Usage-Based Billing

Usage-based billing measures and rates the consumption of a particular product or service and charges the consumer of the service based on the total consumption of the service in the given period, not just based on a subscription fee or a rental amount. Usage based billing is particularly very useful in today’s day and age as it involves charging the customer based on the amount of service they have consumed. This is also known as ‘Pay as You Go‘ charging.

The pay-as-you-go charging allows the customers to use the service with an assurance that they will be charged as per their actual consumption of the service, and not based on fixed amounts or tiered amounts which can cause a major bump in their bills.

The usage billing can be of two billing types – prepaid usage billing and postpaid usage billing. Simply put, if the customer pays to the service provider upfront before using the service, it is prepaid billing. If the customer pays the service provider after utilising the service, then it is postpaid billing.

In prepaid usage charging, the customer is required to top up the account balance in order to start using the service. Once the service is activated, the real time billing component in the usage based billing platform tracks the usage continuously and once the quota on the account (or the account balance) is exhausted, then it will deactivate the service until a new recharge transaction tops up the balance again. The real time usage rating and charging platform is known as the Online Charging System or OCS.

The postpaid usage charging measures and rates the usage consumption for the service, then aggregates and stores the usage charges to be charged at the end of the billing period. In this type of billing the user pays for the utilisation of the service after the fact. The service provider uses the usage rating and charging software to track, measure, rate and aggregate the usage charges for each service consumer. The job that performs this task to measure the usage and rate it is known as the billing mediation.

The usage charges are applied onto the customer invoices in a batch job called bill run and in the end sent to the customers as e-bills (via emails) or paper bills (via post). The user is given a finite period to pay the invoice failing which the service is disconnected.

The diagrams below show the usage-based billing architecture for prepaid usage charging as well as the postpaid usage charging respectively.

In Telecom Prepaid Services, the prepaid usage rating and charging is implemented by using the Online Charging System or OCS. OCS system as shown in the diagram receives the usage from the network equipment or the component such as the UGW (Universal Gateway). It receives the messages containing the information about the usage consumption using either the diameter or the radius protocol.

The Online Charging System decodes the message and resolves the user account, the service and the billable quantity. It checks with the billing system if the quota or the balance is sufficient to continue allowing further usage from the same service. If the billing system responds in the affirmative, then the response is sent to the network component allowing the further usage of the service. If the quota or balance is not sufficient, then the billing system and thus the OCS will respond to the network component to not allow further usage on the service. OCS also updates the quota for the service or the account balance in the billing system in real time.

The postpaid usage rating and charging is illustrated with an example of cloud billing in the above diagram. As seen in the diagram the VMs are connected to a Usage Streaming Application, which is part of the cloud platform. The Usage Streaming Application tracks the start, stop and commissioning or decommissioning of services such as the VMs (or VPCs, File Systems, Databases, SMTP services and more). The data about start date/time and end date/time for each service is sent to a billing mediation engine which tracks hours in use for every cloud resource.

The mediation engine tracks and measures hours in use for every cloud resource. At the end of the billing period, it aggregates these usage records for each user account and the cloud service into chargeable lines (as shown in the above table). The chargeable lines are used by the billing engine to generate the invoices for the accounts using the various cloud resources.

The application of usage rating and charging exists across various business domains.

In telecom, the usage consumption of services such as mobile services, fixed line services, voip services and internet services needs accurate measuring, rating and charging in order to charge the subscribers in a fair manner for their actual usage of the service. Most of the telcos today offer usage based plans and rely heavily on software systems that track, rate and charge the consumption usage of their services.

The ISPs are providing specialised, value added services by offering internet through various channels such as optic fibres, broadband, dish internet, and even e-sim based internet services. Their applications are going beyond simple home use and office use to using such internet connectivity for connecting various smart devices by internet to cloud. The ISP business too started offering prepaid services with specific usage quotas that require tracking usage consumption.

IaaS or Cloud companies use pay-as-you-go pricing by tracking the number of hours a particular cloud resource has been used and charging the customer as per their usage. The billing of a cloud resource has been explained above in the architecture diagram for the rating and charging of postpaid usage.

There are various IoT businesses which employ IoT devices which connect to the cloud based server for transmitting information which can be used from a centralised system to provide customers with value added services. For example, internet enabled cars use IoT devices inside the car to send vehicular health information to the cloud based system. This information clubbed with information such as the whereabouts of the car help with the safety and security of the vehicle. One component of billing for such IoT devices can be usage based by rating and charging the data consumed on the SIMs or eSIMs that go inside the devices.

SaaS providers such as SMS gateway providers, email service providers, various online portals and product offerings come up with billing plans that rely on usage based rating and charging. The SMS and email service providers measure the number of SMS and emails sent by the customers in a month and then bill them based on which bracket or tier they fall in. This is known as tiered pricing in which the customer is charged based on the usage tier.

The utilities such as water and electricity are charged based on the consumption of the resource. For water, typically there is a free tier of quantity after which any additional consumption is charged at a metered rate. For electricity, the consumption of power is measured and there are tiers or slabs of consumption units which decide the rate that will be applied for a consumer for that month. The usage-based billing systems are employed when implementing systems for rating and charging of such utilities.

A number of OTT and Streaming Service platforms have sprung up. The subscribers to this platform use these OTT services on their phones, tabs, laptops and on TV. Their billing can be based on number of hours of usage consumed, or number of download and upload bytes from each user session etc. The OTT platforms typically use a combination of subscription billing and usage-based billing.

There are different usage based pricing strategies. Businesses come out with a usage based pricing model after studying a lot of different options and then choosing the best one that can maximise the revenue at the same time the customers feel they are being charged in a very fair manner. Some of the usage pricing strategies are shared here:

In the volume pricing model, different tiers or slabs of quantities are decided and if a service or a product falls within a particular slab, the price decided for that slab will be applied to the entire quantity. Higher the slab, higher the discounted price. This pricing strategy is designed for offering a volume discount on purchase of large quantities. For example, the price may be $1.00 per unit until it reaches 100 units after which the price can fall to $0.80 per unit. In this example, a quantity of 150 units will attract a discounted price of $0.80 per unit for all 150 units, making the total chargeable amount as 150 x $0.80 = $120.00.

In the tiered pricing model, each slab’s rate is different but this rate is applied only to the incremental quantity falling in that slab, not to the entire quantity as was the case with volume pricing. For example, consider following rate tiers and pricing:
$1.00 price per unit for quantity from 0 to 100
$1.10 price per unit for quantity from 101 to 200
$1.20 price per unit for quantity more than 200
Thus a quantity of 250 will be charged as follows:
(100 x $1.0) + (100 x $1.1) + (50 x $1.2) = $270.00

The bundle pricing strategy involves offering bundled products together in a plan offering, applying a subscription fee which is a fixed monthly sum, and then lowering the price on bundled products so that the offer comes across as a discounted offer. More consumer base is attracted to the discounted pricing of bundles whereas the business can secure it’s revenue and margin from the subscription fee. For example, a company selling IoT devices for vehicular health and diagnostics may sell its subscription plan that gives a bundled offering as follows:

Premium Monthly Plan Fee $50 / month
Number of IoT Devices included in the plan: max of 2 (with no price or zero amount)
Number of SIMs: 2 (one time price of $5 each)
Unlimited data transfer on SIMs (no monthly bills for SIMs data usage)
Access to Cloud based platform from mobile app (free)

If the IoT device is bought independently outside the above plan, it would be $300 one time cost along with the SIM charges and there would be a monthly bill of data transmission charges from the phone company. To avoid a high upfront cost, the customer would be tempted to join the subscription model and get the additional value added service of a mobile app that provides automated alerts and insights into a vehicle’s condition.

In graduated pricing, the first bucket of the quantity is given free and if the consumption goes above the free bucket, then a metered price applies to the overage units. For example, this type of pricing can be applied to tap water supply by a local government body such as a municipality. It can define that about 15000 litres/month of water is given free per home and after that each litre consumed would be charged at a metered rate of $0.01 / litre. Thus a water bill for 20,000 litres of usage for a month can be (5,000 litres overage quantity x metered rate of $0.01 / litre) = $50.00.

The graduated pricing with Cap is the same as the graduated pricing except that the final amount arrived at is capped at a certain amount. If the final amount after the usage calculation exceeds the capped amount, the capped amount is charged instead of the calculated amount. This pricing strategy is useful while applying a discount. If the discount amount exceeds a certain amount, then maximum given discount can be applied in order to protect the business margin.

In burstable billing, the top 5% of the peak usage is ignored (or discounted) and the rest 95% of the usage is charged at a metered rate. This kind of pricing strategy can be applied for charging network bandwidth usage by cloud companies in order to make their rating and pricing more attractive. It protects the consumer from a major bill shock by deducting the top 5% peak bandwidth usage.

In a teaser pricing strategy, the initial rates in a new promotional offer are lower compared to the usual rates. This pricing strategy, if adopted well, can attract a big subscriber base and then ensure that the margin is protected once the rates go back to their usual rates after the initial offer. For example, a Telco could provide a 50% discount for the first 3 months on all prices thereby giving a seasonal boost to the number of subscribers.

How Innovative Pricing can be applied with EarnBill?

Some of the strategies which can be easily put to use with EarnBill are described here:

Support for Usage Based Pricing Strategies

Earnbill supports a dozen different pricing strategies out of the box. It is pretty easy to set up products, plans and bundles with different pricing strategies. The default pricing can be overridden by applying customer special prices at a customer level, or to a group of customers by applying special price at an account type level.

Design a Chained Pricing Strategy

EarnBill supports chained pricing in which you can calculate a price based on one pricing strategy and the output of this calculation can be an input for the next pricing strategy in the chain. For example, you may have a metered rate on the usage consumption and then apply a line percentage discount of 10% on the total calculated. It is possible to make combinations of different pricing strategies through this feature.

Design a Customised Pricing Strategy

If none of the comprehensive set of pricing strategies provided by EarnBill meets the requirement, then designing and developing a new pricing strategy is not a complex affair. A customised pricing strategy can be developed and tested in a matter of hours (not days). EarnBill’s plug and play development framework makes light of even the most complex pricing strategies.

Make Innovative Use of Bundles

A plan bundled offering via EarnBill is a super-flexible one to design. EarnBill allows you to add multiple different products as bundled items on a plan. It is possible to override the default pricing of a product or a service at the plan level. A plan can have a number of bundled items packed on them. For example, a telco company may offer all types of usages on their mobile plan including calls to mobiles, calls to fixed lines, sms, mms, data usage and international calls.

Each of these usage products can have different pricing strategies on each plan. One of the higher subscription fee plans could have lower calling rates. The rate card for international calls (where telcos usually make money) can be fine tuned based on which plan they are being offered on. The international calls rate card may have thousands of pricing records defined in them. EarnBill makes it convenient to handle these complex rate cards through its user-friendly user interface.

Create Holiday Rate Cards 

EarnBill rate cards can be used to create promotional rate cards for holiday season and provide promotional offerings on existing plans. This can boost the usage from the existing subscriber base and allow to improve the revenue. The holiday rate cards can be switched easily with a pricing timeline feature so that the usual rates kick in when the holiday period comes to an end.

Promote New Plans with Tempting Discounts

It is super-easy to create new discounts and promotional offers with EarnBill. It is possible to launch a new plan or update an existing plan with a specific discount attached. Discounts can be one time or period based, amount based or percentage based. In any case, it is pretty easy to club a discount with a plan and run the promotional offers to boost your sales and revenue.

Usage Rating and Increment Management

EarnBill provides a convenient user interface to configure and design increments on usage quantities. The system allows to define the increments and rounding rules on usage quantities. For example, for a telecom company rating and charging voice calls, if a call is terminated in 28 seconds, it is expected that the call is to be charged for this duration. The telecom company can study the business environment and at an opportune time, set up a rounding rule for the next 30 seconds.

Therefore a call duration of 28 seconds can be charged for 30 seconds. A call duration of 35 seconds can be charged for a minute and so on. The increments can be fine tuned to 10 seconds or even 5 seconds as per the business need. This feature gives an easy and configurable option to boost the revenue from the existing subscriber base.