SaaS (Software as a Service) has grown in leaps and bounds over the past several years. Many businesses are adopting the technology to enhance their revenue streams.
When it comes to billing, companies are presented with a variety of options. It can be overwhelming with many choices available. How do you select the right model for your business?
Below, we’ll take a closer look at billing models and which types of businesses they’re more suited to.
Subscription Business Model
Forbes says the key to a thriving business is to give customers convenience and a sense of community.
Subscription services are reaping the rewards of a consumer landscape dominated by needs and wants. Oh, and they don’t want to put much thought into purchases. It’s even better if you curate a list of products they might like. And right now, they want the ease of access to subscription services.
Streaming services and meal prep kits are killing it in the subscription sector. The market is expanding, with the global subscription economy expected to reach $1.5 trillion by 2025.
By implementing a subscription business model, PayPro Global adds that you can enhance revenue collection with flexible billing and optimized subscription management.
According to the Younium, SaaS companies generate and record revenue in compliance to guidelines from this type of model. Many SaaS companies employ this model because it makes business sense. Clients pay a monthly or annual fee for access to the latest software and customer support.
The same goes for content subscriptions such as eBooks and digital publications.
One-Time Payment
One company that has instituted the one-time payment model is Ford Motor Co. The brand slashed the cost of its BlueCruise hands-free highway driving subscription and gave its customers the option of a one-time purchase.
The automaker says the reasoning behind the move is recurring revenue and contact with buyers during the vehicle’s lifespan. Ford currently has a three-year subscription on BlueCruise but it will be discontinued starting with the 2025 model year.
This model is favored by most businesses because of its simplicity – a one-time payment for a single product or service. The main benefit is immediate revenue, resulting in a return on investment (ROI).
The downside? There’s less opportunity to grow customer engagement and loyalty.
Freemium
Dating back to the 1980s, the freemium model only really took root in 2006, says Investopedia.
Freemium offers basic features for free while charging for advanced features. Tech startups often choose this model when launching new products.
The model allows for rapid user acquisition, as there is no cost to try the app or service. But, this might not necessarily result in an increased customer conversion rate.
Another point to consider is that some companies may offer too many features on the free version. Clients won’t see the need to update to the premium, paid version.
Usage-Based Billing
Usage-based billing charges customers based on their consumption of a product or service.
There are several types of usage-based billing:
Variable Pricing
Costs vary based on consumption and volume. Utilities like water and electricity typically use this model, charging customers for the units they consume.
Tiered Pricing
Usage-based billing differs with consumption levels. Unit prices can also change. For example, the first 100 units may cost different from the next 100 units.
Dynamic Pricing
The model adjusts pricing in real time based on demand. For instance, ride-sharing services implement this model as they may charge more during peak times or in high-demand areas.
Per Feature Pricing
Software companies choose to use this pricing model as clients pay only for the features they use. If they utilize just one or two features, they are billed only for those.
The goal of usage-based billing is to provide flexible, customized billing that aligns expenses with actual consumption.
Sectors that use usage-based billing are SaaS businesses, utility providers, streaming platforms and rental services.
Final Words
As a company, you must know your product in and out and how best to present it to the market. Research your customer base and stay afloat with business model trends.
If it’s brand loyalty and consumer engagement you’re after, a subscription model could be the solution.
Then again, flexibility, simplicity and an easy pricing method are what you’ll find in one-time payments. Maybe usage-based billing is more suited to your company’s needs.
Choosing the best SaaS software that aligns with your product or service and integrating it into your pricing model will save you time and money. Not to mention taking the guesswork out of your pricing structure.