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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the rapidly evolving utilities sector, billing offices are increasingly turning to software-as-a-service (SaaS) solutions to streamline operations, improve customer experiences, and meet regulatory requirements. As these specialized platforms gain traction, a critical question emerges for both vendors and utility companies: what pricing model makes the most sense? Usage-based pricing (UBP) has become particularly popular in the SaaS world, but is it right for utilities billing software? Let's explore when this approach shines and when it might create unexpected challenges.
Understanding Usage-Based Pricing in Utilities Billing SaaS
Usage-based pricing allows utilities billing offices to pay for software based on their actual consumption of the service. Unlike flat subscription models, UBP scales costs with metrics like the number of bills processed, payment transactions, customer accounts managed, or data storage utilized.
According to OpenView Partners' 2023 SaaS Pricing Survey, companies with usage-based models report 38% higher revenue growth compared to those with fixed subscription pricing. However, context matters tremendously, especially in the utilities sector where budgeting, regulation, and operational consistency create unique constraints.
When Usage-Based Pricing Works Well for Utilities Billing Offices
1. Aligning with Utility Business Models
Utilities themselves often charge customers based on consumption (kilowatt-hours, gallons, therms), making usage-based software pricing conceptually familiar. This creates a natural alignment between how utilities generate revenue and how they pay for software.
"There's a symmetry when utilities billing operations can pass software costs through in a way that matches their own revenue structure," explains utility technology analyst Maria Hernandez. "It creates a more direct connection between costs and benefits."
2. Scaling with Business Growth
For municipal utilities or cooperatives experiencing customer growth, usage-based pricing accommodates expansion without renegotiating contracts. As the utility adds customers or service territories, the software costs scale proportionally.
3. Seasonal Operations Management
Utilities with significant seasonal variations in billing activity (think summer cooling in southern regions or winter heating in northern areas) can benefit from usage-based models that align costs with operational peaks and valleys.
4. Proof of Value for New Technology Adoption
When implementing new billing technologies, usage-based pricing allows utilities to start small and scale as they validate the solution's effectiveness. This reduces the initial commitment and risk associated with technology transitions.
When Usage-Based Pricing Backfires for Utilities Billing SaaS
1. Budget Unpredictability Challenges
Utilities operate in highly regulated environments with strict budgeting processes. Unexpected fluctuations in software costs can create significant challenges for financial planning and rate case justifications.
A mid-sized utility in the Midwest recently abandoned a usage-based billing system after experiencing a 40% cost increase following a severe weather event that generated unusually high customer service interactions. The unpredictable spike required special regulatory approval for cost recovery.
2. NERC CIP Compliance Concerns
For utilities subject to North American Electric Reliability Corporation Critical Infrastructure Protection (NERC CIP) requirements, usage-based models can create compliance complications. When usage limits are approached, decisions about throttling critical systems might conflict with regulatory obligations to maintain system availability and data retention.
3. Enterprise Pricing Misalignment
Large utility enterprises typically prefer predictable, value-based pricing models that account for their scale and complexity. Usage-based models can appear advantageous initially but may fail to reflect the enterprise-wide value of integrated billing systems that touch multiple departments.
4. Perverse Incentives
Perhaps most concerning, usage-based pricing can create disincentives for using software features that ultimately benefit both the utility and its customers.
"We've seen cases where utilities avoided using advanced features like personalized customer communications or enhanced analytics because they were being charged per use," notes utility modernization consultant James Wilson. "That's the opposite of what you want – you're essentially penalizing them for using the very features that deliver the most value."
Finding Middle Ground: Hybrid Pricing Approaches
The most successful pricing strategies for utilities billing SaaS often combine elements of multiple approaches:
Tiered Usage Pricing
Implementing price fences and usage tiers provides some cost predictability while maintaining the scaling benefits of usage-based pricing. A base tier might cover standard operations with predictable costs, while additional tiers accommodate growth or special circumstances.
Value-Based Core with Usage Components
This approach establishes a fixed price for core functionality based on the utility's size and complexity (number of customers, service types), then applies usage-based pricing only for optional components or specific high-volume transactions.
Consumption Minimums with Ceiling Protections
Setting both minimum and maximum usage thresholds provides utilities with clearer budgeting parameters while protecting them from extreme cost fluctuations during unusual events or service disruptions.
Implementation Best Practices
For SaaS providers serving utilities billing offices, these practices can help establish effective pricing models:
- Select appropriate pricing metrics that truly reflect value delivered rather than arbitrary technical measures
- Provide usage dashboards allowing utilities to monitor consumption and forecast costs
- Establish discounting frameworks appropriate for long-term utility planning cycles
- Consider regulatory timing when implementing price changes to align with rate case schedules
- Create smooth transition paths between pricing models as utilities grow
Conclusion: Making the Right Choice for Your Utility
The ideal pricing model for utilities billing SaaS depends significantly on your organization's specific circumstances. Factors including size, growth trajectory, regulatory environment, and operational predictability should all influence your decision.
Usage-based pricing works best when it creates natural alignment with your utility's business model, accommodates growth, and encourages utilization of valuable features. It tends to backfire when it introduces budget unpredictability, creates compliance challenges, or discourages use of beneficial functionality.
Most importantly, the pricing conversation should center on value. Whether you're a utility evaluating SaaS options or a provider serving the utilities sector, the fundamental question remains: does the pricing structure reinforce or hinder the delivery of that value to the organization and its customers?
By understanding both the advantages and pitfalls of usage-based pricing in this specific context, utilities can make more informed decisions about the technology that powers their crucial billing operations.