Events-Based Billing: Leveraging Actions to Provide Value-Based Billing - Deepstash

Events-Based Billing: Leveraging Actions to Provide Value-Based Billing

The ability to bill customers based on how they consume your product is a powerful and non-arbitrary pricing methodology which effectively increases usage and revenue. 

By leveraging user actions to provide value-based billing, both you and your customers end up winning. 

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MORE IDEAS FROM 3 Ways to Employ Complex Usage-Based Pricing

Usage-Based Pricing

Usage-based pricing is a go-to-market model where the customer pays based on how much they use your product or service. 

It goes by many names: consumption-based pricing, pay-per-use pricing, and pay-as-you-go pricing.

The simplest examples of these are utility bills like water and electricity.

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For SaaS companies that have implemented usage-based pricing, the journey toward effective implementation of Events-Based Billing is halfway complete. 

You have effective tools and processes for gathering the necessary data that is necessary to measure and price your offering based on specific-usage. You just need a way to bill on it. 

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Level 1: Pay As You Grow

This model increased product adoption by allowing first-time customers to try their service with no commitment for the first 3 months.

Level 2: Pay For Actual Consumption

This model allows companies to keep their services simple, cost-effective, and price-eficient, without missing out on the complexity needed to cover their own operating costs.

Level 3: Hourly Measurements / Hybrid Monthly-Hourly

This pricing model is the epitome of true value-based pricing because their customers are only paying for exactly what they use. 

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Cloud computing is on-demand access, via the internet, to computing resources—applications, servers (physical servers and virtual servers), data storage, development tools, networking capabilities, and more—hosted at a remote data center managed by a cloud services provider (or CSP). The CSP makes these resources available for a monthly subscription fee or bills them according to usage.

Cloud computing has the following benefits:

  1. Lower IT costs
  2. Improved agility and Time-To-Value
  3. Better scaling.

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Retention measures how long your customer stays actively engaged with your product or business.

The two key retention metrics are:

  • Core retention: The total number of active users after a specific time period.
  • Proxy retention: These are action-based metrics. They are the core actions users need to take to support your model. It is not pure retention but an action that should lead to retention at some time.

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Madhavan Ramanujam, board member and Partner at Simon-Kucher & Partners (a global strategy consulting firm) answered this question during Office Hours at Redpoint in Aug 2021. He is the author of Monetizing Innovation.

Massive companies have been built using both pricing structures: Salesforce and Adobe bill per seat while Snowflake and Twilio charge per use. Deciding which to use involves considering factors such as customer preference and competition.

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