How to Evaluate If Pay per Use Billing Is Meant for Your SaaS Business

There are many SaaS companies in the digital arena but their nature of business differs. You cannot expect that the pricing model that works successfully for one SaaS company can produce similar results for any other company in the same market. One needs to plan with sales and digital marketing experts to adopt a certain pricing model.

Teams of programmers and developers spend days and nights to come up with a SaaS product. A single mistake while deciding the pricing model and strategy can shatter your plans. Deciding the right price for the SaaS product is not an insignificant thing. You cannot just follow the pricing model followed by the competitors. Other than customer acquisition, customer retention, and your existing clientele there are many factors that have to be considered before opting for a pricing model. Even if you succeed in shifting to the right billing model, you must understand that pricing strategy needs to be improvised with time. Following are some of the widely used pricing models in the SaaS business world:

  • Pay per use pricing
  • Tiered usage pricing
  • Subscription pricing
  • Per storage pricing
  • Flat rate pricing

There are many other options that you can explore, but here the focused pricing model would remain pay per use billing.

Also Read: Subscription vs Pay-Per-Use—Which Revenue Model Would Work For Your Business?

Do not rely on your gut feel to adopt pay per use billing model rather follow this guide. If your answer to the following ‘questions is ‘Yes,’ it will be feasible for you to adopt pay-per-use billing for your SaaS business.

Do You Offer Metered Services?

People who want to shift to pay per use pricing model must be sure that their services are effectively metered. The simplest way to check if your services are metered or not is to observe if your clients are regularly undertaking some task and using certain functionalities. However, some SaaS products are complex, offering too many services and functionalities. In that case, you can offer pay-per-use separately for all functionalities that you observe the subscribers use regularly.

You have to observe not only the ongoing usage trend of your clients but also monitor the useful insights to predict the usage in the future. You need a holistic overview and analysis of various factor to know if the usage-based billing suits your business or not.

Are You Able to Manage Pay Per Use Cost?

One of the primary factors that you need to monitor to know if your business is the best fit for pay-per-use is the cost for the usage. If the cost does not change with the usage of the services, then pay per use is not the right billing model for your SaaS business. However, if cost changes with the usage, then metered billing or pay per use is a good option to earn recurring revenue. Moreover, defining the cost per unit is another job involving many facets to look into. The uncertainty of revenue that you earn is higher because usage keeps fluctuating. So, cost management is a complete process that starts with defining the right per unit cost and ends at the recurring revenue stream.

Also Read: The Price Is Right—A 2020 Basic Guide Of SaaS Usage-Based Pricing Model, Advantages, Challenges, & Solution

Do Your Customers Appreciate Metered Billing?

The subscription business depends greatly on customer satisfaction. Though you think pay-per-use is a viable option for your business, and you are ready to shift to this billing mode, it is not mandatory that your customer is also ready for this shift.

Whenever companies intend to shift to recurring billing and pay per use billing model, they are advised to survey to know if their clientele accepts the change.

Are You Able to Use Data-Driven Insights?

The recurring billing businesses are progressing with leaps and bounds. The subscription billing management platforms are developed by using AI-based algorithms. They are smart enough for data analytics and business intelligence. They provide you with useful data insights that you can use to predict the subscription market in the future.

Data-driven analysis helps you understand customer behaviour in a better way. You can improvise your sales and marketing strategy with time if you are getting useful insights.

Also Read: Subscription Data Is A Hidden Treasure—Learn How Recurring Billing Data Can Be Used to Drive Growth in Revenue

Is Usage-Based Billing Scalable for Your Business?

As a SaaS retailer, many companies cater to both small and large enterprises. Your billing model should work to earn revenue from both. If you are planning to adopt usage-based billing, then first analyse if it will help you capture even the SaaS entrepreneur. Likewise, you will have to see if your billing model is equally workable for big clients. The ability of the pricing model to allow you to entertain small and large clients equally defines its scalability.

When you are evaluating the pay-per-use as the billing model for your subscription business, challenges should also be considered that can become bottlenecks at any stage in the future. Following are the challenges for which you should prepare while shifting to pay-per-use billing.

Unpredictable Usage

The pay-per-use model completely depends on the usage. As mentioned earlier, you as a SaaS retailer, not only need to observe the current usage of the SaaS product at present but also predict the future. Use data insights for this purpose. Otherwise, the usage will keep fluctuating and you will not be able to understand anything.

Things would probably go smooth initially but in the long run, you will not understand the usage fluctuation.

Unpredictable Revenue

The unpredictability of the usage means the unpredictability of the revenue that you earn. SaaS retailers are happy with their subscription business models because the revenue streams are predictable. When you are using pay per use model, that factor of predictability wanes.

Also Read: You Need A Recurring Revenue Stream to Draw Success in 2021 And Onwards

In Conclusion

You need in-depth research while looking for the right subscription pricing model but it is not something fixed. You need to improvise with time and make changes. Customer behaviour changes, and you also need to see what competitors are up to. COVID outbreak caused a supply-demand shock, all businesses including SaaS companies had to revive their pricing strategies. So, your pricing model will change with the changes in the subscription business market. SubscriptionFlow is a cloud-based platform where you can run your recurring billing business by opting for the pay-per-use and improvise pricing strategies with continuously changing scenarios. We offer you flexible online software to earn more recurring revenue.