MSPs


Introducing usage metering To minimise both subscriber loss and revenue leakage, companies need to take greater advantage of the data that their users create on a daily basis. Ultimately, every digital company creates data which can be collected, sorted, and ultimately monetised through usage metering – the action of measuring usage. A usage metering tool can provide accurate and detailed usage


summary records to the billing system. Usage metering tracks the number of active users, storage consumed, compute times, and other metrics that suggest how much the service is being used. With a greater understanding of usage, businesses can launch and optimise usage-based pricing. Tis pricing strategy means that customers are charged entirely based on their usage of a SaaS product. A fairer and more cost-effective solution for customers. Due to the inherent nature of usage-based pricing models,


certain customers may find themselves paying less than on a fixed subscription model. While this might appear counter-intuitive, there is a deliberate strategy at play. Taking a usage-based approach demonstrates a clear understanding


of your customers and their preferences. By aligning pricing with actual usage, a strong foundation for trust is built. Customers recognise the direct correlation between the product’s value and the associated cost, leading to increased satisfaction, retention, loyalty, and longer-lasting relationships. Pricing strategies that acknowledge and mirror customer value have


proven to be very effective. According to research from the Subscribed Institute, subscription-based companies generate 50% of their overall revenue through usage-based pricing, experiencing 1.5 times more growth than companies without such models. In contrast, indiscriminate increases in prices oſten prove ineffective


and may even frustrate customers. Tis was evident recently when Ring Doorbell took a blanket approach to price hikes and increased the price of its soſtware by 40%. Feedback indicated customer dissatisfaction, with many questioning the value of the package based on their usage and available features. If companies fail to demonstrate the value in paying for their premium service each month, they have little chance of retaining customers who do not see the value of usage. Opting for a usage-based pricing approach not only feels more


equitable to customers but also lowers entry barriers for customers. While customers may begin with a lower-priced subscription, when customers see the value, they tend to increase their usage which will result in the move to a higher-paying plan in time.


Managing the transition for customers By nature, usage-based pricing models mean some customers will now be charged higher costs. Businesses need to navigate this transition carefully to ensure that customer satisfaction is protected. Raising prices for the most active users can help counterbalance the revenue decrease from these adopting lower-priced plans. However, adjusting pricing for highly engaged customers can be a delicate task, as retaining this segment is crucial. Tere can be a worry that such increases may prompt these customers to cancel their subscriptions entirely. But, what’s evident from their usage patterns is that the product


plays a vital role in their business, and they heavily rely on it because of the genuine value it provides. In such cases, a small price increase


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is unlikely to lead to subscription cancellations. Alternatively, offering them the choice between usage-based or flat-rate subscriptions allows them to opt for the option that best aligns with their preferences. A successful transition hinges on the ability of the soſtware to


effectively demonstrate and communicate the value of it. Tis underscores the importance of aligning communication strategies with pricing updates, an aspect that may have been lacking in Ring Doorbell’s recent pricing adjustments. Tis is where transparency and honesty are paramount. To maintain


customer loyalty, immediate and informative communication is essential. Outlining what changes customers should anticipate is critical to protecting customer satisfaction. Communications should also emphasise the features and functions


unlocked by their premium higher-tier service, serving as a reminder of the overall value they receive.


Maximising revenue potential with data insights Usage-based pricing strategies not only enable businesses to reduce churn and revenue leakage but also allow them to uncover upselling opportunities. When the metering tool reveals that the customers on an entry-level package are using the service to its fullest extent, it presents an opportunity for the business to suggest an upgrade to a slightly higher price. Also, with greater data-based insights, comes the ability to offer


more personalised recommendations to customers. By personalising the experience, customers are likely to feel a stronger connection and trust with the company as it implies that their unique requirements and challenges are being genuinely understood. Beyond upselling, analysing usage data is also helpful in identifying


recurring themes, patterns, or issues that may contribute to customer churn. Equipped with this insightful data, businesses can be more proactive. Te team can quickly address customer concerns before they impact churn rates and even notice growth opportunities. SaaS businesses hold large volumes of data that many don’t


realise harbours the potential to elevate customer satisfaction, foster retention, enhance competitiveness, and drive revenue growth. Essential to organising and making sense of this data are usage metering tools that are required to inform more strategic pricing decisions. Te financial gains from more engaged customer segments


typically offset revenue losses from lower-paying customers. Keeping those clients on a lower free or entry-level subscription proves preferable to the alternative of losing both the customer and the relationship. Tis approach allows SaaS companies to cultivate longer-term relationships and presents opportunities for potential upselling down the line. SaaS, characterised by flexibility and support throughout various stages of business growth, seamlessly aligns with the principles of usage-based pricing. In addition to optimising pricing, usage data metering serves as


a valuable resource for product maintenance and innovation too. It gives providers a real-time understanding of the challenges and requirements that their customers are experiencing. As usage-based pricing gains prominence in the SaaS landscape,


the providers that embrace these models are best positioned to retain customers and maintain a competitive edge, especially during challenging economic periods.


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