EvolvE your SubScription buSinESS with Activity-bASEd billing

Forward-thinking SaaS operators are extending subscription business models with activity-based billing that monetizes consumption, increases ARPU and deepens loyalty.

billing 3.0 for SaaS opErAtorS

The digital economy has educated us about how much more value can be derived from the same dollar that used to buy just one, static good or service. Large segments of the economy are embracing the relationshiporiented, pay-as-you-go subscription model.

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Subscriptions enable consumers to pay less on a per-unit equivalent, or to consume a good or service over time that better fits with their lifestyles and preferences. No customer touch point is more important than billing, as it connects businesses with consumers on an ongoing, personal basis. Though subscriptions are valuable to both businesses and consumers, there is so much more that can be done to take subscriptions further. To build profitability and resiliency into business models, SaaS operators need to look beyond subscriptions and explore subscription business models that monetize the different combinations of consumer activities.

from SimplE SubScriptionS to ActivitybASEd SubScriptionS

Subscriptions exist in simple and complex forms.

SubScriptionS hAvE bEcomE pArt of our EvErdAy lifE.

In the simplest subscriptions, a business controls the price, the term of the offering, and the product mix of the relationship. Businesses can tweak any or all of the three price leversperhaps reducing the price to add customers. As the relationship with a customer matures, the business should move to add consumption or usage parameters to the product mix as additional pricing levers. For example, reducing a price to attract more users, but limiting their consumption of the good or service for which others pay more. When charging for different classifications of the good or service, customers paying the set amount for unlimited access will have a different value equation than those paying a lower price for limited access. The consumption or usage price lever can be implemented as a limit or as a set of charges that are generated by ongoing use. For example,

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customers that dont see value in paying a set amount for unlimited access to a good or service may become interested if offered a chance to pay a nominal price in exchange for per use pricing. For those subscribers, the value comes in the flexibility to consume the good or service at will. For example, in a SaaS business model, the customer who does not see value in paying $10 for unlimited access may become interested when he can pay $0.25 for only the assets he finds interesting. At $0.25 per asset, the customer has a low barrier to trying out the new service, and the business succeeds in making money on assets that previously would not be monetized. But the real value for the business is the opportunity to convert the customer to different subscriptions over time, as the subscribers situation and interests evolve. Subscriptions offering combinations of limits and activities represent the more complex and more meaningful subscriptions in terms of driving loyalty and revenues. The goal of an activity-based subscription is to

thE vAluE comES in thE flExibility to conSumE thE good or SErvicE

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incentivize ongoing customer interaction and consumption. Customer activities can be many things, including the download of a piece of content, the launch of a streaming connection, the creation of an object in a SaaS application, the scan of a bar-code or QR code or even the redemption of a coupon. Activity-based pricing and subscriptions focus on leveraging the relationship with the subscriber and transitioning the subscriber from a single recurring revenue stream to multiple revenue streams.

monEtizing conSumEr ActivitiES iS no EASy tASk

Any activity that is measureable is also monetizeable.

cuStomEr ActivitiES cAn bE mAny thingS

Activity-based billing requires a complex array of interrelated processes that must be managed: everything from the initial contact with a customer, to the placement of an order, to the provisioning and activation of a service, to the billing and payment, and then beyond to the capabilities that keep the customers hooked over time with new activities. Managing the recurring customer relationship includes two critical subscription processes not normally available in off-the-shelf ERP, CRM or GL applications: the Order-To-Cash process where the relationship with the customer is established; and the Activity-To-Cash process where the relationship is expanded according to the consumers behaviors and preferences over time. Nurturing the relationship requires that multiple pre-billing processes and complex functions such as Event Handling and Rating be in place for controlling usage and activities. That control comes through the assignment and enforcement of entitlements, which help to authorize and authenticate whether a person is who he says, and whether he should have access to the services hes requesting.

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That means the billing platform must know up-to-the-second in some cases what a customer has purchased and where he is in the consumption of his subscribed services, and whether actions should be taken, such as advice-of-charge, balance checks, updates of allowances or reversal of events, suspension of accounts, and application of late payment fees and penalties. For organizations that want to capitalize on the natural evolution of consumption, activity-based subscriptions provide a mechanism for accommodating, and even evolving the subscription relationship. Activity-based subscriptions can create sustainable relationships and prevent the loss of customers that might otherwise not be able to, or want to, make one-time purchases. The goal of activity-based pricing is to stimulate more consumption with price levers that accommodate changes in circumstances, usage and preferences. The ability to add and manage consumption or activity-based price levers to a product mix gives a company a powerful tool for growing its customer base (recurring revenue) and maximizing lifetime value of the customer (reducing churn). Nowhere is this more apparent than in the realm of cloud computing, where cloud providers are enabling companies of all sizes and types to do what they otherwise would struggle to do. By charging per instance of usage of CPUs, gigabytes, disk space, memory, kilowatt, etc, they allow subscribers to access bandwidth, storage, compute cycles, software and data at much lower cost than would be possible if they had to build their own infrastructure. As with subscribers in a cloud environment, the value of breaking down usage and charging for it accordingly is valuable not only in the digital or IT world, but also in virtually any line of business that would benefit from ongoing contact with customers. As SaaS operators create more touchpoints with customers, they create more opportunity to up-sell and cross-sell. As they gather business intelligence about their customer base, subscriptions help marketing and sales people better target the most profitable customers.

if it cAn bE mEtErEd or mEASurEd, trAct cAn bill for it.

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billing: Avoid intEgrAtion complExity

When billing is treated as an enabler to new business models, success depends heavily on the accuracy and integrity of data and the ability to integrate disparate systems responsible for different pieces of fulfillment, assurance, and customer care. For this reason, billing, which encompasses many functions (i.e., ordering/activation, notifications, customer self-care, invoicing, payment notifications, settlement, analytics) must be able to readily integrate with systems responsible for a myriad of related functions (i.e., CRM, service management, supplier/ partner management, revenue management, customer care, etc).

thE goAl iS to find billing SolutionS cApAblE of mAking pEoplE conSumE morE

Real-time monitoring of usage can be very complicated. Billing for usage in conjunction with subscriptions is much more complex than onetime transactions or subscriptions alone, and over time, becomes more complicated. As subscriptions or business rules around usage change with upgrades, renewals, add-ons, up-sells and cross-sells, it is challenging to acquire real-time rating capabilities and the ability to manage dynamically generated revenueall of which add an entirely new level of complexity. Because many subscription billing solutions today are nothing more than payment gateways that do recurring charges, companies should challenge vendors about whether their solutions provide the appropriate level of functionality for managing a subscription business. At what level of business model functionality are the solutions? The goal is to find billing solutions capable of making people consume more with usage-based price plans and multiple levels of pricing, crossproduct discounts, promotions and payment options.

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The more sophisticated the billing capabilities, the more innovative and agile the businesses will be. There is, therefore, a correlation between the sophistication of an enterprises subscription business model, its understanding of billing, and the profitability achieved. In a subscription economy, billing should become the enabler, not the hindrance it often was in the past when systems could not handle dynamic business models. In conclusion, marketing, finance, IT, operations and executive management are all under pressure to launch new services and build new revenue streams. Only with diverse pricing options that convert one-off, short-term relationships with customers into sustainable relationships can companies truly extend and build profit over time.

in A SubScription Economy, billing Should bEcomE thE EnAblEr, not thE hindrAncE

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About trAct
TRACT, from Transverse LCC, is the all-in-one activity, rating and subscription billing platform that can bill for anything. SaaS, cloud, MSP, ISVs, telcos or wireless providers with activitybased business models use TRACT to rapidly build and evolve any business model.

SEE for yourSElf

if yourE rEAdy to EvolvE your SubScription buSinESS, itS EASy to gEt StArtEd.

Register today and start experimenting with different subscription pricing models in our Development Sandboxa test environment that represents a fully functioning instance of TRACT. The Sandbox provides all the features of TRACT, allowing you to build and test your billing models and integration with other applications in a non-production environment. To learn more, contact sales@gotransverse.com or visit www.tractbilling.com.
Call us or email us. We are available to answer your questions.

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