Use Your Event Data to Create the Ultimate Value-Based Pricing Strategy

by Chargify

Recently, we dove into why event data is such a critical business metric and how it can help you gain detailed insights into your product, application, or customer behavior. By paying attention to your event data, you can react to prospect actions in real time, deliver personalized customer experiences, and predict future business trends. But the benefits don’t stop there. Event data is also the critical ingredient to employing the next generation, SaaS usage-based pricing model, Events-Based Billing.

What is Events-Based Billing?

Pioneered by SaaS titans like AWS and Twilio, Events-Based Billing is the industry-leading B2B SaaS billing model. By harnessing the power of event data, Events-Based Billing lets you step beyond standard usage-based pricing to provide truly personalized billing for your user. Events-Based Billing is revolutionizing the way companies establish their pricing strategies because it’s centered around the idea of ultimate value-based pricing. Instead of tying themselves to long-term contracts or potentially-underused service tiers, customers only pay for the value they receive from your product (and only when they recieve it).

How Events-Based Billing Works

In its simplest form, an Events-Based Billing strategy consists of three steps: stream event data into your billing platform, rate the metrics you want to bill on, then bill your customers. This pricing strategy directly links the value your service provides with the cost presented on a customer’s invoice. So far so good? Let’s dig in a little deeper.

1. Collect event data.

Just as you can’t cook a meal without first purchasing the necessary ingredients, you can’t bill on your events if you’re not collecting them. That’s why the first step to employing an events-driven pricing strategy is to start collecting customer, product, and application event data. This is typically done through an event streaming platform which captures rich data around user or application events. These applications not only collect the data, but also enable you to easily manipulate, store, and prioritize these metrics based on your objectives. This streamed event data is then used to deliver personalized customer experiences from initial product interaction to customized alerts and analytics (and of course, to eventually bill).

2. Rate the event data.

After you’ve collected your event data, it’s time to set your prices. To do this, you must categorize and price each event according to your business objectives. This process is called rating.

For example, a telecommunications company (let’s call them “Textify”) may use Events-Based Billing to create a custom pay-as-you go pricing strategy for their SMS text message services. An ordinary, usage-based pricing structure may simply bill users per number of texts sent within a set billing period. But Textify wants a more personalized, value-based pricing strategy.

They can do this by basing their pricing strategy on several different billable events (which all have different rates), like the geographic destination, the type of message being sent, and the carrier to which the SMS is being sent.

Location sent from Location sent to Carrier Rate
U.S. U.S. AT&T $0.010
U.S. Italy  Vodafone $0.050
U.S. A country outside of the U.S.(undelivered) (any) $-0.030 

Given this rating example, if a user sends a text to a recipient in Italy which fails to go through, each of these events would be collected by your Events-Based Billing system and rated, and the user would end up paying $0.030 in total.

Events Rate
SMS text $0.010
Text sent to non-U.S. country $0.050
Text failed to send $-0.030
Total $0.030

3. Bill on the event data.

Now that you’ve collected and rated your event data, you’re ready for the fun (and profitable) part—billing. There are many different ways to bill on event data, and you should choose the billing strategy which best fits your services and the value your customers want.

For example, while you can bill in real time, with each individual event triggering a credit card or bank account, this would rarely be practical for you or your customer. Quite frankly, the customer would be confused—and perhaps even annoyed—to see each individual event come through as a separate line item on their end. (Think of a ride sharing experience you had recently. What if you were charged for each individual mile separately, instead of being charged a lump sum at the end of the ride? Silly, right?)

Fortunately, you’re not limited to charging straight away. You’ve got other options, like billing your customer for events collected within a specific time period (like AWS’ pay-as-you-go model). Or, probably the most preferred billing scenario is an automated, prepaid Events-Based Billing pricing strategy.

Cloud-based communications tools and services company Twilio has mastered this prepaid pricing strategy. It begins with a customer paying $X to open an account. As Twilio customers use the service(s), money is automatically drawn from that prepayment until a certain threshold is reached (customers can select their threshold level when they establish their account). When the designated threshold is met, depending on how a user’s account is set up, Twilio will automatically draw an additional $Y from their bank account, and the process repeats itself.

This auto-recharge pricing strategy helps prevent projects from being suspended for zero or negative balance. When a company’s prepaid threshold is met, users are notified that their balance is low and presented with the actions that are available to them. (I.e. refresh the account balance, reach out to sales to talk about changing the account type or services, or possibly cancel services).

Prepaid Events-Based Billing is not a new concept. For example, most toll road pass companies, for instance, allow customers to start their account for a simple $40 prepayment installment. Each time a vehicle crosses under a toll road sensor, that event is tracked and logged in real-time via the sensor technology in a windshield tag, and that designated dollar amount is deducted from a user’s account. This pricing strategy allows users to keep on driving, with no disruption to their daily life. That’s superior value and usability. That’s the power of Events-Based Billing.

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Why You Should Use Events-Based Billing as a Pricing Strategy.

It’s the future of billing.

SaaS companies charging flat-rate subscription fees for a service package—which may not be fully utilized—is an outdated pricing strategy. Customers are no longer interested in paying for services they don’t use. (And we can’t say we blame them.)

Industry titans, like aforementioned AWS and Twilio, pioneered the future of billing by employing their own versions of events-based pricing models and setting a new industry standard. As other SaaS companies watch the success of these events-based architectures, similar pricing strategies are becoming more common across the marketplace.

As a result, customers are already familiar with (and like) value-based pricing models. Take popular ridesharing services like Uber and Lyft as prime examples. A user creates an account for free and is only charged when they use their ridesharing app services. The charge for each ride is directly associated with variables of their trip: how many miles they travelled, the level of driver demand in a specific geographic region or at a specific time of day, etc.

Similarly, Rev (a company who provides captioning, subtitles, and transcription services) only charges customers a certain price per minute for their services. (Remember when we discussed rating?) Depending on the length of the video or audio file a user is submitting, they could pay $3 or $300.

It’s the most powerful value-based pricing model in the marketplace today.

Another unique benefit to this pricing strategy is that it allows businesses to cater to entry-level customers and enterprise customers with the same flexibility and pricing structure. This is because with Events-Based Billing, users pay not just for what they have access to (which is your standard usage-based pricing model), but for what they actually use. This gives companies a best of both worlds pricing strategy, allowing them to build regular recurring revenue that’s more profitable and value-backed than usage-based revenue alone.

A true value-based pricing strategy ensures you’re neither overcharging smaller clients nor undercharging larger ones. Each level of customer pays for the amount of value they’re receiving, period. No other billing model provides this level of granularity and tailored value for the consumer.

It can increase your revenue and grow your business through exponential scalability.

Event data will inevitably shape the way SaaS companies evolve, and those who don’t embrace it will likely lose out to the ones who do. Utilizing event data to drive your billing leads to increased revenue by tying your business success to the growth of your users (as their needs grow, the need for your services increases).

Events-Based Billing can also increase your customer satisfaction. Customers who are satisfied with both the price and quality of a service are less likely to cancel memberships or subscriptions, lowering your churn rate. Happy customers equal loyal customers. And loyal customers equal positive brand advocates and lucrative referrals for your business.

Employ a Next-Generation Events-Based Billing Strategy with Chargify.

In the past, the one downfall to Events-Based Billing was that it wasn’t widely available. Companies who wanted to bill on events had to build this complex infrastructure themselves. Most SaaS companies don’t have the resources to build out such an extensive pricing model. That all changed with Chargify’s out-of-the-box Events-Based Billing solution. Companies can get up and running faster with our pre-configured event streaming and billing infrastructure that can be tailored to fit custom business models and goals.

With our in-house data management and streaming platform, our team helps you harness the potential of your event data to create a multidimensional Events-Based Billing model that employs real time data streaming and analytics. We’ll help you build out your preferred pricing scenario, so you can experience first-hand the power of Events-Based Billing in your business.

If you are ready to establish an events-based pricing strategy for your company with the same level of precision as the big players in today’s market, Chargify’s team is here to help you learn more and get the process started.

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