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Estd 4.22.2023
Below is a concise answer based on our saas pricing book, Price to Scale:
• When it comes to billing frequency in a usage-based model, many companies bill on a regular cycle (for example, monthly) for the prior period’s usage. This approach aggregates your customers’ activities and helps both your customers and your finance team manage expectations. (Of course, if your product naturally lends itself to real-time tracking and billing—as can be ideal for certain high-frequency scenarios—you might consider that option. The key is to align the billing cycle with how your customers perceive value and use the product.)
• Regarding overages, our book illustrates the “cell phone plan model” (a form of the 3-part tariff) as a popular approach. In this model, you set a base amount of usage for a fixed fee and then charge a transparent overage fee for any additional usage. This way, rather than automatically upgrading customers (which can sometimes cause disruption or surprise costs), you give them a clear view of when they’ve exceeded their plan, along with a known cost for that extra usage. This maintains both predictability and flexibility in the customer experience.
To sum up, our pricing strategy recommends:
• Using a regular billing cycle (commonly monthly) that reflects previous usage.
• Charging clear, pre-defined overage fees instead of auto-upgrading customers, unless your usage pattern and customer experience warrant real-time adjustments.
This approach ensures that your pricing remains transparent, predictable, and closely aligned with customer value—key themes in Price to Scale.