Word of the Day: usage-based pricing

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Word of the Day Daily updates on the latest technology terms | September 30, 2019 usage-based pricing Usage-based pricing is a consumption-based pricing model in which customers are only charged when they use a product or service. Usage-based pricing may also be referred to as pay-per-use pricing or metered services. In a flat, subscription pricing model, the user is charged a fee regardless of how often they use the service. In contrast, a usage-based charge fluctuates according to what the customer actually consumes. Usage-based billing is not a new concept; most people are already familiar with this pricing model if they purchase metered services from public utilities such as electricity or water. Today, many software as a service (SaaS) and infrastructure as a service (IaaS) cloud providers are adding usage-based pricing options to their subscription billing models to help retain customers. Having a pay-per-use option allows customers to explore how to use cloud services in a natural manner, without spending money up-front. Common usage-based pricing models include: Per-Unit Pricing - customers are billed a per-unit fee immediately after use.   Pay-As-You-Grow - customers pay to license capacity in increments. This model is popular in data storage.  When the cutomer uses all the capacity in their initial license, they can buy an additional license to unlock more capacity.   Advantages Usage-based pricing allows for an activity-based management (ABM) strategy in which business processes are evaluated and adjusted for their cost efficiency by using activity-based costing. In serverless software development, for example, this means moving from a subscription-based cloud service to a very granular function-as-as-service (FaaS) pricing model. Perhaps the biggest advantage to purchasing products or services through a usage-based delivery model is that the model's transparency makes it easy for the business side to directly align costs with consumption.   Disadvantages A major disadvantage, however, is that variable use translates into variable OPEX expenditures, which can play havoc with budgets and make financial forecasts difficult. On the provider side, it's critical that businesses balance usage-based pricing balance with sustainable, recurring revenue. Because too much or too little usage-based pricing can compromise a business' long-term growth, many experts recommend that no more than 50% revenue should be usage-based. Quote of the Day "Without usage-based pricing, customer and business growth are severely limited, as customers lack the choice and flexibility to consume a product or service and grow naturally with it, leaving little room for businesses to upsell." - Tyler Lunceford Related Terms subscription-based pricing model metered services activity-based costing consumption-based pricing model activity-based management function as a service Learning Center Weighing the pros and cons of enterprise network subscriptions Network subscriptions can help enterprise tech buyers visualize their IT assets, curb overlapping purchases and ease deployment. But beware added costs and other disadvantages. Network subscription packages gain steam among enterprises Cloud and SaaS-based services have made enterprises more familiar with monthly subscriptions, paving the way for network subscription packages to grow. Subscription and pay-per-use IoT revenue models When it comes to IoT, monetization is key. Flexera's Eric Free explains the opportunities and challenges of subscription and pay-per-use IoT revenue models. Networking costs swell pay-per-use public cloud bills Networking costs from cloud security and BYOD management can easily raise consumption-based cloud computing prices - but monitoring that usage isn't as easy. Are subscription models the new normal? Customers are driving a shift in product delivery away from ownership and toward subscription models. Can companies benefit from charging subscriptions rather than onetime fees? Quiz Yourself Serverless computing can significantly bring down costs since you're not paying for servers 24/7, _________ of whether they are actively serving requests. A. irregardless B. regardless Answer Stay in Touch For feedback about any of our definitions or to suggest a new definition, please contact me at: mrouse@techtarget.com Visit the Word of the Day Archives and catch up on what you've missed! 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