Top-Class Usage-Based Billing, Pricing, and Metering for SaaS Companies
Do you want to implement usage-based billing to create a smarter, more convenient pricing model? Here's how Archetype can help SaaS companies.
March 20, 2023
What Is Usage-based Billing?
Also known as metered billing, "usage-based billing" is a new pricing strategy in software services. Essentially, it allows customers to pay only when they use a product or service in a billing cycle.
Many companies adopt usage-based billing methods to think smarter about the pricing model they use. However, it offers more benefits to both customers and businesses.
With a usage-based billing system, companies can provide more value to users and drive more revenue. Businesses with a clear unit of measurement to track how much of their products or services customers use often rely on this monetization strategy.
How Can Companies Charge Using a Usage-based Pricing Model?
A business can use a usage-based pricing model in different ways to charge for its services or products. However, these are the most common:
With this model, users pay a fixed price for a specific unit of measurement consumed up to a certain amount. If you offer a streaming service similar to Netflix, for example, you could charge based on how many minutes someone watches the platform's series or movies. Let's say people who use the service for less than 120 minutes must pay 5 cents per minute. However, those who watch movies or shows over 240 minutes must pay 5 cents for the first two hours, 3 cents for the next 120 minutes, and 1 cent going forward. This graduated pricing model can be better suited for streaming services and their users compared to a subscription fee.
When you implement usage-based billing strategies, you can offer a discount based on the number of products or services users purchase. The more they buy, the lower the price. If a user pays 25 cents for a movie, you can offer a plan with five films for just $1, for example. As a result, customers will be encouraged to buy more or use your services for longer because that means they will pay less and save in the long run.
If you implement usage-based pricing models, you can also segment your content. Revisiting the example of streaming services, we can say that there are two types of users: those who watch new movies or premium content and those who love low-budget indie films from the early 2000s.
In this case, it makes sense to charge more for premium and new movies than for content released more than a decade ago.
Streaming service providers, such as Netflix, could apply this model across their entire catalog and set a different price for each category.
High-demand action movies are often more expensive, so they should be on the higher end of the price chart. However, a rom-com from the 90s might fall into an "All Access" category.
Can I Connect My Billing Data With Other Apps and Software Solutions If I Use Archetype?
Yes, you can! Archetype fits into your stack, as it allows seamless integration with CRMs, API management vendors, and accounting software, including the following:
Can I Set Up Metered Billing with Archetype?
Yes, you can! If you use Archetype, you need to sign up for two accounts: Archetype and any payment processor or invoicing software including Stripe for example (this one is used for payment processing).
Using Stripe for metered billing is a common practice for several SaaS companies, but where does Archetype sit in the stack?
Archetype is essentially a wrapper around Stripe to enable easier usage tracking, automated metering and billing.Archetype's main goal is to streamline the process of implementing API keys and make creating quotas and subscriptions easier.
Should I Choose Archetype or Stripe for Usage-based Billing?
Stripe has existing solutions, including a customer portal and subscription items, that are ideal for selling API products on a per-seat basis, charging single rates across several API calls, or building your initial billing portal.
However, relying on per-seat pricing or having a subscription item won't help you adopt a usage-based billing method. You need to report usage in order to implement this pricing strategy.
Moreover, Stripe API doesn't support more complex features, such as rate limits, price experimentation tools, or custom plans.
Also, Stripe's existing billing tools often fall short if you're looking for a solution for API products with complex pricing models and add-ons, such as discounts, endpoint-specific pricing, and coupons.
This solution is not suitable for API products that aren't delivered via self-checkout offering or sold to small high LTV customer groups. Therefore, in these cases, using an outside vendor, such as Archetype, is the best course of action.
When it comes to usage-based billing, Stripe and other common payment processors don't have what businesses need in terms of complexity, flexibility, and delivery. They don't support essential features, such as customer usage history tracking, pricing plans with multiple metered items, paid trial periods, and add-ons.
Also, when you use Stripe billing for usage-based pricing, you won't always have an accurate usage report, so you cannot trust your data.
However, choosing an outside vendor, such as Archetype, may be the ideal solution to solve these issues.
In addition, Archetype supports integration with Stripe to help companies create quotas and subscriptions in no time.
What Are The Benefits of Using an Outside Vendor Instead of Stripe for a Metered Billing API?
Companies that want to encourage users to pay for their products or services on a usage-based basis need add-on elements.
These are some of the add-ons that comprehensive usage-based billing software offers:
- Product bundling
- Content entitlements
- Billable metric support
- Endpoint-specific pricing
- Custom billing cycle
- Volume and graduated pricing plans
- Accurate usage data tracking and charging
- Discounts and coupons
- Complete self-serve checkout experience
Can I Use Archetype to Create Billable Metrics?
Archetype allows you to create any metrics you need, such as streamed minutes, to help you bill based on them.
You can attach all the billable metrics you want to any plan for a custom pricing model.
Also, you can set two different tier modes for billable metrics – graduated and volume, considering the following:
- Sum: The total billed is based on the sum of usage records for each billing period.
- Last-during-period: In this case, what customers pay is based on the most recent usage record for a billing period. The total billed results in a usage quantity of 0 if no usage was reported during that period.
- Last-ever: The total billed is based on the most recently provided usage record. Stripe considers prior usage records if there is no reported usage during the billing period.
- Max: The total is based on the record with the largest usage quantity for a billing period. If there is no report, the usage quantity is 0.
- Unique: The count of uniques in a given billing period.
Is Archetype Safe?
Yes, it is! The existing customer record, billing information, payment details, and all incoming data are encrypted with TLS both in transit and at rest. We are committed to companies' safety. Therefore, we use the same security standards as industry-leading companies, including Stripe.
Do I Need the Help of a Developer to Use Archetype?
Yes, you're right! You should be or require the help of a developer to use Archetype. However, our dashboards and integrations are easy to use and have been designed for analysts, marketers, and customer success teams. Integrating Archetype with an engineer can take as little as a day.
Can I Monitor Revenue with Archetype?
Yes! Archetype offers analytics to help companies monitor revenue, usage, and churn in order to identify trends to improve their strategies or address spikes.
How Can I Use Archetype?
Archetype can be the ideal solution if you are building a new API or have a huge customer base. You can use it to do the following:
- Make purchases, fetch products, and check subscription status
- Analyze important metrics in just one place
- Host and configure products remotely, using only our dashboard
- See customer transaction histories, grant promotional subscriptions, and more