TL;DR
- You might remember when phone calls were metered in the 80s; that concept has evolved into metered services across various industries.
- As a customer, metered services allow you to access unlimited resources but only pay for what you consume, offering transparency and potential cost savings.
- Metered pricing is gaining traction in enterprise IT, highlighting its growing relevance and adoption in modern business environments.
- Common users of metered pricing include your electricity and water providers, telecom companies, SaaS platforms, and cloud computing services.
- The upside for you is paying only for what you need, which can lead to savings and a sense of fairness, while companies align revenue with actual usage.
- Metered usage insights can improve customer lifetime value (CLV) and inform future development, demonstrating the strategic benefits beyond billing.
- Challenges include difficulty in forecasting revenue and the necessity for advanced billing systems and professional development teams.
- If you're considering metered services for your business, make sure your product usage is easily measurable and that you have an appropriate pricing strategy in place.
Metered services have been around for a long time. They were introduced by many local phone service providers in the 1980s to replace flat rates for local service. At that time, subscribers would pay a small amount for every minute they received or made a call.
It was a time when subscribers rarely made telephone calls. Those who rarely used the telephone saved a great deal of money with smaller bills. However, as time passed and telecommunications evolved, many subscribers could not use measured services for local phones due to widespread Internet use and dial-up services. Yet, metering remains a viable billing option in many different applications.
A Quick Intro to Metered Or Measured Service
Metered services are also known as pay-per-use or measured services. In this payment structure, the customer can access unlimited resources of your product or service within a designated period but pays only for the resources they use. Unlike the model of paying a flat fee to gain unlimited access to the resource on a recurring basis, this model does not require you to pay for each use.
In this delivery model, the service provider has detailed information about the resources consumed, enabling them to generate bills for their services. Moreover, the customers also learn how they are billed for the help they have used.
In order to measure services, metering capabilities must be appropriate to the type of service consumption. By measuring services, both entities gain insight into what resources are consumed and which applications or customers use them.
Take, for example, cloud computing resources. The metering is based on:
- How storage space the customer uses in the cloud
- How much processing power do they use
- Amount of network bandwidth consumed (OR) the number of active user accounts.
Metered pricing is fast gaining traction in enterprise IT environments. The following examples demonstrate how you can charge customers based on metered usage.
4 Best Use Cases of Metered Pricing
1. Utility service providers.
The most common users of metered pricing are your electricity and water providers, who charge you depending on how much power or water you have used. The usage is measured with a metering device, and they bill you every month or on a quarterly basis. The charge is based on per unit of use. Your utility provider charges extra for every additional unit consumed when you cross a certain threshold.
2. Telecommunication providers.
When you use your phone, your telecom provider charges you based on:
- How many minutes do you use their service
- How much data you consume
- How many texts do you send or receive
Most telecom providers charge their customers on a monthly basis at a rate per unit of usage. Internet service providers (ISPs) also use a model in which a flat monthly subscription fee is replaced by a charge determined by actual usage.
3. SaaS companies
Most often, SaaS services are offered on a subscription basis. Users are charged for emails, sms, and when they process a specific number of records. You can, for instance, measure how many emails your customers send every month and bill them for the total number of emails sent at the end of the month.
4. Cloud service providers
Microsoft Azure and Amazon Web Services bill their clients based on how much storage, computing power, and bandwidth they use. Most cloud providers bill their clients on a pay-as-you-go basis, which charges customers only for the used resources.
Metered pricing has its benefits, evident from the number of diverse businesses adopting it. Let’s take a closer look.
Also read: Demystifying Metered Billing in Cloud Infrastructure
Benefits & Drawbacks of Metered Services For Businesses
The Benefits
- Customers using less than the average amount can benefit from metered usage and billing.
- Companies or service providers can benefit from this since revenue can be better matched with costs.
- Since customers are charged based on the actual resources they use, they feel that they are charged fairly. They do not have to pay for the features they do not use.
- Customers have a sense of control over their expenses as they know exactly how much they are paying for the resources they have used.
- Business owners have a better understanding and control over customer behavior and consumption.
- Consistent customer behavior analysis allows companies to understand their requirements and the reasons driving them.
- Metered usage insights can improve more than your customer lifetime value (CLV); they can help you understand future development requirements.
The Drawbacks
- Revenue prediction is not always accurate because there’s no way of knowing how much product customers will use.
- Complex customer design and configuration calls for the right team of skilled and experienced developers to implement it.
- There’s a pressing need for a round-the-clock billing system that operates without failure. If not, you can lose both revenue and customers.
Another aspect you should consider is that subscription billing can end in an unstable billing structure, especially for businesses heavily reliant on such services.
If you want to adopt metered services, consider some criteria to ascertain if it is the best fit for your business.
5 Criteria to Consider Before Choosing Metered Services
Consider if you have:
1. A product whose usage can be broken down into quantifiable units easily identified and understood by your customers.
2. A value metric for your product. A value metric is a metric on which the product’s usage is monetized. Value metrics differ for every business. Some common value metrics are:
- Number of users
- Number of events
- Volume of data used
3. A suitable pricing model for your metered usage. In this context, your knowledge of usage-based pricing will be handy in choosing the best pricing option and determining the best price for your offerings. Check the different pricing types of products or services since each one has advantages.
4. Fluctuations in your customers’ usage patterns. In cases where overage charges are infrequent, elastic pricing models that cater to occasional overages may be suitable. However, choosing a higher, flat-price tier could save you money if usage is consistently high.
5. Higher pricing tiers for your service or product. When determining whether metering services will save you money, it's important to calculate typical total usage metrics over several billing cycles.
Metered Usage: A Cost-Effective Solution
The main highlight of metered utilization is that it enables customers to pay only for the resources they actually use. This freedom also increases their satisfaction with the product and the organization. From there on, customer acquisition, retention, and business growth are easy to handle.
If your business fulfills the above criteria and wants to implement metered usage, you can call on the Togai team for expert guidance. You can also schedule a demo to see how Togai, our pricing implementation platform, helps you implement any strategy ten times faster and in less than a day. Book a demo today!
