Selecting an appropriate revenue model decides how and when the business is going to be fruitful for the owner as well as for the customers. Adopting the right revenue model is inevitable as it reflects the affinity of the customers towards the brand and its product or services. Show
With the continuous budding of startups and small business joint ventures, competition is re-shaping the struggle to customize or improvise the revenue models to penetrate, survive, and thrive in the market. Based on the services, business costs, and targeted audiences, different businesses adopt a different revenue model. The latest trend is Subscription Revenue Model. Businesses from across the vertical market are looking for opportunities to enter into the subscription business market and customize the revenue model as per their business feasibility and stability.
Proceed to SubscriptionFlow plan for added recurring billing & payment features. Reimagine the innovative & all-in-one subscription management site to raise recurring revenue. Along with Subscription Model, the other dominating revenue model that exists well and attracts customers is the Pay-Per-Use Revenue Model. In this article, we are going to review the two revenue models, their benefits, challenges, and the scenarios in which they work best and favor businesses. Subscription Vs Pay-Per-Use ModelThe subscription model deals with the recurring revenue growth in which a customer pays a set subscription fee after a pre-defined interval usually on monthly basis to access the subscribed product or service for a specific length of the period. In contrast, the Pay-Per-Use model involves usage- or consumption-based billing. This model revolves around the metered charging of the customers. They pay only for what they have used or for how long they have used. How Does the Subscription Model work?The subscription model has gained a lot of popularity and adaptability over a decade due to its stability, predictability, and scalability. In today’s highly developing society and competitive world where every second, ten of inventions are obsoleting the old-versions and exploring the opportunities, the lifeline of the products and services are getting shorter and thinner. It affects customers’ shopping habits and purchasing behaviors.  Benefits of Subscription BillingNot all products or services have a longer lifeline. A customer is well aware of the fact. The idea of selling those products or services as the one-time purchase has lost its potential and is replaced by the subscription revenue model.
Subscribing to the product or services against a flat-charges, relatively to the one-time purchase, for a definite period and use it as long as it is needed is an attractive idea for the customers who are concerned with their budgets or have fluctuating shopping habits. On the other hand, the subscription provides the confidence of stable, predictable, and manageable recurring revenue.
Stabilizing the predictable demand and manageable supply in the market, it allows the businesses to add data-driven value into the product or service and enjoy the continuity of service and engagement by the customer with the subscribed products or services.
Paying the subscription charges after every interval increases the wish of the subscriber to use the product or service more often. It ultimately enlarges the net of the subscription lifecycle as well as the customer lifecycle value.
Paying the huge upfront cost restricts the penetration of the product or service in the market, whereas the subscription revenue paves the way for the subscription-based product or services to create space and claim the revenue share by lowering the barriers of the one-time barriers of the cost. It makes access to the product or service easy, instant, and affordable. Challenges of Subscription BillingThe subscription Model despite its huge success is still facing some challenges that affect its stability and predictability factors for the market and the revenue. Some of the key concerns are:
Removing the entry barriers though eases the penetration in the market, but any of the social or economic factors can draw customers to make easy exits as well. Based on the quality of the services, price friendliness, and competition in the market, customers can put an end to the subscription.
Often despite happing subscribing, subscribers develop the guilt of overspending if they are not utilizing all their resources when subscribed to the bundle subscriptions. It increases the risk of unsubscription as well.
Subscription isn’t a one-time business. It requires persistence and research-based struggle to shaping and re-shaping the subscription plans, pricing, services, and other RevOps to stay and compete in the market. How Does the Pay-Per-Use Model work?Pay-Per-Use Revenue Model has been there and is effective for many businesses since ages. The prime example of the model is utility bills—the customers pay for what they have consumed only. PPU is different from a one-time purchase. One-time purchase enables the customer to claim the ownership of the product or service. In contrast, PPU allows the metered use of the product or the service owned by the provider against a less fee for a limited time. Benefits of Pay-Per-Use BillingPay-Per-Use or PPU is also called the Usage- or Consumption-Based or Metered Revenue Model. With PPU, the customer makes a single purchase at a fixed price with the commitments of using or not using it further.
Usage- or Consumption-Based Revenue Model is highly popular among Cloud Computing and SaaS Startups & Enterprises. Earlier, the software industry has suffered a lot due to rampant software piracy and consequent revenue leakage as a result of a high-cost acquisition due to an upfront huge one-time purchase. The cloud-based software services are now increasing their rate of acquisition as well as retaining their customer base with the Pay-Per-Use model.
PPU offers affordable access to the subscription service with the control of the power to use or not use it. The flexibility draws more customers and experiments particularly the SaaS services. Its cost-effectiveness continues to engage the customer for a longer period.
In SaaS services, PPU allows the providers to earn the ROI within a short span and enter them into the phase of maximum profiting while covering all their fixed and variable costs of the cloud service.
PPU broadens the horizon of the understanding of the demands of the market with the data on the usage of the most popular service. Businesses can add value and increase the lifeline of the SaaS service. Challenges of Pay-Per-Use BillingMetered Billing over time is helping businesses across the industries to market their product and maximize adaption to ensure robust revenue growth. It has more opportunities to streamline the continuity of the services customers need but has also some challenges. Some of them are:
One-time purchases aren’t the behaviors of millennials and Gen Z. Everyday inventions program them to bring innovation in their life. This reduces the lifetime value of the products and services. PPU provides easy, instant, and affordable access to the technology that limits their lifetime and likeliness of the customers to use it for a long time.
PPU neither ensures predictability nor stability in revenue. The constant engagements are the only ways to attract more and more customers towards the service. Unlike the subscription model, the PPU model is based on customer acquisition that incurs more marketing & sales costs. Let SubscriptionFlow Help You to Select, Set & Manage the Best Revenue Model for Your BusinessSubscription or Pay-Per-Use, based on the lifeline, business costs, and market demand, each revenue model has its advantages and disadvantages. But, the most important thing behind the success of every model is its efficient and hi-end management. SubscriptionFlow is the highly advanced and automated solution of the pricing, billing, and payment management platform for all revenue models—no matter whatever their vertical is. Some of its AI-mediated subscription, customers, and revenue management tools include pricing engine, automated invoicing and payment processing, proration, dunning, tax and add-ons management, seamless stack integrations, and revenue recognition through real-time recurring revenue reporting. Request a demo with an expert. What is metered services in cloud computing?Metered Services are a Pre-paid offering, also referred to as "a-la-carte" or "committed" offerings. A Metered cloud service like Java Cloud Service (JCS) or Database Cloud Service (DBCS) is where you are charged based on the actual usage of the service resources on an hourly or monthly basis.
What is pay per use in cloud computing?Pay-as-you-use (or pay-per-use) is a payment model in cloud computing that charges based on resource usage. The practice is similar to the utility bills (e.g. electricity), where only actually consumed resources are charged.
What is metered usage?Metered billing is a pricing model where the customer is charged based on their consumption level of the product or service. Typically, under metered billing, the customers subscribe to the product plan that will include a base price for a specific usage limit.
Which of the following service is offered as a payIn general terms, all cloud computing is PAYG. Users may need to parse several possible payment models depending on the provider and the services.
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