When SaaS companies think about growth, they usually think about customer acquisition and retention. However, the most important factor in creating profitable growth is actually effective monetization. Research finds that a 1% improvement in monetization yields a 12.7% impact on growth. In comparison, acquisition delivers a 3.3% improvement and retention produces a 6.7% improvement.
Usage-based billing is one monetization strategy that is really paying off for large SaaS businesses. In Q1 2024, growth for usage-based or hybrid billing averaged 27%, whereas flat subscription pricing declined from a 19% growth rate in Q4 2022 to 12% in Q1 2024.
This is because B2B customers are more willing to make variable, consumption-based investments in the face of economic uncertainty rather than committing to a fixed contract. Increasing business software costs are challenging CIOs to balance cost-cutting against continued investments in technology, while they’re still under a mandate to deliver against operational needs. Rather than forcing CIOs to consider moving their dollars to other vendors, providing the ability to align cost to value with a consumption-based model allows them to regain a sense of control.
Making the shift to usage-based billing
Shifting your monetization strategy to include a consumption variable ties value to costs for your customers. It becomes a “pricing-as-a-service” model based on the value created. But for this approach to be effective, you need to understand how customers perceive the ROI they gain so that you can choose the right metric/variable and sell based on what they value. This makes deciding to buy your products easier as there’s clarity around the path from cost to perceived value. The same is true for existing customers deciding to stay.
The key to enabling consumption-based monetization strategies lies in using an advanced billing platform. This is because you need clear, accurate and timely data – whichever variable you choose to meter for usage. Automation is also essential to achieve economies of scale, along with efficient customer-facing operations.
However, an effective consumption model isn’t reliant on usage data alone. The right billing platform will also track user behavior, product usage across features, account inquiries, and more. Your customer-facing teams – from product managers to customer service to revenue assurance – rely on this data to continuously optimize pricing and packaging, improve customer experiences, and minimize revenue leakage.
Implementing usage-based pricing or creating hybrid pricing models that combine subscription and consumption can help to improve revenue predictability, more so than straight consumption models. Likewise, a hybrid usage model can entice upsells and potential cross-sells to additional users within the account at lower cost compared to new customer acquisition.
An advanced billing platform enables an outside-in approach
For SaaS companies, the hard work starts once the customer is onboarded. With usage-based billing, product usage is critical, so it is essential that the customer experience you deliver aligns with their realization of the value you promised.
When you provide transparency by giving customers access to their usage data in near real-time, they feel like they have control over their costs. But access to data invites more customer inquiries. An advanced billing platform that uses AI to surface data and context around customer inquiries enables your customer service agents to provide a more satisfying first-call resolution and reduces mean time to resolution (MTTR). AI can also recommend the next-best action to bring a customer’s reality back in line with their expectations.
SaaS businesses recognize the opportunity for AI to play a crucial role in customer service, satisfaction, and retention. Using AI in customer-focused functions provides both internal and external value in delivering a successful customer experience. Customers demand personalization, recognizable value, and flexibility. An advanced billing engine supports the delivery of all three.
Every customer-facing role benefits from on-demand access to customer insights and data related to the impact their actions have on the customer experience – including AI agents. You’ll no longer be guessing what happens across the customer lifecycle, you’ll know. This means you’ll be able to act as needed to help your customers gain the optimal outcomes they expect, resulting in stronger loyalty, greater consumption, and higher lifetime value.
Take a deeper dive into the value of advanced billing models for SaaS
Read our eBook – Revolutionizing SaaS Growth: Leveraging Advanced Monetization Strategies for Sustainable Success – to learn more about:
- The case for enhanced billing models
- Business considerations for adopting advanced billing models
- The role of a sophisticated billing system
