Top Considerations for Adopting Usage-Based Pricing, Rating, & Billing

November 6, 2018 | Olivia Sekerak
billing system

Billing a customer based on how much they use might sound simple, but there are many complexities to usage-based pricing. Before adopting a rating engine and billing system, many service providers rely on pulling data from monitored systems into spreadsheets, reformat the data, and then load the customer usage data into a billing system once (or sometimes more) per billing cycle. This manual and tedious approach to creating end-customer invoices may work for low volume businesses, but as you scale your business, this process can slow you down exponentially.

Before we consider usage and rating, let’s cover the basics:

1. What is usage?

Usage is the ability to bill a customer for what they have used over a given period. Customers pay for what they use based on the service usage which could take the form of commission, discounts, licenses, messages sent, GB, MB, bandwidth, etc.

2. What is rating?

Rating is the charge or price for a particular event.

3. What is rating usage?

Rating usage is a process of converting the quantity of service during a period of time into monetary value for a customer. For example, the price of a 10 minutes call is $4 at the rate of $0.40 per minute. Usage metering framework tracks the use of any unit type and calculates the charges for the end-customer’s invoice.

When it comes to rating usage and usage-based pricing, there are several business impacts to consider before going “all-in.”

Here are a few things to consider:

  • Usage data collection – Think about how you’re going to gather the customer’s usage data and strategies for parsing it out by customer. Often this can be done with unique identifiers for each customer.
  • Pricing – With pricing, you have lots of options to choose from, including standard, tiered, flat-rate, volume-tiered, pay-as-you-go, and many more. Ensure scalability by selecting a billing system that can accommodate complex pricing models.
  • Multi-location customers – Consider ways that usage could be pulled across multi-location accounts and divided into different groups, based on your end-customer’s needs.

When the threshold for usage is crossed, overage charges or payments can apply mid-billing cycle. In order to accurately bill customers, use a flexible billing system that automates processes for calculating bills and generating invoices.

There are five stages of the usage lifecycle:

1. Acquisition – This is the process of acquiring usage data from the various source systems.

2. Transformation – Reformat the data for further processing.

3. Pricing/ Rating – Using your selected pricing models, this is how you monetize your offering.

4. Pooling – Usage data is pooled across resellers, company departments, or other attributed that impact the charged price.

5. Thresholding – Customer satisfaction is more important than ever. Will they be alerted when their usage crosses certain limits?

At Rev.io, our telecom billing platform will help you monetize and grow your billing business by managing offers, financial processes and customer accounts. For more information on usage and rating, please read our ATL Communications Automates Consumption-Based Billing post where we discuss a case study. If you want to know how to leverage our new REST API, please read our REST API Integration for Usage-Based Billing post. Reach out to us using our Contact Us form and let us help you grow your subscription business.

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