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What is usage based pricing?

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Last editedApr 20222 min read

Usage-based pricing is a business pricing model that allows customers to pay only for the products they use, as and when they use them. It is a relatively recent alternative to the traditional upfront purchase and recurring subscription fee pricing models, and is becoming particularly common with SaaS products.

Here we discuss the advantages of the usage based model, and how it can benefit your business and your customers.

Benefits of SaaS usage based pricing

The advantages of a usage based pricing model for SaaS products are especially attractive as they equally benefit both the client and the customer. For example, customers enjoy the flexible pricing provided by the various pay-per-use business model examples. It allows them to scale up or down their usage according to their needs which can change significantly from month to month.

The main benefits for the customer include:

  • low initial cost to get started

  • price directly related to value received

  • month-on-month flexibility

  • customisable SaaS product

The benefits for the client providing the usage based product are another big part of why this pricing model has massively grown in popularity in recent years. These benefits include:

  • low initial cost attracts more customers

  • customers can be monetised over time

  • much wider customer base

  • costs scale with user growth

By using a usage-based pricing model, your business will attract more customers who will be happy to try out the elements of your product that are immediately useful to them. Their continued use of your product then enables you to monetise them over time. This is because the price the customer pays to use the part of your product that is relevant to them is directly related to the value they receive.

The other big benefit of a pay-per-use business model is that you are not limiting the number of users who can access your product by pay-walling it behind a large upfront purchase fee or an often unnecessary commitment to a subscription.

Instead of restricting your customer base to those who need to use your product regularly, you benefit from those customers who only need it irregularly. This includes cash-strapped start-ups and small businesses as well as larger corporations and even individual entrepreneurs.

Pay-per-use business model examples

There are a variety of metrics that can be applied as usage based pricing examples. The exact criteria will obviously depend on each unique business model and the products being provided.

The most important factor is that each business chooses the right kind of usage metric that will help them consistently grow their customer numbers and demonstrate their product’s value. It also helps if the usage metrics are predictable in order to generate accurate forecasts for business growth.

Some of the more successful pay-per-use business model examples in recent years include the number of external users a product has, the number of tasks being automated through the product provided, or the volume of data computed through the platform.

We can help

GoCardless enables businesses to collect payments directly from their customers’ bank accounts. It is easy and cost effective.

GoCardless can be used both for recurring and one-off payments. Perfect for subscription businesses.

Collecting directly from the bank account, via direct debit, puts the business in greater control of incoming payments as it is pull based, i.e. the business controls payment amount and date.

Leveraging Instant Bank Pay, GoCardless’ solution for collecting one-off payments directly from customers bank accounts (powered by open banking), enables greater control for one-off payments where the payer wants to authorise each individual payment. One use of Instant Bank Pay is a deposit or initial set-up fee, before continuing with a regular subscription payment.

If you’re interested in finding out more about SaaS usage based pricing, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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