Usage-based billing is a commonly used model in the telecom, wireless, IoT, and MSP spaces. But while it is commonly used, it isn’t nearly as simple as it might sound. Without an automated, configurable billing solution, you and your team may be saddled with significant manual work related to turning usage into revenue. The good news is that there are easy ways to automate your processes and bill based on usage in an efficient way.
Here’s everything you need to know about usage-based billing, the impacts it may have on your business, and the major difference a flexible billing solution can have on your bottom line.
What is Usage?
Usage is a measure of how much of a product or service a customer consumes over a given period. The usage model is in contrast to a flat-rate model where all customers are billed the same amount for a usage range or feature set.
Usage can be measured in a variety of units, like megabytes, gigabytes, minutes, calls, and more.
Example: A customer used 100 calling minutes last month.
What is Rating?
Rating is how you determine the charge or price for a particular service or product. This can either be a flat cost per unit or a variable cost dependent on the number of units used.
Example: International calling minutes are charged at a rate of $0.40/minute.
What is Rating Usage?
Rating usage is a process of converting the quantity of service during a period of time into monetary value for a customer. Usage metering frameworks track the use of any unit type and calculate the charges for the end customer’s invoice.
Example: The price of a 100 minutes is $40 at a rate of $0.40/minute.
Considerations for a Usage-Based Pricing Model
Usage-based pricing may seem like a no-brainer for your organization. But, there are a number of potential business impacts to consider before opting for this pricing model.
Usage Data Collection
How will you gather your customers’ usage data? How will you parse and organize it? Most companies create unique identifiers for each customer, but you may need to consult further with your technology team on your data collection processes.
Pricing
Even within a usage-based pricing model, there are a number of ways you can price your product. These may include:
- Standard usage
- Tiered pricing
- Flat-rate pricing
- Volume-tiered
- Pay-as-you-go
When selecting a pricing structure, think about scalability. Many customers will respond negatively to changes in a pricing structure, because they assume they’ll result in paying more. Future-proof your structure now by selecting a usage-based billing system that can accommodate more complex pricing models down the road.
Multi-Location Customers
Consider how usage could be pulled across multi-location accounts and divided into different groups based on your end customers needs. Plan for every edge case to ensure your data can be rearranged and reformatted for the best customer experience possible.
Overages and Billing Cycles
When the threshold for usage is crossed, overage charges or payments can apply mid-billing cycle. In order to bill customers accurately, we recommend using a flexible billing system that automates processes for calculating bills and generating invoices.
Usage-Based Billing: The Manual Way
Many service providers, especially in their early growth stages, approach usage-based billing manually. The process typically consists of five steps, which are completed at least once per billing cycle. Because of the number of steps and the frequency with which they must be completed, this process can be tedious and slow down growth momentum.
Acquisition
The first stage is acquisition, where usage data is acquired from various source systems.
Transformation
Next, the data is reformatted and transformed for further processing. All of the data is usually collected into one main spreadsheet or database. This may include conversion of usage data into a common standard or measurement.
Pricing/Rating
Once all of the data has been collected, formatted, and converted as needed, a rate or price is applied to it. Many companies have several pricing models with different rates for different usage levels or packages. This is how you monetize your offering.
Pooling
Next, data is pooled throughout the organization, across resellers, departments, and any other entities that impact the charged price. This data can be used for reporting and analytics, comparison, and future price adjustments.
Thresholding
Transparency is everything when it comes to usage-based billing. Thresholding refers to setting certain usage limits or caps. In order to keep customers satisfied, you’ll want to alert them when they near, reach, and exceed these limits. In some instances, exceeding these limits unexpectedly may incur additional charges.
Usage-Based Billing: The Easy Way
Handling usage-based billing manually can slow down your team and cause efficiency issues as your organization scales and grows. The good news is that there is an easy and accessible way to handle billing without hours of manual effort.
Our telecom billing platform helps organizations across the country streamline their usage-based billing processes while monetizing and growing their businesses. Whether you’re looking for assistance managing offerings, updating financial processes, or handling customers accounts, Rev.io can help.