The Rise of Usage-based Pricing in SaaS Landscapes
If you are involved in the SaaS industry, you must surely be aware of the significant transformation taking place in billing methods. This is what has occurred: Traditional pricing models, which were based on annual licenses, have now been replaced by subscription-based pricing, allowing customers to make monthly payments.
Nowadays, even if SaaS products do not require human users, their value is determined by usage metrics like:
- Software Development Kit usage
- API hits
Pricing is now shifting towards variable and consumption-based models to better align with the value that customers perceive, thus giving rise to consumption-based pricing, also known as Usage-Based Pricing (UBP).
The benefits of shifting from traditional flat-fee pricing to usage-based pricing are multifold. SaaS businesses are now able to:
- Cater to customer requirements
- Implement more accessible software solutions
- Manage their software expenditure with more flexibility
- Democratize access to quality software for SMEs
The high-stakes situation has resulted in the emergence of extensive internal teams focused on back-office operations and engineering. These teams are responsible for the constant and meticulous monitoring, measuring, reporting, reconciling, certifying, and invoicing based on usage.
Handling something as complex as usage-based billing can be quite challenging for teams already overloaded with tasks and responsibilities. To successfully implement usage-based pricing, it is imperative to have a well-integrated billing infrastructure that can effectively handle the intricacies associated with managing usage data.
Here's where specialized subscription management tools make it easy to handle usage-based billing processes. But are these traditional tools really designed to handle the complexities that come with usage-based billing?
To answer this question, we must first understand the basic requirements of usage-based billing.
Usage-Based Billing And its Key Requirements
Togai, the metering and billing platform, suggests that to effectively implement usage-based billing, you require a robust billing platform that is capable of:
- Seamlessly integrating usage data with the billing process.
- Consistently tracking product usage and other relevant metrics.
- Effortlessly processing a high volume of data into aggregated usage metrics, which serve as the basis for customer charges.
- Accurately recording the software usage duration and forward the processed data to the billing system.
- Establishing a real-time start and end date during which the software usage occurs.
Despite the complex demands of usage-based billing, platforms offering traditional subscription tools were quick to capitalize on the model's growing popularity. However, their attempts to integrate it into their existing infrastructure haven't been unsuccessful. Rather, it has exposed the traditional platforms' lack of compatibility, limitations, and gaps in handling usage-based billing.
In simple terms, these platforms lacked the specialized infrastructure required for UBP. How? Here are the details.
How Traditional Billing Platforms Fall Short of Handling Usage-Based Pricing
Managing and accurately billing end users for their usage can be overwhelming, especially for customers using consumption-based pricing. Traditional subscription tools are often too inflexible to accommodate this model, leaving customers in a bind.
To tackle this challenge, numerous organizations depend on tailored scripts and extensive engineering resources to construct their billing infrastructure, which often takes months, if not years, to finalize.
Also, traditional billing systems can significantly increase the workload for finance teams because they need to ensure the system is adequately equipped with:
- Controls for easy access
- Easy auditing facilities
- Accurate aggregation and metering facilities
- Flexibility to handle credits, discounts, pricing, and business models
- A consistent source of truth across applications
So, how can organizations effectively and compliantly bill customers while flexibly implementing the business models that suit them best?
Best Approaches to Make Usage-Based Billing Work For You
To successfully integrate usage-based pricing with your existing billing system, you must fulfill certain specifications to collect and implement usage data during invoicing. This includes:
- Integrating the current metering systems with billing tools
- Handling billable metrics, contracts, and data mapping for accurate data integration.
However, the close association between metering and subscriptions may result in several billing challenges. The solution is to dissociate metering from contracts by implementing fundamental architectural changes to the existing traditional billing tools.
This dissociation between metering from contracts allows you to:
- Effortlessly integrate raw events or product usage directly into the billing process without complicated codes or integrations.
- Focus only on metering usage rather than be restricted by subscriptions and customer terms.
- Explore various pricing options while maintaining your usage metering or aggregates.
- Understand and capitalize on valuable insights gathered from your customers' usage patterns.
Investing in Togai, the usage-based pricing software, is the easiest way to gain these advantages. Togai fits perfectly with any billing model, whether license, hybrid, or usage.
How does Togai work? Togai considers all monetizable actions that are sent to the platform for metering are regarded as an event. Suppose your pricing is based on the number of API calls; the total number of events will be the number of times you call Togai's API to transmit that information.
Togai's metering, pricing and billing infrastructure is designed to seamlessly integrate with other pricing platforms like Stripe, Zohobooks, and Zuora. You can also use the platform to customize your integrations into your existing stock and internal workflows.
When adopting usage-based pricing, SaaS businesses should be ready to step aside from traditional tools and opt for robust platforms like Togai. Billing platforms like Togai are built to cater to SaaS businesses, reduce your billing time and costs, manage migration risks, customize your integrations, and address specific workflow needs.
With intelligently designed billing platforms like Togai, you can say goodbye to the stress of dealing with complex specifications and effortlessly handle your subscriptions.