Guide:
Top 10 Usage Based Billing Systems For SaaS
The world of tech has taken a steep flight upwards in recent years. Ever since the beginning of the 21st century, we are seeing very rapid advancements in technologies that are related to almost all fields of life. What’s more interesting is that these technological advancements are also changing our perception of how things work and how we can improve them.
Compared to other areas of life, advancements in tech have most positively impacted the services industry. The way individuals and companies provide services has significantly changed, especially in the last 5 to 10 years. Services have not only become more efficient but more flexible and scalable as well to encompass a wider range of customers. This change was seen to be most prominent in the Software-as-a-Service or SaaS industry. And with that, came the problem of creating a suitable billing system that did not have the rigid restrictions of traditional billing systems. The solution? Usage based billing systems!
In this article, we are going to have a detailed discussion on the top 10 best usage based billing systems for SaaS companies! We will also dive deep into the world of usage based billing systems, seeing how they work and how they are beneficial for SaaS providers! So stay with us till the end.
Author: Paul Shumsky
Last updated August 2
Contents
Overview of Usage-Based Billing Systems
Before we indulge you further on, let’s have a general overview of usage based billing systems, shall we? Usage-based billing systems are a kind of billing mechanism that are specially designed to keep track of and bill customers according to how much they use a specific service. This model is especially best for SaaS companies, where services can vary a lot in terms of usage themes, patterns and specific customer needs. Instead of charging a flat rate, usage-based billing makes sure that customers pay only for what they use, making it a very fair and transparent pricing strategy.
These systems basically rely on sophisticated metering and tracking mechanisms to monitor usage in real-time. Metrics such as API calls, data storage, bandwidth usage, and active user sessions are tracked to determine the final billing amount that can be sent to the customer. This step-by-step approach to billing provides a very accurate reflection of service usage and helps companies optimize their revenue streams as well as in pushing growth.
Usage based billing systems are particularly designed with the flexibility to handle different kinds of billing scenarios. They can not only accommodate different pricing models, such as pay-per-use, pay-as-you-go, or tiered pricing structures but can also provide other billing solutions based on the specific needs of the customer. This ability to adapt to changes is especially important for SaaS companies that offer a wide range of services or products along with varying levels of usage and demand. Take the example of a cloud storage provider that is charging customers based on the amount of data stored and accessed.
Or the example of a communication network that is billing users based on the number of amounts sent or minutes of call time used.
However it is also important to note here that the application of usage based billing systems requires a solid technological infrastructure. Before anything, companies should invest in reliable metering tools to accurately track and record the data used by customers. This data will then be processed through the billing system to generate invoices that are primarily based on the actual consumption of services. In addition to that, advanced analytics and reporting tools can also be, and are in fact, often integrated with these systems to provide insights into how customers use services. What this does is that it enables companies to make decisions that are based on data findings and optimize whatever they’re offering their users.
One of the primary advantages of usage-based billing is that it aligns with the expectations of customers. In a time where customers frequently demand more and more personalized and flexible services, this billing model ensures that they only pay for what they use. This transparency creates a sense of trust and satisfaction because customers feel that they are receiving the right value for their money. What’s more is that usage-based billing can attract a wider customer base including startups as well as small businesses that could be hesitant to commit to fixed subscription fees as offered by traditional methods.
Why Usage-Based Billing Became Popular for SaaS
There are a lot of reasons as to why usage based billing is becoming so popular so rapidly, let’s have a look at a few of them!
Flexibility
First and foremost, the natural customer demand for flexibility has been a major driver of usage based billing’s popularity. In today's quick-paced business environment, customers want solutions that can change to their changing needs. Usage-based billing offers this flexibility! The ability to scale up or down based on actual usage is a much more personalized and cost-effective solution.
Revenue Optimization
Another major reason why these systems are getting so popular is that they improve revenue! SaaS companies can gather more value from heavy users while also providing entry-level access to new customers at the most affordable costs. This leveled approach plays a major role in increasing the revenue potential across all customer segments. We can take the example of a company offering a project management tool that charges high-volume users based on the number of projects managed or the amount of storage used. At the same time it offers free or low-cost access to smaller teams or individual users.
Staying Competitive
Market competitiveness also plays a significant role in pushing the popularity of usage-based billing. As more and more SaaS companies adopt this innovative model, it has become a real competitive edge. Offering flexible billing options can actually help attract and retain customers in a saturated and high-competition market. Businesses that provide usage-based billing show their commitment to meeting customer needs and staying ahead of industry trends.
Easy Implementation
Another major driver is that technological advancements have made it extremely easier for SaaS companies to add and manage usage-based billing systems. The development of very complex metering and tracking tools, as well as automated billing and invoicing solutions, has majorly streamlined the whole process. What this kind of tech ensures is accuracy and efficiency! And as a result you have a much reduced administrative burden on businesses to allow them to focus on what’s actually important!
Customer Satisfaction
Improved customer satisfaction is one of the major key factors pushing the implementation of usage-based billing in the SaaS industry. Transparent billing fosters trust and satisfaction among customers because when they are billed based on their actual usage of services they feel the pricing to be fair. As a result, they are more likely to continue using the services. This satisfaction also means that there will be a higher retention rate and better customer loyalty. What’s more is that usage-based billing, at many times, allows customers to try out the latest features or services without choosing a long-term subscription. As a result, they are encouraged to experiment and innovate.
Personalization
And what’s better than more personalization? Usage-based billing methods are just in line with the broader industry-level move towards better personalization and customization in the SaaS industry. Customers today expect tailored experiences that cater to their specific or individual needs. By offering a billing model that aligns with the actual usage, SaaS companies can provide not just a more personalized experience but also a customer-centric approach.
Supporting Innovation
Last but definitely not least, usage based billing supports the greater shift towards value based pricing in the SaaS industry worldwide. Where traditional subscription models a lot of the time fail to capture the true value that clients utilize from a service, usage-based billing directly links the overall pricing to the total value delivered. Happy users are more likely to perceive that the pricing is fair when it matches the actual value they receive from the service.
Usage-Based Billing vs. Subscriptions
But is usage based billing actually better than traditional subscription based billing in the most true essence? Let’s make a comparison shall we? Where traditional subscription models have been the thing in the SaaS industry for quite a long time now, usage-based billing now offers quite a few clear advantages that make it a compelling case for an alternative! Understanding the differences between these two billing models is especially important for businesses considering a shift in their pricing model.
✓ Contrast In Terms of Flexibility
Subscription models are known for fixed pricing. In this model, customers pay a determined fee for a defined set of features or services used over a certain period which is usually monthly or annually. This fixed pricing provides predictability for both the company and the customer and makes things quite simple. Companies can guess revenue more accurately, while customers know exactly how much they will pay!
But here’s the catch! Subscription models are very, very limited when it comes to flexibility. They a lot of times do not align with the actual usage which leads to potential overpayment. Let’s have a look at an example here to understand this better. A customer may pay for a premium subscription plan with the most advanced features that they actually very rarely use, resulting not just in wasted resources but dissatisfaction as well. While on the opposite to it is a customer on a lower-tier plan facing usage limitations that are limiting them from using the services to their full needs.
In comparison to this, what the usage based billing model offers is variable pricing based on real usage! Customers are charged exactly according to the amount of service they have consumed. What this does is that it allows for a more accurate translation of their needs. This billing model provides very high flexibility, thus accommodating different usage levels and making it the best option for businesses that have fluctuating demands. For example, a customer using a data analytics platform can naturally have periods of high activity followed by slower times. Usage based billing in this case will ensure they only pay for the resources they actually use during those peak times.
✓ Impacts on Customer Retention and Satisfaction
Another important difference between usage based billing and fixed subscription based billing model is their overall impact on customer acquisition and retention. Subscription models can a lot of times present a major barrier for new customers, especially those who are reluctant to be bound to a long-term contract or are simply not sure about their future usage needs. Contrary to this, usage based billing with its pay-as-you-use approach, lowers the entry barrier and allows customers to start using the service with almost no commitment. This flexibility can attract a wide range of customers and increase the chances of trial and adoption.
In terms of customer retention, usage based billing offers a lot of different advantages. The transparency and fairness of usage-based pricing can improve customer satisfaction as well as loyalty. Customers are usually more likely to continue using a service when they feel that they are getting the right value for their money. In addition to that, usage-based billing allows customers to adjust their usage and spending according to their evolving needs which reduces the risk of dissatisfaction.
How usage based billing model aligns perfectly with customer expectations is especially important in the context of modern SaaS services. Customers of today’s dynamic age demand flexibility and value, and are more likely to choose service providers that offer billing models that are based on these preferences. SaaS companies can show their commitment to customer centric solutions and build stronger, more lasting relationships with their customers by adopting usage based billing models.
✓ The Impact of Variability
Another thing is that the dynamic nature of the usage based billing model means that revenue can go up and down based on customer usage patterns. This variability can be an advantage but sometimes a challenge as well. While on one hand, it opens up the opportunity for growth as heavy users contribute more to the company's overall revenue, on the other hand it requires much more complex financial management to handle this specific unpredictability. What can be done is that businesses closely check usage trends and adjust their pricing strategies accordingly to make sure that they stay profitable.
✓ Fulfilling Customer Expectations
Another major plus point of using usage based billing over subscriptions is that it aligns with customer expectations. In a traditional subscription model, customers can feel locked into a contract that does not stand for their actual needs. Usage-based billing provides a much fairer and more transparent pricing model where customers are only obliged to pay for what they use. This transparency fosters not just trust and satisfaction but often leads to higher customer retention.
✓ Innovation and Experimentation Potential
Another big pro of usage-based billing is that it can support innovation and experimentation. Customers are very likely to try new features or services if they are not bound to a fixed subscription fee. This encourages SaaS companies to continuously improve their overall offerings and introduce new services or products that meet evolving customer demands. The ability to scale usage up or down also makes it easier for businesses to respond to changing market dynamics as well as customer preferences.
✓ Cost Management
Last but definitely not least, usage based billing also supports and encourages efficient resource utilization as well as cost management. In a traditional subscription model, customers can be interested in overusing resources to get the most value out of their fixed fee. This behavior can lead to inefficiencies and increased total costs for the provider. In contrast, usage-based billing bounds customers to use resources more fairly, as their costs are directly linked to their usage. This way of pricing can lead to more sustainable and efficient usage patterns, benefiting not just the customer but the provider as well.
The summary of this is that while traditional subscription models offer predictability and simplicity, usage based billing ensures flexibility, transparency and alignment with customer expectations. By choosing and adopting usage-based billing, SaaS service providers can attract a wider, more diverse customer base, improve customer satisfaction and retention, push innovation, and optimize resource utilization. But what’s important to note here is that the choice between these billing models can depend on the specific needs and goals of the business! However, based on the given overview the advantages of usage-based billing make it a much more compelling option for most SaaS providers.
Advantages of Usage-Based Billing Systems for SaaS
But what are some advantages of usage based billing systems for the SaaS industry? Let’s have a closer look!
✓ Flexibility and Scalability
Let’s begin with the fact that Usage based billing offers unmatched flexibility and scalability. SaaS companies can, with the help of usage based billing models, cater to a wide range of customers with varying levels of usage and different requirements. This flexibility allows businesses to attract and retain customers across different segments, from small startups to large enterprises. Customers can start with a minimal usage tier and scale up as their needs grow, ensuring that they only pay for what they use.
✓ Customer-Centric Approach
Usage-based billing is based on customer expectations for more fair and transparent pricing. Customers enjoy knowing that they are only being charged for what they use, which creates a sense of trust and satisfaction. This customer centric approach can in turn lead to higher retention rates and better loyalty. When customers know that they are getting the best value for their money, they are much more likely to continue using the service and even recommend it to others.
✓ Revenue Generation and Growth
Another huge advantage of usage based billing is that it pushes revenue generation and growth! Usage based billing systems enable SaaS companies to better optimize their revenue streams. By taking the most value from heavy users and offering entry-level access to new customers, businesses can maximize their potential for revenue. This leveled approach allows businesses to manage different customer segments and gather more value from those who are using their services the most!
✓ Market Penetration
Lower entry costs that are a fruit of usage based billing have the potential to attract a broader customer base, most importantly small businesses and startups. This broad market reach allows SaaS companies to get the attention of new customers who have been discouraged by high subscription fees. In addition to that, the flexibility of usage-based billing also makes things easier for customers as they can start using the service with the least amount of investment and scale their spending according to their growth.
✓ Optimized Resource Usage
Usage based billing can help companies track usage in real time to gather valuable insights into how their services are being consumed. SaaS companies can then use this data to optimize resource allocation, improve services, and even identify potential areas where they can cut costs.
✓ Competitive Differentiation
Get the competitive edge you want with usage based billing! Offering a usage-based billing option can, in many ways, set a SaaS company ahead in a competitive market. It shows a commitment to meeting customer needs and providing flexible, more cost effective solutions. This added plus can be a major factor in attracting and retaining customers who prioritize transparency and fairness.
✓ Customer Engagement and Loyalty
Another major pro of usage based billing is that it promotes customer engagement and loyalty. Customers are far more likely to engage with a service when they know they are only paying for what they are using. This engagement leads to better satisfaction and retention rates, as users feel that they are receiving ideal value for their money.
✓ Valuable Insights
Usage-based billing systems provide valuable insights into customer behavior and usage patterns. By tracking and analyzing usage data, SaaS companies can gain a deeper understanding of how their services are being utilized. This information then can be used to optimize services, improve customer support, and even identify opportunities for upselling and cross-selling.
✓ Enhanced Customer Experience
The flexibility and transparency of usage-based billing aligns exactly with customer expectations for personalized and services that are value driven. Customers love the ability to pay based on their actual usage, which drastically reduces the risk of overpayment and also makes sure that they receive full value for their money. This alignment with customer expectations can not just improve satisfaction and loyalty but can also promote long term relationships with valued customers.
✓ Driving Innovation
Last but not least, usage based billing can support and push innovation within SaaS companies. The flexibility of this billing model encourages executives to experiment and innovate, as customers are more likely to try new products and services without the hurdle of being bound to a long-term subscription plan. As companies will receive valuable feedback from customers, this experimentation can drive product development and improvement to support more diverse customers!
Top 10 Usage-Based Billing Solutions for SaaS
Velmie offers a comprehensive usage-based billing software tailored for SaaS platforms of any size. It allows businesses to quickly launch and iterate on various pricing models without needing to write any code. The platform supports extensive integrations with popular tools like Stripe, PayPal, Salesforce, and QuickBooks, ensuring smooth setup and automation of billing workflows. Velmie's features include real-time data ingestion, flexible pricing plans, and detailed analytics, all designed to enhance operational efficiency and customer satisfaction. Request a demo today to discover how Velmie's scalable infrastructure can drive growth and boost customer retention.
Togai, now a part of Zuora, is a SaaS metering and pricing platform designed to help businesses monetize their digital products and services effectively. Founded in 2022 and headquartered in Delaware, USA, Togai offers a robust solution for capturing and processing usage data, calculating complex pricing models, and generating accurate invoices.
Chargebee is a comprehensive subscription management and revenue growth platform designed to help businesses optimize their recurring revenue operations.
Founded in 2010 and headquartered in Chennai, India, Chargebee offers a suite of solutions including subscription management, billing automation, pricing and payment optimization, revenue recognition, and customer retention.
Amberflo.io is a cloud-native platform designed to simplify usage-based pricing and billing for modern businesses. Founded in 2023 and headquartered in Santa Clara, California, Amberflo focuses on providing real-time insights and facilitating operational efficiency for businesses offering SaaS solutions with usage-based or hybrid pricing models.
OneBill is a leading provider of end-to-end subscription and revenue management software designed for businesses of all sizes. Founded in 2012 and headquartered in Santa Clara, California, OneBill offers a comprehensive suite of features to automate and simplify the entire quote-to-cash process.
Metronome is a usage-based billing platform founded in 2015 in San Francisco that empowers businesses to automate complex pricing calculations and gain comprehensive insights into customer consumption. With a focus on SaaS and cloud-based services, Metronome enables accurate invoicing, revenue optimization, and enhanced customer experiences through real-time data analytics. By streamlining billing processes and providing actionable insights, the platform supports data-driven decision-making and allows organizations to concentrate on core competencies.
M3ter is a pricing operations platform specializing in automating complex pricing calculations for SaaS companies. Founded in 2020 and headquartered in London, M3ter aims to streamline billing processes, reduce revenue leakage, and accelerate growth.
Nue.io is a cloud-based quote-to-revenue platform designed to streamline the revenue lifecycle for high-growth SaaS companies. Founded in 2022, Nue simplifies complex pricing structures, automates sales and finance processes, and fosters seamless collaboration between teams.
Archetype.dev is a subscription and usage-based billing platform designed with developers in mind. Founded in 2021, Archetype simplifies the process of implementing complex pricing models and automating billing operations for API-driven products and services.
Stripe, a household name in the payment processing world, also offers a robust solution for businesses utilizing usage-based billing models. Founded in 2010 and headquartered in San Francisco, Stripe provides a comprehensive suite of features to simplify complex pricing structures, automate billing processes, and gain valuable insights into customer usage.
How to Choose a Billing Software
But with so many options out there, how do you choose the right usage based billing software? Let’s take a closer look shall we!
Key Factors to Consider
When choosing billing software for your SaaS business, make sure to consider a few key factors to ensure that it meets your specific needs! Here are some of the most important ones –
✓ Scalability
First of all, we have scalability! Scalability should be one of your primary choosing factors when selecting billing software for your usage-based billing system. As your business will grow, the volume of transactions and the number of customers will proportionally increase. The billing software you choose should be able to handle this growth without compromising overall performance or accuracy. Scalability plays a pivotal role in ensuring that the software can accommodate future growth and evolving business requirements. Because of that, it should be able to process large volumes of usage data, generate accurate invoices, and furthermore it should be able to support complex billing scenarios.
Let’s take the example of a SaaS company offering a communication platform that is experiencing significant growth in the number of total users and messages sent. The billing software should ideally be able to handle this increase in usage without slowing down or generating inaccurate invoices. What the point is, is that scalability ensures that the software can support your company's growth and provide a reliable billing solution.
✓ Integration Capabilities
Seamless integration with existing systems, such as CRM, ERP, and accounting software, is essential for streamlined operations. The billing software should support APIs and other integration tools to ensure compatibility. Integration capabilities enable data to flow seamlessly between different systems, reducing the risk of errors and improving efficiency.
Have the example of integrating billing software with a CRM system that allows for real-time updates on customer usage and billing information. This integration ensures that customer data is always up-to-date and accurate, enhancing customer service and support. Integration with accounting software can streamline the invoicing and payment process, reducing administrative overhead and improving financial management.
✓ Reporting and Analytics
Advanced reporting and analytics features are crucial for monitoring usage patterns, revenue trends, and customer behavior. These insights help in making informed business decisions and optimizing pricing strategies. Robust reporting and analytics tools provide valuable data that can be used to identify usage trends, forecast revenue, and make data-driven decisions.
For instance, a SaaS company offering a project management tool can use reporting and analytics features to track usage patterns and identify peak usage periods.
This information can be used to optimize resource allocation and ensure that the platform meets customer needs. Reporting and analytics tools also provide insights into customer behavior, helping companies identify opportunities for upselling and cross-selling.
✓ Customer Support
Reliable customer support is essential when dealing with complex billing systems. Ensure that the billing software provider offers comprehensive support, including technical assistance and regular updates. Customer support ensures that any issues or challenges can be addressed promptly, minimizing downtime and ensuring a smooth billing process.
For example, a SaaS company offering a data analytics platform may encounter technical issues with the billing software. Access to reliable customer support ensures that these issues can be resolved quickly, minimizing disruptions to the billing process and ensuring accurate invoicing. Regular updates and maintenance from the software provider ensure that the billing software remains up-to-date and compatible with evolving business requirements.
✓ Pricing Flexibility
The billing software should support various pricing models, including pay-per-use, tiered pricing, and subscription-based models. Pricing flexibility allows SaaS companies to implement the most suitable pricing strategy for their business model and customer base. The software should enable customization of pricing structures to meet the specific needs of different customer segments.
For instance, a SaaS company offering a cloud storage solution may want to implement a tiered pricing model based on the amount of data stored and accessed. The billing software should support this flexibility, allowing the company to create different pricing tiers and customize the billing structure based on customer usage patterns. Pricing flexibility ensures that the company can offer competitive pricing and attract a diverse customer base.
In summary, choosing the right billing software involves considering key factors such as scalability, integration capabilities, reporting and analytics, customer support, and pricing flexibility. Ensuring that the billing software meets these criteria will enable SaaS companies to implement a reliable and efficient usage-based billing system that aligns with their business needs and customer expectations.
Conclusion
Usage-based billing systems offer significant advantages for SaaS companies, including flexibility, scalability, customer-centric pricing, and revenue optimization. By aligning pricing with actual usage, SaaS providers can enhance customer satisfaction, drive innovation, and improve resource utilization. When choosing billing software, it is essential to consider factors such as scalability, integration capabilities, reporting and analytics, customer support, and pricing flexibility. Implementing a usage-based billing system that meets these criteria will enable SaaS companies to optimize their revenue streams, attract a broader customer base, and provide a fair and transparent pricing structure that aligns with customer expectations.