The majority of software companies utilize a subscription-based pricing model to charge their customers, a straightforward approach in which a company pays a fixed amount regardless of how often a service is actually used. But in a world of tightening budgets, this can cause customer churn when users recognize their bill doesn't map to their consumption or value delivered.
This is why the world of software is shifting to a usage-based pricing model. Companies can charge their customers fairly and accurately based on actual usage and value delivered, while simultaneously not having to be concerned about churn. If the customer wishes to reduce their usage, even if it's all the way down to zero for a period of time, there is no need for them to "unsubscribe" and they can always come back when they are ready. This creates a mutually beneficial relationship between vendor and customer totally based on value.
The challenge is that accurately metering cloud applications is much more complicated than how your energy meter works in your home for your electric bill. These are often distributed, complex applications that all need metering baked in so that companies have an accurate and full picture of who is using what, when, and how much. From there, a billing strategy can be put in place to monetize usage and create a profitable business model.
Outlined are the top 5 best solutions for usage-based pricing in 2023:
1 Amberflo
Overview
Amberflo aims to help SaaS companies transition to a more fair and transparent business model through usage-based pricing, as this solution presents an opportunity for companies to meet their customers' billing expectations. It allows companies to base their pricing precisely according to a consumer's consumption.
Founded by an ex-AWS engineer, Amberflo's advanced and comprehensive platform helps accelerate the growth of top-tier companies. The solution is easy to deploy and consume and offers a PLG (product-led growth) based self-sign-up motion, with a generous free tier allowing anyone to explore its utility with no risk.
Features
Cloud Metering
Track usage and view meters in real-time and with accuracy through cloud metering. Amberflo displays events generated in the customer system to include them in the current billing cycle and to make them available for reporting and analytics.
Cloud metering is the foundational primitive to drive accuracy, visibility, and insights across internal teams, improving collaboration and data sharing to reduce and eliminate metering and billing remediation issues. With real-time usage alerts, end-users can stay aware of their usage and spending; meanwhile, companies can leverage 24/7 visibility about usage patterns, changes, or milestone events.
Amberflo also integrates with the existing technology stack, offering several language-specific SDKs and third-party system integrations for faster deployment of a standardized metering platform and framework.
Billing Cloud
Build and manage product catalogs and all pricing plans with Billing Cloud. It supports all pricing models, from pay-as-you-go, hybrid, and prepaid plans in minutes from within the UI or programmatically through API. Companies can leverage this feature to deliver accurate, metered invoices to customers at the end of a billing cycle and track earned revenue in real-time.
As usage is tracked in cloud metering, Amberflo's Billing Cloud can automatically calculate the charge based on the rates set in the pricing plan and generate a metered invoice showing all fixed charges, usage-based charges, and discounts. It can also display a complete audit trail and the revenue by the meter for each customer and product item and plan in real-time for visibility and transparency.
Salesforce Integration
Amberflo's Salesforce integration is a key differentiator from competitors that provides customer-facing teams with real-time product usage to deliver impactful, valuable customer touchpoints. Amberflo displays real-time usage and consumption data for every customer, allowing companies to implement relevant and targeted recommendations for cross-sell and up-sell.
This feature also allows companies to improve their customer retention, existing account growth, and new customer acquisition based on the insights displayed on the dashboard of Amberflo. Moreover, companies can directly manage provisioning, discounts, credits, pricing plans, and CPQ workflows without leaving the Salesforce interface for faster operations.
AI Metering
Amberflo also offers AI metering as one of its newest solutions. With a scalable cloud metering and usage-based pricing platform in place, modern businesses can build a profitable model by aligning their backend service consumption with each customer's specific usage for a transparent pricing model at scale. They can understand in real-time how much a specific customer is consuming a company's AI services and charge them accordingly.
2 Metronome
(Photo : Screenshot from Metronome website)
Overview
Metronome offers effortless usage-based billing solutions that scale for software companies. Given its flexibility, it can handle complex pricing models without custom code. Companies can leverage the platform to set up world-class billing infrastructure with minimal time and investment. It handles the processing and transformation of raw data into invoices based on its four-step pipeline.
Metrone 1) processes the usage events as they happen, then 2) continuously updates the billable metrics for billing based on the pricing set in its system. 3) Afterward, it calculates the customer costs based on the pricing to determine how much each customer should pay based on their consumed usage. 4) Lastly, an invoice is generated detailing the customer's total spending regarding the products they are paying for and their usage.
Features
Metronome can centralize all billing operations in one place, from recurring payments to consumption-based pricing. With its ease of use, companies can update their pricing plans via its API or UI, enabling them to launch new products and pricing models faster that drive customer value. The platform can also seamlessly integrate with existing workflows, which enables the automation of order-to-cash processes and offers real-time usage insights into a CRM.
Metronome can also alert internal teams to usage trends and upsell opportunities, allowing them to make data-driven decisions based on relevant insights. Moreover, with its real-time usage dashboards, customers have visibility into their usage for maximum transparency of usage-based billing.
In addition, with its developer-friendly APIs and intuitive interface, Metronome can speed up the time-to-market of innovations, especially services or products powered by AI. Companies can leverage these straightforward solutions to build a resilient and scalable billing infrastructure.
3 m3ter
Overview
m3ter is a leading pricing operations platform, made to empower companies at all stages of growth through its usage-based pricing solutions. It offers automation of pricing and billing, integration, and access to real-time usage data. Companies can also leverage its industry-leading support to help them transform their pricing strategy and get maximum value for their services.
With over ten years of experience in usage-based pricing, the founders of m3ter want to help software companies realize the full potential of business through successful implementations of advanced usage-based pricing strategies.
Features
Built on a robust architecture, it can process millions of measurements monthly by ingesting data from any source. M3ter can also automatically flag formatting errors, duplications, and omissions for remediation to ensure data integrity at scale.
m3ter can free up valuable internal resources, eliminate revenue leakage, and generate accurate bills through pricing and billing automation. This feature allows teams to review bills with a sophisticated and streamlined workflow configuration quickly.
It can handle every variation of usage-based pricing from hybrid or pure usage-based. It also features real-time bill calculation, providing totals to customers or Sales mid-billing cycle. m3ter can also offer customers visibility into their usage and spending through a billing dashboard, enabling them to track their consumption for maximum disclosure.
m3ter also features a cost allocation tool, pricing experimenter, and robust forecasting for advanced analytics. In addition, the platform also offers seamless integration into existing Finance, CRM, and other systems to optimize all usage-based pricing operations for efficient data management.
4 Lago
Overview
Lago is an open-source metering and usage-based billing software for product-led companies. It systemizes pricing and all its components from billing, payments, invoicing, and so on. It is designed for engineers, revenue leaders, and finance teams. It adopts a five-step billing workflow.
It begins with 1) usage ingestion, where events are collected and 2) converted into billable metrics. 3) Afterward, it sets the price based on plans created to determine how much a customer should pay. 4) Lago then automatically generates invoices according to the plan model (subscription-based, usage-based, or hybrid). 5) When the invoice is finalized, Lago collects payments through native integrations or trigger payments through the invoice payload of the software.
Features
Lago offers usage monitoring. The open-source software can aggregate and clean data to ensure data integrity and eliminate irregularities. It also includes a first-class API and an intuitive interface for business teams, containing essential functions such as subscription, usage computations, billing cycles, currencies, etc.
Lago also features coupons to increase lead conversions. They're redeemable in one click, and their value gets automatically deducted from the customer's invoice. The software also offers instant add-ons, enabling teams to create one-time charges for consulting fees, implementation fees, or premium services acquired by customers.
With automatic invoice generation, Lago invoices the customers based on its calculation of their usage and their subscription plan. Users can customize their invoices to include their logo, contact details, and other information to make them look more professional. The invoices can also include specific tax rates for each customer, depending on their location.
Lago also features prepaid credits to create wallets for customers. They can use these credits for payment besides its billing integration. Companies can leverage the custom plans of the open-source software for ultimate flexibility of usage-based billing.
5 Octane
Overview
Octane is a unified billing platform built for product and finance teams. It offers flexible pricing and automated billing. It has received certifications from GDPR and AICPA SOC, guaranteeing they are committed to delivering safe, reliable billing solutions.
It can also streamline workflows across teams, giving everyone an insight into billing strategies and the chance to improve the business. With a scalable infrastructure, Octane is built to accelerate the growth of SaaS companies.
Features
Octane possesses high throughput and low-latency endpoints, enabling companies to send usage records in real-time or in batches without network congestion complications. Each data ingested gets aggregated appropriately and stored securely for future access.
It also features price plans, which allow companies to set the base price and the metered components detailing what is included and how to calculate a customer's bill. It also offers management of customer billing terms, making creating customer modifications such as discounts or billing cycles easier.
For the automatic billing of customers, Octane also requires authentication with a payment gateway. This feature ensures fast payment transactions as it automatically generates an invoice for the customer and penalizes them if they fail to pay on time.
Companies can set the billing grace period, allowing the vendor and the customer to review the invoice and request changes if necessary. Octane requires sufficient knowledge of coding to utilize its platform. While it's not the ideal platform for beginners, it's credible for its certifications.
Conclusion
Modern SaaS businesses can leverage these top 5 best solutions for flexibility, scalability, accuracy, and real-time data visibility for usage-based pricing. While some prove more advantageous than others, especially in terms of functionality, they can all offer valuable insights into a consumer's behavior. Companies can leverage this information and tailor their operations to provide the best customer experience and achieve customer success.
