This article was originally published on the PayKickstart blog. You can view it here.
Maybe you’ve heard of it, maybe you haven’t, but the concept of event based billing has come into the SaaS conversation whether we agree with it or not.
As a recap, event based billing is the concept of charging your customer based on individual actions taken and frequency of use using your product, rather than just charging multiple fixed monthly prices.
You’ve undoubtedly seen SaaS companies offer upsells and charge per seats, but event based billing goes even further, charging the customer in a more granular way.
The current companies leading the way are Chargify, Billing platform, Chargebee and Stripe. Keen.io was another company that was leading the way, but it was recently acquired by Chargify at the beginning of 2020.
Because of this, it seems like there is somewhat of a trend going on with this billing technique
The reality is, since 2019, there was speculation that our economy (North america, europe and the world), was heading into a recession. More specifically, this was due to the fact that the US treasury reported an inverted yield curve in March 2019. Historically since 1950, nearly every inverted curve was followed by a recession.
Some more optimistic economists may say this is not always the case, and a recession may not be coming, but little did they know that a pandemic was on its way.
And at the time of writing this article, it’s already here, and out of control.
In this article, I will make my argument as to why I believe that event based billing may be more crucial than ever in 2021, and onward.
1.A Contraction, not a recession
Event based billing may likely become a trend because of shiny object syndrome, but also because it is a way to maximize revenue from one customer, and really charge based on the benefit your customer gets from your product.
This is beneficial in both hard economic times, and prosperous economic times alike.
We have to consider however, that we may be headed for contraction, or worse depression, and not just a recession like in 2008. We have to be level headed about this due to the extraneous circumstances…
According to economists, we were already headed for a recession, but the pandemic lockdowns undoubtedly were a nail in the coffin.
Through this, subscription based software companies will have to find innovative ways to make more money with potentially less customers.
This is where PayKickstart steps in!
Luckily, we thought of this ahead of time! Event based billing, or as well call it, Usage based billing, is directly built in as a functionality to better serve you.
If you are a vendor who sells a recurring priced product or a SaaS owner, PayKickstart can help you grow and scale your business.
Keep in mind however that there are some important things to consider:
- This feature is only useful for a recurring priced product.
- A minimal amount of development resources are needed when utilizing our Usage billing feature. All you need to do is:
1.tell us how much your customer is using your app/product.
2.How much we should charge them,
3.We’ll handle the rest!
Also, PayKickstart calculates overage cost, but keep in mind that…
- Affiliates will be credited based on the final transaction price, and the overage cost is calculated on related transactions.
- We notify customers in their order summary with the message ‘’Subject to overage fees’’ if their purchase relates to overage costs. We also create a separate line item on their invoices for overage costs.
2.Less is more
Going from my previous belief that we are headed for an economic contraction, or at least a big downturn, B2B and especially B2C retail companies, will have to adjust to reduced spending from consumers.
Event based billing may become an attractive option for both B2C and B2B companies, because of the flexibility of the billing strategy.
For B2C companies, this may come in the form of…
- More freemium services with ads.
- Billing according to use.
For example, Netflix could go freemium (they’re already testing it), and could bill you based on how many movies you watched, whilst also offering upsells for premium content like a popular film, or a recent release that would originally be seen in theatres.
For B2B, we have obviously already started hearing about this, and it can possibly continue to be implemented or at least tested within many B2B SaaS company’s pricing models.
Not to mention, if the trend does continue to catch on, companies as a whole may have to adapt to the trend, or risk being left behind with lower revenues and a loss in business completely.
3.Strip it down
In an economic contraction, every dollar counts. During a possible contraction, many companies may notice losses in their monthly recurring revenue, and like in every other economic downturn, will likely reduce spending.
This is especially true for companies who don’t have an emergency cash reserve.
Let’s be honest, many SMB business owners aren’t doomsday preppers or into preparedness, so they probably had very little saved up, if any at all… Apparently even big name corporations didn’t have any either, but that’s another story for another time…
With reductions in spending, companies will strip down to just the essentials, thus leaving what they see as excessive softwares in the cold.
This is why it is possible that event based billing will be the go to solution for a lot of SaaS companies and subscription services. Rather than an all or nothing approach of getting the complete package you offer, or none at all, why not offer only part of your package?
Like in a restaurant, you can order just your favorite dish, and avoid ordering drinks if you don’t want to. So why can’t software do this?
Companies may catch onto this concept, and go full speed ahead with it because they may be desperate to retain revenue that is quickly sinking.
Not to mention, here’s another crucial aspect…
Some of these SaaS companies are not bootstrapped, and have venture capital funding. Imagine what the investors will think about them if they see a trend of high churn rates? Do you think they will receive more funding after what appears to be grim projections?
It’s definitely a tightrope act.
Another possible reason for companies to implement event based billing could be to maintain customers who are thinking of leaving, and to broaden their reach to lower paying ones.
If businesses start cutting their business expenses, the only way to keep them from cancelling would be to demonstrate a high enough value for them to stay on, or make up for that value by being affordable yet still useful. If you want more guidance on identifying at-risk customers, this article could be helpful…
Some SaaS companies may decide to just focus on higher paying customers altogether, and this likely could be harder yet more effective in the long run.
However, could there be opportunity in lower paying ones, who then may bounce back after a contraction? It’s possible, but if you do implement this strategy, observe the value metrics that they receive from your product to effectively price them.
For example, telecommunication companies like Verizon will have its shared data plan which is a fixed price, but will then collect additional data on your usage.
According to their plan, If you go over your data limit they will charge you extra fees, and if you are really going over, they may suggest a higher pricing plan that offers discounts.
It is important to note however, that if you do implement this strategy for your SaaS, you must be transparent with your customers and allow them to view usage metrics in real time. Another option is to do like Verizon does, and send them notifications in real time if they go over their limit…
With variable revenues and profitability that may likely happen during an economic contraction, event based billing can also help you ride the waves of the highs and lows.
Whether we like it or not, we will have to adapt to our customers desires and situations.
Not the other way around!
This doesn’t only entail pricing, as in engaging in a race to the bottom, but it does mean we have to consider what factors will contribute to our customers staying with us.
Adaptability at the end of the day, will allow you to think of solutions that may incentivize companies to stick with your service, compared to others who just charge a fixed bill or high bill.
PayKickstart’s API is perfect for adaptability, because it allows you to adjust your billing based on:
- Minutes used
- Unique recipients
Our API also allows for Instant Payment Notifications (IPN), which is a message service that will automatically notify you of transactions related to PayKickstart!
And look, are you tired of…
- Back office and administrative functions
- Creating user accounts on apps
- Manually providing login credentials
PayKickstart’s API allows you to automate that!
Bottomline, PayKickstart will give you greater flexibility and options in an unstable market.
With this information in mind, what is the data on our industry showing right now?
According to Hubspot’s COVID-19 Marketing and Sales Benchmark Data, the most deals were closed in these industries as of September 2020:
- Construction (Highest number of deals)
- Computer software
Entertainment and travel has seen intense blows, and are way below their typical benchmarks before the Covid19 pandemic. Human resources is low too, but could see a jump in the coming months if more layoffs happen, and as workers try to find new employment. Consumer goods are still down, but will likely increase in Q4 as it’s the holiday season.
If you are especially concerned about Covid19’s effect on the SaaS companies, this article could be helpful to you too…
Bottom line, all these industries use multiple softwares, even the computer software industry! So we have to adapt to the current trends, and what our guts are telling us about what may be coming…
If you have a client in an industry that is lower than before and they are still paying you, ask yourself what would happen to their business if some other socioeconomic disaster happened… (Ex: Stock market crash like 1929, severe second and third wave of the pandemic, civil/political unrest, environmental disasters, etc…)
Is there a contingency plan and strategy you could come up with to keep them as a customer? Is there a way to adapt your services to better fit their situation?
In this case, it is possible some companies may use Event based billing in their gameplan.
Companies will have to be more flexible than ever, but, the ones who will survive and ultimately thrive are the ones who can strike a balance between adaptability and profitability.
Event based billing can allow SaaS companies to access this benefit, and this is why they may start using it amidst variable profitability.
6. Selling data?
Here’s another idea that i’m going to throw out there…
With all this data collected about different events occurring using your software, is it possible that a company will come along and sell this precious data to other SaaS companies?
Maybe Chargify, Stripe and others may offer aggregate data, at a price, on what types of businesses pay the most in this current economy, thus leading to better targeting on your part.
There are definitely other factors to consider like government regulations, privacy rights, and public perception from the B2B community. But in reality, is this possible? I think it is, and if done in a legal way, could be lucrative in an economic downturn, or worse, a contraction.
Maybe Google, Facebook and other ad platforms will offer more than just demographics and psychographics, but economic activity indicators too (event based indicators).
There are maybe some companies already dabbling in this idea, and in business, companies are always looking for any edge over their competitors. This idea could possibly catch on in this economy and during a contraction, also because analytics technology is at such an advanced stage, and easier than ever to access.
Could this happen? We have to wait and see…
In short, the Health and safety of the world is of utmost importance, and we commend the health care workers and workers on the frontline. Also, we urge everyone to exercise caution in these trying times and follow public health guidelines!
But throughout all of this, we have to consider that during and after this public health crisis, there is collateral damage, especially economically.
We’ve undoubtedly seen the effects already, and it only takes a quick look back in history to use as a reference point for what could happen.
However before freaking out, realize there is a context to our situation.
With advances in science and technology, we have more advantages than ever to handle this situation much more effectively than any other time in history (Personal protective equipment, Remote work softwares, Online shopping, a public that for the most part understands Science).
We have to use these advantages, and craft a strategy that will get our SaaS businesses through this.
Event based billing could be a solution…
In 2021, this method may be used more and more by SaaS companies, modelling after the telecommunications and utilities industry, and we have to realize it was always coming. This pandemic likely sped up the process, and now we have the opportunity to adapt our businesses for the better!
Hopefully you found this information about Event based billing helpful, and remember, the strong survive, and the prepared thrive!