An event-based approach is the future of billing. But if your organization does not have the tools and processes in place to structure, analyze, and take action on the large amounts of data this billing model provides, you could be missing out on a significant chunk of potential revenue. For some companies, the solution is identifying a way to better leverage the amount of data following into their billing system. For others, it is using this data to not only drive better customer engagement, but to use what you know about your heaviest users to increase revenue growth.
So whether your organization is just beginning to explore event-based billing or if you already have the tools in place, let’s take a closer look at these challenges and how your company can improve how it manages and utilizes its event-based revenue.
The Challenges of Event-Based Billing
Usage based billing sounds great in concept, but it can be difficult for organizations to establish the right processes and tools to put it into practice. One of the biggest challenges comes with presenting your customers with precise usage statistics, which demonstrates not only the value of your services to them, but an accurate recapture of your operating costs.
To feed these metrics, you will need to be able to send all of the relevant data to your billing platform in real time without the loss of the valuable attributes that make event data so rich and insightful. Next, you’ll need a way to analyze all of that data to figure out the most valuable pricing for your products and services, identify potential areas to improve customer usage, and use this information to make internal operational decisions.
If this sounds like an enormous undertaking, that is because it is for many companies. The ability for organizations to properly structure, understand, and take actions based upon large amounts of event data – often from legacy systems that may have been retooled to support event based billing – takes massive amounts of human and computing resources. Industry leaders like AWS and Twilio can dedicate entire teams of developers to creating specialized event data infrastructure and applying it to their billing strategy.
But what about small to medium-sized software companies?
How to Take Control of Your Event-Based Data
Although most small to medium-sized SaaS companies don’t have the same amount of resources as larger players in the market there are several key things your organization can do to begin to take control of your event based data to make it work for you.
Here are four tips to help you unlock the power of your event-based data and make your revenue stream more predictable.
1. Focus on Customer Engagement
For event-based billing, data related to customer engagement is key to unlocking the best pricing model and maximizing revenue. User engagement data describes how your customers interact with your software products, revealing important usage patterns.
A focus on customer engagement data will help you gain insight into customer behavior and improve retention, and it may inspire a better pricing model. By tracking the right metrics, you can figure out how your customers are using your product, where they’re spending the most time, and where they’re getting the most value.
Key usage metrics that can enhance your pricing strategy and boost your event-based revenue include:
- Active users: The number or percentage of active users in a given time period. This metric tracks how many unique users signed into their accounts and performed a valuable activity.
- Adoption rate: The number of active users divided by total users. Your product adoption rate reveals how well you’re engaging new users and converting them into productive customers.
- Session duration: The average time users spend on your platform or in your app. This is an easy-to-track usage metric that can help you understand how users interact with your service. It can be helpful to compare session duration between active users and churned users.
- Number of sessions per user: How often users come back and use your service, tracked as the number of logins or site visits per user. This metric can help you track changes in user activity over time.
- Number of user actions per session: The number of user actions divided by the number of sessions in a given time period. With this metric, it is useful to consider how you define and collect actions or event data. The number of events you capture will dictate how useful your event data insights can be. Are you only collecting basic activities, such as logging in, or are you collecting data on every user action within your platform?
2. Incorporate Marketing and Sales Metrics
Marketing, sales, and customer retention data gives you a clearer picture of where your business stands. You’re probably already using these business metrics to dictate operational decisions and your marketing budget, but they can also help guide your billing and pricing decisions.
To gain insights into your billing strategy, consider tracking the following business metrics.
- Monthly recurring revenue (MRR): The total amount of revenue your product or service reliably generates every month. Large changes in your MRR month to month indicate that your event-based revenue is unpredictable.
- Churn rate: This metric can have more than one meaning. Customer churn refers to the number of users who canceled their subscriptions, whereas revenue churn refers to the amount of revenue lost due to customer churn. Churn can be a major cause of unpredictable event-based revenue.
- Customer lifetime value (CLV): How much revenue a user will generate throughout their relationship with your company. Tracking your CLV will help you understand customer purchasing cycles and develop better retention strategies.
3. Take a Closer Look at Your Heaviest Users
Every customer is different. Some are mature, thriving companies with consistently growing demand while others are just finding their niche in the market. If your billing model is too rigid or structured, it can be hard to meet the needs of the full continuum of customers while also accurately covering your own costs.
With that in mind, you’ll want to make sure that your power users aren’t under- or over-paying for their subscriptions while more typical customers are getting the attention that they deserve.. This means carefully matching the resources your heaviest users consume to the revenue they generate for your company. When considering which metrics to base your billing on, first focus on your heaviest users’ usage data.
4. Rethink Your Freemium Service or Trial Subscription
The freemium business model has reached near-ubiquity among SaaS companies. If you offer a freemium service, your conversion rate can tell you whether or not your pricing strategy is really working. This also applies to trial subscriptions.
Spotify’s impressive conversion rate of over 26 percent may not be realistic for every industry. However, you can still learn a great deal by considering how many of your users decide to switch from a free to a paid subscription. Have you struck the right balance between a useful, free service or product and the promise of more? Do your users have a strong enough incentive to upgrade? Do you know what features or services are driving your customers to convert to being a subscriber? Is your pricing too high, creating a barrier to conversion?
While traditional marketing, sales, and financial data can help to answer some of these questions, granular usage data can have to inform the decisions your organization makes as it refines its business model to meet true customer demand.
Evolve Your Approach to Billing
While event-based billing may be the future of subscription billing, it can be hard – but not impossible – to do on your own. By taking the time to carefully focus on the right usage, sales, and customer satisfaction metrics, actively engaging customers, increasing focus on high-demand clients, and constantly evaluating your pricing strategy, it can be much easier to use event based data to create value for both you and your customers.
If you’re looking to take the next step to implement these practices into your own business model and for the right tools to make sense of your event based data, Chargify can help. Our experienced team can help your organization harness the large amount of event data your customers generate and use it to your and your customers’ benefit.
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