Consumption-based Billing for Dummies

Written by Tina Huynh

Jun 5, 2020

The Concept

Let’s suppose you’re at a sushi restaurant. The restaurant offers a full all-you-can-eat buffet for $20 per person. This is a good bargain for you because you’re a sushi fanatic and would normally get two entrée items (~$10 each) to be satisfied. With this all-you-can-eat price, you can pay the same amount of $20 and get as much as you want. However, your friend John went with you to try sushi for the first time and wanted a small order. It would not be ideal for John to pay the full price of the buffet to eat a small portion of what the buffet offers.

This is when a more consumer-friendly pricing plan comes in handy. The restaurant came up with an à la carte menu offering a fixed price for every item, and John would pay for whatever he orders instead of the $20 package.

The all-you-can-eat price at the sushi restaurant is a similar concept with traditional recurring pricing and subscriptions. You pay either a one-time or recurring fixed amount, and regardless of your usage, you get charged the same. This would only work with a specific group of customers and would not with customers like John. To maximize the potential of customer retention and customer satisfaction, the separate menu or consumption-based option would be the solution.

Consumption-based billing provides a pricing model in which the price is based completely on captured consumption, and the customers only pay for what they use. This new pricing model is the combination of fixed pricing and subscription with
additional flexibility, transparency and cost-efficiency for end consumers.

Traditional Ways

Fixed pricing and subscription billing have been the traditional billing models businesses use. Fixed charges let customers pay a one-time fee for the product and usually cover services such as one-time setup, one-time delivery. This method does not require any financial commitment or recurring hassle between the user and provider. Recurring fees/subscriptions are often tied to contracts of annual/bi-annual/tri-annual term. Subscription billing helps build a more long-term relationship between the business and the client, and provides a predictable, recurring revenue stream. However, none of these methods provide the level of flexibility that today’s consumers need with endless variation of usage.

Flexibility for Both

One of the most outstanding pros of consumption-based billing is the flexibility that it offers to both sides of the business. The consumption-based model is ultimately more dynamic as it allows tiered pricing and it lets business charge for what their customers actually use. Companies can track and analyze usage data of the product or service, predict usage trends from their customers and update their features, promotions, etc. to maximize values and customer satisfaction. Consumers have full acknowledgement of what they pay versus what they get without hidden fees or costly long-term commitment. This gives them the peace of mind when making their purchases.

With more than 17 years in business and a diverse team of consultants from all over the world, Congero Technology Group is committed to delivering a unique billing solution that drives revenue at an affordable cost. Our experts are available to offer more information on our consumption-based billing platform and how your business can exploit its potentials.

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