Usage-Based Pricing, or UBP, is prevalent among SaaS businesses. Studies say it is the second most popular pricing model used by SaaS companies because it is ideal for a product-led growth model.
However, despite its popularity, 29% of companies lack the expertise to implement UBP, and many do not realize that implementing this pricing model is more than just a pricing modification.
You can find more here to further your SaaS metering and billing software (https://www.togai.com/) knowledge.
Usage-Based Pricing: What is It & Why is It Significant For SaaS Businesses?
Usage-based pricing is a pricing model where businesses charge the customer only for the amount of product or service consumed. SaaS is a newcomer on the UBP list compared to water, electricity, and gas – three things people have been paying for based on how much they have consumed for a particular period, usually a month.
When implemented well, UBP delivers benefits multifold for the customer and your business:
- It ensures transparent pricing since customers know precisely what they are paying for.
- It gives customers more control over their expenses and maximum flexibility.
- It creates a low entry point, enabling customers from all walks of life to experience your product regardless of the price.
- Customers can continue with the same plan despite sparsely using the product or service. This approach boosts customer retention.
However, let’s not forget the UBP is not a pricing model to be messed with. It requires a nuanced, well-researched approach or can backfire and cost you money and resources. Togai, a predominant metering and billing platform for SaaS, explains how to handle this pricing model with finesse.
4 Key Strategies to Successfully Execute Usage-Based Pricing
1. Get your data organized.
One primary requisite for UBP is to organize your usage data no matter how many sources you have to collate from. This is because data about your sales and consumption may come from various sources that are not internally aligned. Hence, developing an effective strategy for collecting real-time, accurate usage data from clients is crucial to implementing USB correctly.
2. Find your value metric.
To bill your clients, you need to zero in on your value metric. The most common value metrics for UBP are the number of API calls, number of queries, volume of water, units of electricity, etc.
When setting a price for your product, it’s important to charge based on a metric that closely relates to the value your customer gets from it. The price should be a percentage of that value.
You can build a usage-based pricing program once you have identified your metric. You can also expand the pricing vectors as your business expands and you add more features to your product.
3. Help customers manage costs.
Since usage-based pricing is flexible and allows unlimited consumption, most customers will want to keep an eye on their product usage and expenses. Providing real-time monitoring, alerts, and regular reports for usage-based pricing is essential to ensure cost management.
Customers can better manage their expenses by tracking usage and making informed decisions about using your offerings. You can also provide real-time email alerts and automatically suspend service when customers cross a certain consumption threshold. It is very important that your customers are not caught unawares with unexpectedly high bills, which makes them feel like they have no control over their expenses with your product.
4. Evaluate the value of customer journeys.
UBPs’ lack of price commitment is one of the biggest factors that attracts customers to the pricing model. An ideal situation is where you want your client’s business to expand and your usage to increase. Unfortunately, that may not be the case with all clients. Some of them may not be as profitable as you expect them to be.
To mitigate the variables, evaluating each client’s journey and managing them in a portfolio is best. Your sales team should focus on identifying and nurturing potential large accounts while still profiting from the long tail.
5. Help your customers arrive at a budget.
New customers may find it confusing to predict their usage amount in a given period. In such cases, your sales team can lend a helping hand to calculate their estimated usage and expenses.
Rather than burdening your customers with finding an easy way to benefit from UBP, you can simplify their tasks by:
- Offering hybrid pricing, which is basically a combination of UBP, subscription, and tiered pricing.
- Proving calculating tools on your website for customers to monitor their monthly or annual expenses.
6. Train your sales team.
Initially, your clients may use your product without any assistance from your team. But it will last only for the free version. As they upgrade to higher plans, you may want to build a well-informed team capable of answering customer queries. Providing excellent customer service is a key essential for UBP.
To Conclude
If you are yet to start your journey to implement UBP, create an opportunity to do it today. Our valuable tips should ease your efforts and save you a lot of time and resources. Good luck with achieving success with UBP.