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Pushing Through the Limitations of Subscription Billing

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As consumers grow accustomed to automated payments and pay-per-use solutions, the benefits of fostering repetitive customer contact and creating recurring revenues through a subscription model are obvious. However, subscriptions should not be considered the end game for the billing world.

With subscription billing, businesses can only control the price, term of an offering, or the product mix. Companies with the foresight to consider the activities they could make available to customers will discover that new sources of revenue are hidden in every customer download, authorization, transaction, or engagement. Billing systems can evolve past simple subscription services and create a richer relationship with the customer.

The future of the subscription economy lies with activity-based billing, which enables companies competing in the digital economy to increase revenues by leapfrogging ordinary subscriptions and adopting dynamic billing solutions based on the activities of their customers.

It’s impossible to think of a scenario in any industry where all customer behavior is completely identical.

To move beyond simple subscription plans and to realize new sources of profit, businesses need to consider the complete range of activities or services they can offer customers.

Customers engage with companies in many different ways: Chats, texts, downloads, uploads, views, emails, calls, orders, returns, logins, profile changes, and more. Activity-based billing creates a process for measuring, aggregating, analyzing, rating, charging, invoicing, payment processing, and reporting on those customer engagements.

What Counts?


Activity billing differs from a simple subscription model as activities are essentially anything you can measure and sell. To measure and monetize customer activities, businesses have to break those actions into measurable components that can be rated, metered, and charged. The more activities that engage customers and the better the incentives for increased consumption, the more likely customer are to remain loyal. Customers are also assured they are only paying for what they do versus contributing to the use of a stranger that consumes more.

Once the universe of customer activities for a business or service has been identified, companies can then determine how to charge for those activities (e.g., tiered subscription, by the minute or second, by the kilobyte, by the download, by the mile or many other options). With access to real-time insight into customer activities, businesses can respond quickly to changing preferences or market conditions.

Entitlements


Entitlements review a user’s information to ensure a requested activity is authorized and allowed, which can optimize revenue capture and prevent profit loss.

In essence, entitlements ensure that essential questions are answered quickly so that services are appropriately provisioned, activated or billed.


  • Does a subscription on the correct level exist?


  • Does the subscriber have overdue invoices?


  • Is there an allowance left to be able to process a new activity?


  • Is it possible to charge for an individual activity?


Without proper management, entitlements can become unwieldy. To prevent revenue loss or customer frustration, businesses need a system that ensures each subscriber has access to the application, goods or services to which they subscribe.

Personalization


Personalization creates building blocks of services, goods or activities that allow customers freedom to consume, while enjoying a pricing model that is tailored to their preferences. These building blocks are formed by creating a feedback loop for information related to how customers are consuming products and services as well as how they are being charged and their method of payment. Businesses can proactively redefine billing activities, processes and outcomes to optimize their performance based on changing needs of the business. In most cases, this involves enterprise integration with fulfillment, order management and trouble-ticketing.

The Upside


Simple, one-size-fits-all accounting, payment or subscription systems cannot deliver the agility or sophistication needed for a dynamic, activity-based revenue model and building the complex and intricate connections necessary for activity-based billing has historically taken several man- years and millions of dollars to perfect. The problem is that the process is complicated and touches many facets of an organization.

Today, businesses of all sizes can look to the cloud to solve tough business challenges, consuming services and capabilities on a pay-per-sip basis. The cloud levels the playing field by enabling businesses to leverage all the key functions, tools and processes of a robust billing platform without exorbitant licensing, integration and maintenance fees.

With software as a service (SaaS), it is now possible to quickly deploy and pay on-demand for a billing solution that governs subscriptions, devices, services resources and usage, activities, price plans, coupons, entitlements, gift cards, loyalty programs and highly personalized elements.

If profitability, flexibility and sustainability are important to your business, then billing absolutely has to go beyond delivering an invoice or renewing a subscription. Done right, billing can be an important strategic business driver, trend indicator and revenue innovator.

Your customers are more than subscriptions. Will you look beyond the limits of subscription billing before your competitors do?





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James Messer is co-founder, president and CEO of Transverse.

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Comments

  • by Martin Westhead Mon Dec 24, 2012 via blog

    A very interesting article James. I completely agree with your assertion that subscriptions should not be considered the end game of billing, a wrote about some of the limitations in my article "Beyond Subscription Billing" [http://chargethru.com/profiles/blogs/beyond-subscription-billing]. However, I think there are some specific drawbacks to activity billing that are worth pointing out:

    1. Unpredictable charges - when customers are billed based on usage or activity they do not always track their activity and can face unexpectedly high charges at the end of the billing period. Such "billing shocks" can be bad for everyone since customers are put off the service and are less likely (or able) to pay.
    2. Usage inhibition - because of the danger/fear of (1) customers may be inhibited to make use of the service as much as they'd like to. It is often said that the growth of the internet in days of the dial-up modem was much more rapid in the US where local phone calls did not incur additional charges than in Europe where people paid by the minute.
    3. Weaker revenue guarantees - This is the provider side of unpredictable charges. Ina subscription model you can have a very clear picture of your ongoing finances. With an activity model it is harder to know. Will customers use your service as much this month as last month?

    So, I think there will always be a place for all-you-can-eat subscription services. That said, as a consumer I am personally very reluctant to sign up to a subscription billing arrangement, particularly for a new service. In many cases it is difficult for me to predict my level of usage for a new service and even with low monthly payments I know that there's a good chance I will not get sufficient value over time and so I don't buy. Services like Shutterstock where I pay for just the photos I use are much more appealing particularly if I don't understand my usage pattern.

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