Posts Tagged ‘Usage’

The Appeal of Usage-based Billing

May 30, 2018

One of the strongest drivers of customer satisfaction is a customer’s perception of value for money.  Value for money is judged by how much a customer pays in return for what value they receive as a product or service.

Environmental and Ambient Data

Applying this logic to service billing models, we can deduce the following patterns;

Fixed Recurring Charges

With fixed recurring charges, the customer will perceive good value for money when their service usage is high in relation to the fixed service charge, but will perceive bad value for money when their service usage is low in relation to the fixed service charge.

In this model, the service supplier wins if service usage is low and the customer’s value for money perception is low, the service supplier loses if the service usage is high.

It can also be said that the supplier wins when the customer loses and the supplier loses when the customer wins.

The pricing of fixed recurring charges tends to be limited by what the customers with low service usage will be prepared to pay, within their perception of value for money.

Usage-Based Charges

With usage-based charges, customers should perceive a consistent level of value for money, regardless of the amount of service usage.  The overall cost of the service will be proportional to the level of service usage. In theory, the value for money perception should be similar regardless of whether customers are high or low service users.

The pricing of usage-based services should therefore not be restricted by a value perception of a subset of customers, but rather the value perception of all customers.

With a usage-based charging model, the supplier and customer can both win at the same time.

Overall Revenue can be Higher for Usage-based Billing

My experience through working with Datagate’s clients, is that when a service supplier replaces a fixed price model with a usage-based pricing model, they can generally increase their overall revenue significantly.

This was demonstrated most recently in a case study for Texas-based Ranch Hill Water Supply Corporation, who achieved a 26% revenue increase after implementing a usage-based charging model, using Kamstrup measurement systems, Datagate billing and Xero accounting software.

 

Opportunities in the “Usage Economy”

November 20, 2016

Given my location in New Zealand and all the earthquakes that have occurred here recently, I’m not sure if it’s in good taste for me to talk about “seismic shifts” in business, but that’s certainly how I would describe the enormous change in consumer behavior that’s been evolving over the last decade and which is still evolving rapidly at this time.

The Cloud and smart phones have influenced customers’ attitudes and expectations. Consumers now expect a more immediate service experience and they are more inclined to subscribe to services than in previous decades. I refer to this as transition to the “usage economy”.

The “usage economy” is that which is based on consumers paying to use a product or service. Rather than buying an asset, they are more inclined to just pay for the use of that asset. The amount they pay is usually based on how much they use the product or service. This is the fundamental business model of the Cloud, on-line services, IoT, utilities and many other business categories (both new and old). This is the “usage economy” and this is where fast business growth is happening.

An interesting development within the “usage economy” is the emergence of service re-sellers. These re-sellers are businesses that typically have existing customer bases, maybe they are I.T. service companies or support organizations, utility re-sellers or agencies. These service re-sellers have the opportunity to aggregate numerous complementary services within their offering, to become a one-stop service shop – in the same way bricks & mortar shops sell numerous products to a defined customer demographic. Combining services, gives them more sales traction, more opportunities for increasing their sales margin and differentiating themselves from their competitors.

My company, Datagate is in the business of Usage Billing for Re-Sellers. We provide a white-label, on-line billing and reporting portal that connects to usage information and generates bills and reports that can be accessed by the re-seller and their customers via on on-line, re-seller-branded portal. Today we provide this essential service to re-sellers of telephony, utilities and on-line Cloud services, but the growth of the wider “usage economy” is bringing in new opportunities for us to service an increasing range of usage-based businesses.