Implementing Usage-Based Pricing for your Hardware Business
Subscription-based business models are becoming increasingly popular among hardware and software providers as a way to drive long-term revenue and build lasting customer relationships. However, there are a variety of pricing structures available (tiered, feature-based, fixed or flat-rate, usage-based, and more).
One pricing model that has been gaining traction with Software-as-a-Service (SaaS) and, more recently, Hardware-as-a-Service (HaaS) providers is usage-based pricing (UBP) or consumption-based pricing (CBP).
What is Usage-Based Pricing?
While similar in some ways to feature-based, usage-based pricing enables the customer to be billed based on their actual usage of the service or device rather than paying for access to features that they may or may not ultimately take advantage of. This model can be advantageous for both the manufacturer and the customer, as it allows for more cost-effective pricing based on actual usage.
The concept is not new – this is how we have paid for basic infrastructure services like electricity and water for years, as well as for some hardware-based services. The printing industry, for example, has traditionally relied on a usage-based pricing model, with customers paying by pages printed.
The Benefits of Usage-Based Pricing
Within the as-a-service ecosystem, there is growing recognition of the utility of usage-based pricing, which offers several notable advantages over other models. For example:
Expand to New Markets
The lower cost of entry for customers allows you to enter new markets you may previously have been priced out of. Especially for premium brands, where you can bet on longevity, this allows for lower-cost wins to occur with revenue recuperation over a longer period of time, which in parallel improves customer retention.
Enhance Customer Perception of Value
Directly linking the price paid with the value received allows customers to better justify the capital investment and the benefit the solution brings to business operations.
Reduce Customer Churn
Usage-based pricing ensures that customers won’t outgrow the company’s or product’s capabilities, thus reducing churn. Your hardware becomes an adaptable mechanism capable of delivering enhanced services and support for a longer period of time.
Usage-based pricing allows businesses to track and analyze product and service usage data to better understand their customers and more properly target them for marketing and sales campaigns.
How to Implement a Usage-Based Pricing (UBP) or Consumption-Based Pricing (CBP) Model for Your Hardware Business?
Careful consideration is always required when transitioning to a usage-based pricing model – the value to the customer, both financially and serviceability-wise, must be clear, easily understood, and explicitly advertised. However, this approach can promote deep-rooted customer loyalty and long-term customer growth and retention once successfully implemented. Users appreciate the flexibility and adaptability, and the fact that they simply pay for the value they derive from your product or service.
Develop a Deep Understanding of Your Customers
It is imperative to know your customers and their usage patterns and behaviors. Truly understanding how your customers use your product will enable you to price each component of your ecosystem in a way that ensures they directly feel the value of their investment. This, in turn, benefits your bottom line.
In the software world, usage is often easy to measure, but what if you are selling hardware and want to introduce usage-based pricing? With Xyte, this is quite straightforward. Choose a telemetry being measured, associate a price with its usage, set a billing time frame, and you’re done! Xyte provides a suite of cloud-based tools and wizards that allow you to cloudify your hardware and unlock a wide array of features that let you better serve your customers and their needs. Once connected, you immediately begin gaining valuable insights into how your devices are being used.
This knowledge allows you to make informed business decisions about production based on actual device utilization, toggle features to enable enhanced user functionality via the cloud, and, most importantly, measure what functions on your devices are being used by a customer and charge them accordingly.
To learn more about connecting your devices to the cloud and deploying a usage-based pricing strategy with Xyte, get in touch with us at firstname.lastname@example.org.