Your guide to moving to a usage-based business model - Let's get under the hood of usage-based pricing - Salesforce ...
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Your guide to moving to a usage-based business model Let’s get under the hood of usage-based pricing
Welcome to Customers don’t want to own anymore – By selling outcomes and not ownership, you
the usage-based they want to use. let customers pay for the value they need.
Which is good for your customers – and
economy. And that’s in all parts of their lives: how they
use software at work, how they listen to music,
excellent for you: users grow, but usage scales.
even how they drive cars. A usage-based business model ensures Usage-based SaaS businesses are
your offering and operations can respond valued substantially higher: a 21.6x
It goes for businesses too. Organizations don’t dynamically to changes in the market and revenue multiple compared to 14.4x.1
necessarily want to own all the equipment and changes in customer use. So you can grow
infrastructure they need to run. They want to your revenue, adapt to the ebb and flow of 1. The Usage-Based Pricing Playbook, OpenView, January 2021.
be offered the service instead. demand, and explore new opportunities.
Plus, usage-based businesses are often
valued higher, because they can demonstrate
their products are actually used.
Trend
The
2
But all this There’s a lot to do: setting an initial strategy This guide zooms in on one of the trickier
is easier said and pricing, creating a go-to-market strategy,
and updating finance and operations.
parts of monetizing usage-based business
models: how to handle the usage data that
than done. You’ll need to figure out all sorts of things –
generates your revenue.
like which usage-based metric to use, your We’ve spoken to a bunch of people who’ve
subscription or pricing model, how to process spent their careers solving this problem.
data about usage, and how to evolve your And we’ve compiled all their hard-won advice
usage-based services as you grow. and experience into this guide.
Ready?
Journey
The
3
Contents
01 04
How to define Build, buy,
usage. or integrate?
02 05
Turning usage Your best bet is a
into revenue. Usage Data Platform.
03 06
The foundations of Your questions,
solving the problem. answered.
4Chapter 01
How to
01
define usage.B2B2X and the
Chapter 01
partner ecosystem
Here B2B and B2C converge:
it’s B2B to any end user.
Shared bundles Partners team up to offer
Pre/post-paid Bundling combines several innovative services and drive
Customers either purchase a services or products into new revenue.
service allowance in advance a single package, usually
(pre-paid) or pay a bill based at a reduced price.
How to
on the services they’ve
Subscription Pay-as-you-go consumed (post-paid).
Customers pay a recurring Customers pay for what they
define usage.
fee at regular intervals use, on a transaction basis.
(usually monthly or yearly) to
access a product or service.
Common usage-based
business models
Before you start making any changes, No, instead you should look towards a hybrid And then? Real-world example: VMware adds
you need to pick the right usage-based model. This lets you offer a low subscription a pay-as-you-go model
pricing model. And this involves a fair bit of offer to lock in loyalty and establish that It’s time to understand how that usage
experimentation: there’s a definite sweet recurring revenue – while giving you the turns into revenue. VMware is a global infrastructure
spot between “allowing for growth” and freedom to achieve growth with additional software provider and leader in
“ensuring the stability of recurring revenue”. usage-based services on top. virtualization software. As the company
transitioned to cloud-based services, it
A flat-rate subscription will box you in. Once you’ve chosen the right model, you need wanted to add subscription and pay-as-
Once you’ve scaled your number of users – to choose the right metric to determine what you-go business models. VMware chose
what next? customers will pay. This needs to capture and DigitalRoute’s Usage Data Platform
communicate your product or service’s value, to capture and process cloud-related
while also being flexible, scalable, predictable, usage events for billing purposes.
and feasible to monitor.
6Chapter 02
Turning usage
02
into revenue.Chapter 02
Hard-won tip:
Turning usage Don’t be fooled into thinking this is a
case of simply lifting and shifting your
into revenue. product portfolio onto an all-you-can-
eat subscription model.
First things first, there’s nothing simple For a seriously scalable usage-based All of this means that you need to The worst-case scenario for usage-
about it. Even an all-you-can-eat model business model, you need different understand – in detail – how subscriptions based billing: revenue leakage
requires understanding who your customers levels of subscriptions. That way, you can are used.
are, what they’re consuming and then incrementally increase revenue as you The data that tells you about how people
transparently communicating that back deliver more value to customers, allowing With this level of complexity, it’s not use your product is critical to your
to them. (All in real-time.) them to start small and grow with you. uncommon to have tens of thousands of revenue2. If you lose any of that data you
usage events per second hammering lose revenue. In fact, you could lose 1-5%
More importantly though, this model doesn’t But this is where it starts to get tricky. your systems. of your revenue due to errors in data
scale. With all-you-can-eat services, you’re processing.
basically saying that all of your services are Think about it: you’ll have several Not once or twice a day.
2. https://www.ey.com/en_be/consulting/revenue-leakage--how-
free once someone subscribes. (Yeah, even subscription types with varying service Every. Second. do-you-identify-revenue-leakages-in-your-co
new services.) Instead, you need to make sure levels, and each with different costs and
you can charge for all the services you offer. rules for service limits, then multiplied by
the number of customers.
And this is especially true for B2B
organizations.
8Not once or
twice a day.
Every.
Second.
9Chapter 02
Turning usage
Usage
into revenue. Revenue
These events help you understand usage and accurately
record revenue, and you need to respond to them in real time.
Which involves…
– Processing the data to compare it to the At a minimum, this touches CRM (customers This stack simply wasn’t made for usage-based Real-world example: Dutch Railways
subscriptions and packages customers and contracts), CPQ (products), billing, EMS billing and customer journey orchestration, with offers mobility as a service
have signed up for. (entitlements), and ERP (billable items for their relentless, always-on cycle of collecting
revenue recognition and partner settlements). data, categorizing it and taking action. Dutch Railways is the largest passenger
- Using the data to measure your business railway operator in the Netherlands.
model’s performance. So that’s most of your quote-to-cash stack, (Even if it wasn’t made that long ago.) The company wanted to make it easy
then. (And when we say stack, we mean loose for customers to use multiple forms
– Triggering customer interactions to alert confederation of systems not exactly famous of transportation, even from different
them as they approach their usage limits, to for playing well together.) operators, and pay for them on a single
upsell higher-value packages, and intervene invoice. It deployed DigitalRoute’s
to mitigate a poor experience. Usage Data Platform to capture and
process data about how passengers
- Figuring out how much each partner should use the services.
get paid (if you offer joint services).
10Chapter 03
The foundations
03
of solving the
problem.Chapter 03
The foundations of
solving the problem.
Here’s what you don’t need: a new billing system.
(Not yet, anyway.)
We see it a lot. Facing the data challenge first
will save a lot of pain.
Company X jumps in at the application layer,
eager to revamp their revenue systems. That starts with figuring out what usage
The RFP goes out, the bids come in. If they’re data you have and where it lives – which
lucky, one of those bids flags an overlooked can be tricky. Enterprises today have data
and underappreciated problem – data – in many disparate systems.
and the giant tender for the giant contract
delivering a giant system stops there.
If they’re not so lucky, they end up with a What’s usage data?
gleaming Rolls Royce of a system they can’t In its simplest form, usage data shows
drive because, while the engine is big, it’s you how your service or product is used.
underpowered. The data going in is outdated,
dirty, incomplete – or just the wrong sort.
12What’s It tells you things like:
usage Who uses it?
data?
How is it used?
When is it used?
What is used?
Where is it used?
Examples of usage data include:
How much is it used?
unlocking a shared bike, calling the
API of a cloud service, swiping a card
on public transport, clicking play on an How long is
online movie, a toll camera identifying it used for?
a license plate.
13Chapter 03
The foundations
of solving the
problem.
Once found, you need to ensure that data Reckon it’s time to speak
is accurate and timely. Then you need to to an expert?
integrate it with revenue and billing systems
to deliver one single, transparent invoice, and Read on and you’ll find a few different
a simple overall experience for customers. ways you can solve this problem, avoid
potential revenue leak, and succeed with
And this is a major point. In a usage-based your new business model. But if you’d
model, billing becomes a fundamental part rather speak to an expert first, we get it.
of your customer experience. Get it wrong
(and send inaccurate, outdated bills), and
you risk losing your customer’s trust – Contact us here for a chat
and potentially their account.
14Start with figuring
out what usage data
you have and where
it lives.
15We don’t want to get technical,
but we think it’s important to know
what that looks like under the hood.
1
Data is taken from dozens of product
3
If it’s incomplete or potentially unsound,
5
And then – finally – your billing, auditing,
and service systems and normalized then you need an automated way marketing and BI systems register it as
so its format is consistent between to go back and find what’s missing. a revenue-generating event.
each system (and usable). (Any changes need to be auditable too).
2 4
Pretty tough, huh?
Most revenue systems aren’t built to
connect and monetize data in this way,
at this volume, or at this complexity.
That data is aggregated into the billing Only once the data is complete can your These traditional finance-led IT stacks
period, enriched with data from other business logic be applied, by checking can’t support launching new digital
systems, such as CRM (order data), the usage record against customer services, which are fast to market, highly
and then bound to the customer profile. entitlements, for example. changeable, and super responsive.
16Chapter 03
The foundations of
solving the problem.
Instead, you need to add a With a platform like that, you can tighten up To be clear, we’re not talking about application Real-world example: Panasonic
brain to your billing system – your quote-to-cash stack to make it more integration. This platform should work Avionics automates its billing process
agile. You can also disentangle the arduous, within your existing quote-to-cash process,
a single platform that: manual, error-prone workflows that everyone connecting old, new, and not-yet-thought-of Panasonic Avionics is a global leader
has (but few admit to), which are even less IT infrastructure – without creating more silos. in inflight connectivity. The company
– Mediates between systems. compatible with usage-based billing. was relying on manual processes to
– Normalizes their data output. collect data about how passengers used
– Solves for usage data management. (We’ve seen it all, including a number of their services, which led to errors, lost
– Handles business logic in robust workflows. Fortune 500 companies whose master revenue and delayed billing. Now using
financial data records depended on a bunch DigitalRoute’s Usage Data Platform, the
of terrifying Excel spreadsheets.) entire process is automated, there’s no
revenue leakage, and invoices get sent
in weeks rather than months.
17In summary, life without a
usage data layer looks like:
1
Huge revenue leakage, as usage
3
uplicate systems (and middleware)
D
events get lost or dropped by unstable that drive high operational costs
or unconnected systems – or by and create errors.
human error during manual processes.
2
Multiple billing processes and systems
4
Sluggish product launches and
5
Poor billing experiences.
that make it impossible to send real- slow reactions to changes in
time, accurate invoices to customers. the market.
18Chapter 04
Build, buy,
04
or integrate?Chapter 04
Hard-won tip:
Don’t forget to consider the cost of
Build, buy,
delay that comes with using a generic
integration platform or building your own
system. Slower time-to-market, inflexible
or integrate? structures that can’t adapt to changing
demand, and bad customer experiences
are all a real risk.
There’s three main ways Application integrations This is a many-to-many challenge. The vast it’s vital to get it right. Customers need to trust
to capture, process, and majority of middleware is designed to connect their bill, gain access to usage in real time, and
A traditional integration solution or one source to another (or one source to many see consistent amounts across systems.
monetize your usage data: “middleware” is the first thing IT will want to sources). But with usage data, you need to
explore. It’s not a bad shout: these solutions connect many sources to many sources. Ultimately, this data is intrinsically tied to your
1. Application integrations are built by smart people at companies with revenue. So it can’t be left only to IT.
excellent track records for integrating Achieving this with integrations means using a
2. DIY custom builds
complex systems. significant amount of middleware. And with that
3. A purpose-built platform comes more complexity, more silos, and less
But they weren’t built for handling data that efficiency. Your stack gets harder to maintain
leads to revenue. and difficult to adapt.
And in a usage-based business model, finance
needs transparency into exactly what’s
going on. As billing becomes an increasingly
important part of your customer experience,
20Chapter 04
Build, buy,
or integrate?
There’s three main ways DIY custom builds It’s almost always messy work. You need to
to capture, process, and be able to iterate quickly without having to go
No approach offers quite as much control back and fix everything you’ve already done
monetize your usage data: over what the system looks like and what it each time you want to make a change.
does as doing it yourself.
1. Application integrations Plus, you need to consider the costs. Which brings us on
2. DIY custom builds Unfortunately, that sense of control Building your own system requires a dedicated to purpose-built
evaporates once new requirements are team that can continuously hack away at your
3. A purpose-built platform added or the scale changes. data layer to keep up with changing demand
platforms…
and needs.
These are complex, changeable workloads
and the applications handling them must
be seriously robust. (At the end of the day,
revenue depends on them.)
21Chapter 05
Your best bet
05
is a Usage
Data Platform.Chapter 05
Your best bet
is a Usage Data
It’s the
Platform.
turbocharger
We purpose built a Usage
Data Platform because,
for that
Rolls Royce
when it comes to revenue, Real-world example: Reliance Jio
you simply can’t wing it. offers new digital telecom services
Built specifically to solve the challenges Reliance Jio is the largest mobile
we talked
enterprises face when adopting a usage-based network operator in India and the
business model, it finds, collects, normalizes, third largest mobile network
and corrects all of the data you need to generate operator in the world. When the
revenue. By the time that data hits your company launched its 4G digital
ERP systems, it’s reliable and ready to drive telecommunications business, it chose
about earlier.
invoices, insights, and intuitive experiences. DigitalRoute’s Usage Data Platform
to collect and process usage data in
It’s the turbocharger for that Rolls Royce its billing stack. Today Reliance Jio has
we talked about earlier. more than 400 million subscribers.
23With a Usage Data
Platform, you can:
– Prevent revenue leakage by removing
error-prone processes and speeding
up billing cycles.
– Accelerate your adoption of recurring
revenue models.
– Tap into new customer segments
with new offerings.
– Grow your revenue by charging for
different levels of usage.
– Provide accurate partner settlements
to avoid disputes.
– Communicate how a customer’s
consumption is affecting their costs,
in real-time.
24Chapter 05
Your best bet
is a Usage Data
Platform.
This is how it works, step by step:
– Data collection: Usage data is collected – Aggregations and correlation: All the data – Enable: Here, the data hits your revenue – External systems: Rather than a one-way
from any system (usually several, possibly is combined and enriched to be matched systems, driving the billing cycles and flow of data, the platform can connect to
hundreds). with other data sources, such as a CRM customer experiences that underpin your other systems (like a CRM) and send
or CPQ system. your usage-based transformation. data back to them.
– Normalization: Data is transformed into a
consistent and usable format. – Usage binding: The usage data is bound – Governance: The platform creates an
to an identity, user or asset (a critical step auditable record for all the data processed,
– Data quality: Data is cleaned, and errors are for usage-based models). so you can go back and see exactly
identified and corrected so none is lost. what’s happened.
– Business logic: Now the data is
processed against customer contracts
and entitlements.The four principles behind
the Usage Data Platform
Adaptive 1 2
Agnostic
It adapts to any future thanks It’s technology agnostic,
to its low-code configurability, keeping the peace
built-in data integration between systems.
catalogs, and widely tested
system interoperability.
Accurate 3 4
Automatic
It’s accurate for every It automates quote-to-
moment of usage, so you can cash workflows at scale.
monetize your data correctly
and with full transparency for
your customers.
26Conclusion
Your questions,
06
answered.Conclusion
Your questions,
answered.
When customer satisfaction and revenues (Plus, our platform has been battle proven
are at stake, your platform’s automation in the most demanding environments.)
engine, data algorithms and logic engines
must be reliable, robust and stress-tested If you’ve got something specific in mind
in the real world. that you want to talk about, or you want to
hear more about how our platform could
Sometimes it’s hard to know where to start. help your organization, then get in touch.
We can help you identify the right business
model for you and your organization: we’ve
seen it all when it comes to usage-based Contact our experts
billing, and have been here since the start.
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