customers are only charged if their concerns are autonomously solved by one of the company’s AI agents.
Along the same lines, this pricing model encourages B2B partners to invest and work with departments and service lines other than those they know since they now have the freedom to try as little or as much as they want without having to overinvest. Consequently, every service and department is more likely to retain a healthy cash flow and notice an increase in demand.
This includes products or areas outside of the usual hero offerings that typically monopolize SaaS business revenue. Over time, this can result in a company even scaling up its overall offerings since it knows that this kind of consumption and usage-based billing system can help divert enough interest and business towards these new endeavors.
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