Optimizing Usage-Based Billing for AI Services

Everyone uses AI differently, then why should they be charged the same way? With the growth of the AI industry, traditional billing models are increasingly being challenged. Flat-rate pricing can certainly not catch up with the dynamic nature of AI-services, and their usage.

To address the unique billing needs of AI companies, the usage-based billing model has stepped forward. It ensures that every user pays for only what they use. In order to implement advanced usage-based billing for AI services, businesses need to gear up with flexible billing software.

In this article, let’s explore how AI-specific usage-based billing works, and what features make your billing system compatible with it.

What is Usage-Based Billing for AI Services?

As its name suggests, usage-based billing means to charge customers based on their actual service usage. It is in contrast with flat-rate billing that means charging all customers a fixed price, regardless of what service features they use, usage-duration, or extent.

AI services have transformed the landscape of cloud-based services. Managing subscription for AI tools is not as easy as managing traditional subscriptions. That is because AI services are dynamic, and their use fluctuates dramatically. They cannot be conveniently assigned singular prices.

To implement usage-based billing for AI services, businesses must outline clear usage metrics first. Prices are allocated according to these metrics. Following are some usage metrics that can be monitored and measured:

API calls
Tokens
AI-generated outputs (text, image, graph, etc.)
Duration
Storage
Computing power
Team size (for collaboration tools)

All these metrics have to be tracked and measured in real-time for accurate billing.

Different Usage-Based Billing Approaches That Can Be Implemented

Usage metrics differ according to the nature of AI services. That is why there can be a number of billing approaches based on usage, and on client needs.

These are some popular ones:

Billing Based on Tokens & API Calls

This billing approach is common for companies offering AI language models, such as ChatGPT. It involves the measurement of tokens and API calls. Tokens are clusters of words that are processed by the AI. The longer the responses generated by the AI, the more tokens they contain.

You have done your part.
Let SubscriptionFlow take it from here!

Let us help your business grow with our powerful
subscription management software.

API calls, on the other hand, are queries or content requests sent to the AI. Every user interacts with AI differently, thus making varied number of API requests. Users can be charged per API call. Charges for each API call can also differ based on the computational power that goes behind answering it.

For instance, some users may ask their AI to generate simple and straightforward content. Other might use it for complicated analysis. Responses for the latter consume more computational power than the former, and carry higher charges accordingly.

Billing Based on Outputs

Generative AI companies might offer generation of various outputs: images, graphs, videos, charts, etc. Billing can be based on the type of output requested. It can take other usage factors into consideration alongside. For instance, the time it takes to generate an output.

Billing can also vary according to the quality and complexity of the requested output, since more complicated requests cost more computational power. This shows how usage-based billing can be conducted according to several usage metrics at the same time.

Tiered Pricing

AI companies can leverage tiered pricing as part of their usage-based billing framework. For instance, they can create specific API call tiers based on usage volume, such as: 0-10,000 calls, 10,000-40,000 calls, and 40,000 + API calls.

Each tier can have its own price per API call. Such as $0.05, $0.04, $0.03 respectively. Businesses pay according to the tier they have subscribed to. Higher tier subscribers enjoy discounted pricing.

Progressive Billing Based on Usage Threshold

This billing approach involves raising the service prices as certain usage thresholds are met. For instance, pricing for an image generator might look like this:

First 500 images: $0.01 per image

Next 500 images: $0.015 per image

Any number above: $0.02 per image

Progressive billing doesn’t raise the price per image for the entire volume of images. Instead, it tailors prices according to specific thresholds, and adds them all up.

Suppose there’s a customer that generates 1500 images. Here’s how their billing calculation goes:

First 500 images: 500 x 0.01 = $5

Next 500 images: 500 x 0.015 = $7.5

Final 500 images: 500 x 0.02 = $10

Total = $22.5

Aggregate Pricing for Enterprises

Suppose an enterprise is using multiple AI services based on a single contract. Such as report generator, customer service chatbot, and more. It is possible for its usage-based charges across multiple AI services to be aggregated.

This means that a single consolidated invoice will be created and charged to this company. It will contain the pricing breakdown of all the services utilized. This makes charges more transparent, and easier to understand.

Benefits of Usage-Based Billing for AI Services

This billing method comes with a bunch of benefits, for both businesses and customers.

For Businesses

Higher Usage, Higher Revenue

Usage-based billing ensures that an AI company’s revenue scales alongside usage volume. The more customers interact with its services, the higher their charges. This is especially beneficial for companies with dedicated subscriber bases.

Greater Customer Acquisition Chances

AI service prices are not fixed. It means that businesses do not have to pay considerable upfront subscription charges. This allows AI companies to tap into businesses with different budgets and sizes.

They can attract small businesses, and large enterprises alike, since costs depend solely on usage. This removes pricing barriers that might hold back certain businesses from subscribing, and invites more users to come onboard.

Improved Transparency

Businesses can form stronger customer relationships through transparent pricing. Customer invoices clearly present precise service-usage details along with their costs. This enables customers to clearly link service charges to their derived value, enhancing satisfaction.

For Customers

Fair Pricing

Customers don’t have to pay standard prices that might seem unfair to them. Their total charges fluctuate according to their usage. This ensures that they are not overcharged or undercharged. Instead, they pay for exactly what they use.

Additionally, the calculation of charges is made clear for customers. They can monitor their usage via issued invoices, and easily identify the corresponding charges.

Increased Control Over Billing

Allowing customers greater control over their subscription charges is a great way to boost satisfaction. With usage-based billing in place, customers can essentially control how much they pay by keeping their usage in check. This makes their subscription highly budget-friendly.

Core Features of Billing Software for AI Services

Not all software can handle usage-based billing for AI services. When selecting a suitable billing software, look for these core features:

Real-Time Metering

This feature refers to the billing software’s ability to monitor service usage in real-time. It carries out precise charge calculations based on consumption levels. It is able to track consumption based on various usage metrics discussed above: tokens, API calls, computational power, etc.

Advanced billing systems simplify complicated invoicing scenarios. They offer customers clear and straightforward pricing that helps foster trust. They are also flexible enough to support different usage-based billing strategies, such as progressive billing.

Support for Tiered Pricing

The software must offer tiered pricing, as it helps adjust costs based on usage volume. AI companies can offer multiple tiers for their service use, such as tiers based on tokens. There can be a fixed price per token for, say 0-10,000 tokens. And discounted price per-token for the next 10,000 tokens.

Tiered pricing is a great way to incentivize customers to increase usage. It offers benefits to both customers and businesses, creating a win-win situation. It allows customers to save on costs, while enabling businesses to maintain profitability.

Subscription tiers allow businesses of different sizes to clearly choose the right plan for them. They also make billing easy by organizing service usage into measurable brackets.

Smooth Integration

In order to carry out seamless billing, the billing software first needs to integrate with the AI platform. That is why it is important that the software supports flexible integrations. Otherwise, there would be too much manual effort required.

Robust billing software enables real-time data syncing with AI-platforms. It tracks usage as it takes place, including monitoring of micro-usage.

Self-Service Portals

Self-service portals are essential for customers to track their own usage. They can easily monitor, for example, how much tokens and API calls they have consumed. This allows them to be in control over their usage, and ensures that they are charged an expected amount.

Enterprise-level clients can also benefit from customer dashboards to track usage for multiple AI services. They might distribute service access across departments, and monitor each department’s usage separately.

When customers are able to view their consumption levels, and associated charges clearly, it minimizes chances of payment disputes.

Invoice Automation

Without automation, usage-based billing can become a nightmare. It involves billing calculations on so many different levels, and according to a variety of models. Manually tracking and keeping pace with service usage is not possible. It can be highly imprecise, and slow.

Advanced billing software automates usage tracking, and creates accurate customer invoices accordingly. It does not leave any room for mistakes. Moreover, it also automates billing based on the unique payment cycle of each customer.

Additionally, it supports invoicing in multiple currencies, to cater to the customers of international companies. It also helps apply accurate taxes on invoices based on business location.

Scalability and Compliance

System scalability is a must, because AI-service usage is unpredictable. Billing software must be able to process both micro and large usage volumes. Only then can it conduct billing efficiently. Scalability also ensures that the system doesn’t crumble under pressure when service usage spikes.

Compliance with popular data security standards such as HIPAA, and GDPR is also vital. The reason is that certain AI-services, such as language models, may process sensitive customer information. This information must be kept secure to prevent data breaches.

SubscriptionFlow Powers Effortless Usage-Based Billing for AI Services

SubscriptionFlow is a flexible billing engine that makes usage-based billing frictionless. We support a range of usage-based billing models, and let you implement custom billing workflows. You can rely on SubscriptionFlow for real-time monitoring of your unique usage metrics.

We are here to simplify complex calculations for you. SubscriptionFlow integrates deeply with your AI system to precisely measure product usage. Our flexible APIs make integration seamless, ensuring that your developers don’t have to build from scratch.

With SubscriptionFlow, you get access to all these benefits and more:

Automated payment cycles: Track billing schedules, generate invoices based on usage, automate subscription renewals, prorate charges, and manage refunds.

Automated billing adjustment: Manage subscription plan changes, and automatically apply discounts and promotions.

Support for prepaid credits: Your customers can keep credits which are deducted according to AI-service usage. They can access services more flexibly without fully committing to them.

Smart Dunning: Recover failed payments, and maximize renewals. Automatically retry failed payments, send personalized payment reminders, and offer customized grace periods.

Seamless Scalability: Monitor and quantify increasing usage without facing hitches. Easily track service usage at a micro-level, and create accurate invoices for many customers at once.

Customized Invoicing: Invoice in multiple currencies and formats. Create unique invoices according to different customer segments. Easily consolidate invoices for micro-transactions.