Flat subscription rates? Nah man that’s for your grandparents. Usage-based pricing is where it’s at. Some squares call it metered service but it means you only use what you pay for.
Usage-based pricing is definitely having a resurgence, and there are some big advantages to offering it and using it as a customer.
Here are five things to know about UBP, a.k.a. usage-based pricing.
- Usage-based pricing makes trying a service less risky. If you don’t have to commit to a flat monthly payment, it’s easier to justify trying a service for a small number of people or a small sector of your business, as a test.
- Usage-based pricing can be more efficient. Rather than subscribing to a cloud service that will always cost the same no matter what behavior your developers exhibit, usage-based pricing lets you adjust and use tools like activity-based costing. You might move to serverless computing as part of this.
- Pricing models vary. Some are per unit. Like Twilio charging you per API call for example. Some are pay-as-you-grow, meaning you license capacity and as soon as you hit the max you add more capacity.
- Usage-based pricing can complicate budgeting. The advantage to a flat rate is you always know what it will cost you. But with usage-based pricing you may run into cost overruns because of unexpected usage. So, it may not be right for every service in every company. That’s true if you’re a provider, too. If all your customers suddenly use a lot less, your income can plummet.
- There’s no lock-in. Good for customers; bad for providers. Flat rates often come with annual contracts. Usage-based means switching can mean you just stop using the product and you don’t have to pay. Providers can make switching less attractive with a good product and customer service of course, and with discounts, especially discounts at usage thresholds.
Whatever you think of UBP, it’s on the rise. OpenView Partners estimated 30% of Software as a Service companies had a UBP model in 2019 by 2021 that was up to 45%. So, there are certainly plenty of options out there.
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