Usage-Based Pricing: The Complete Guide to Boost Revenue

Subscription fatigue is a growing concern among customers who are overwhelmed by multiple subscription invoices each month. To combat this, some companies are shifting towards usage-based pricing (UBP), where customers pay based on their actual product usage. UBP aligns the value derived from a service with its usage and can be advantageous for scalable, on-demand services like cloud computing or streaming platforms. However, implementing UBP comes with challenges such as complexity in metering and billing, and integration with existing systems. Despite these obstacles, UBP is gaining popularity due to the flexibility it offers customers, increased customer retention, and improved revenue optimization. Companies can successfully implement UBP by following seven steps: defining clear usage metrics, implementing usage metering and aggregation, designing flexible price plans, onboarding customers and assigning pricing plans, automating billing and invoicing, aligning with customer-facing teams, and continuously monitoring and optimizing the strategy. Successful examples of UBP include Twilio and Amazon Web Services (AWS).