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EvolvE your SubScription buSinESS with Activity-bASEd billing

billing 3.0 for SaaS opErAtorS

Forward-thinking SaaS operators are extending subscription business

models with activity-based billing that monetizes consumption,

increases ARPU and deepens loyalty.

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 relationship-

oriented, 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 Activity-bASEd SubScriptionSSubscriptions exist in simple and complex forms.

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 levers—perhaps 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,

SubScriptionS hAvE bEcomE pArt of our EvErdAy lifE.

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customers that don’t 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

subscriber’s 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 ActivitiESiS no EASy tASkAny activity that is measureable is also “monetizeable.”

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 consumer’s

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 he’s requesting.

cuStomEr ActivitiES cAn bE mAny thingS

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if it cAn bE mEtErEd or

mEASurEd, trAct cAn bill for it.

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.

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billing: Avoid intEgrAtion complExityWhen 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).

Real-time monitoring of usage can be very complicated. Billing for usage

in conjunction with subscriptions is much more complex than one-

time 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 revenue—all 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, cross-

product discounts, promotions and payment options.

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

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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 enterprise’s 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 trActTRACT, 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 activity-based business models use TRACT to rapidly build and evolve any business model.

SEE for yourSElfRegister today and start experimenting with different subscription pricing models in our Development Sandbox—a 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.

trAnSvErSE hEAdquArtErS620 South Congress

Second Floor

Austin, TX 78701

Telephone: +1.512.279.3119

Telephone: 866.654.1617

FAX: +1.512.279.4486

gEnErAlinfo@gotransverse.com

SAlESsales@gotransverse.com

Supportsupport@gotransverse.com

pArtnErSpartners@gotransverse.com

if you’rE rEAdy to EvolvE your SubScription buSinESS, it’S EASy to gEt StArtEd.