Subscription pricing models in all their various formats continue to be popular in almost every business and consumer segment. At the same time, enterprises that offer products and services via subscriptions, including SaaS providers and digital businesses, are continually exploring new ways to package and price their offerings to extract the maximum value from their customers. Committed consumption is one such approach that is set to explode in popularity.
What is committed consumption?
In a committed consumption billing model, customers agree to spend a set amount over a fixed term in exchange for a predefined amount of access to a product or service. When usage exceeds the threshold, the customer can continue to use the service under various policies such as pay-as-you-go, automated tier upgrades or one-time forgiveness.
To make these models even more appealing, some providers allow customers who consume less than their commitment within the designated period to reallocate unused portions across the provider’s portfolio or to roll them over to the next billing cycle. Various innovative policies designed to manage such exceptions – which are often a key concern for prospective buyers – are now starting to emerge.
How did committed consumption come about?
Committed consumption is the next step in the evolution of subscription billing. In the early days of subscription billing, flat monthly subscriptions were the dominant option. Relatively simple and inexpensive to deploy, fixed models offered businesses predictable revenue streams and greater stability. However, providers quickly came to lament missed opportunities to capture additional revenues from high usage customers, while low usage customers were difficult to retain.
From there, consumption, metered, and usage-based billing models emerged with a promise of greater flexibility and increased revenue potential. But pure usage models meant new levels of technical complexity and introduced challenges related to forecasting and revenue predictability. Businesses without the tools to monitor activity and warn customers during times of elevated or unusual usage also experienced customer complaints and defections due to bill shock.
It was the need to blend the best elements of each model, while avoiding the inherent imperfections, that gave rise to the committed consumption model. Committed consumption offers a middle ground, delivering financial predictability for both parties and the potential for increased revenue for providers as well as transparency for customers.
What are the benefits of committed consumption?
The key benefits of committed consumption billing models include:
- Revenue predictability: Consistent, regular payments allow service providers to more confidently and accurately forecast revenue, while also helping customers better manage their monthly spend, increasing the longevity of the relationship.
- Meaningful customer value exchange: By actively monitoring usage, providers can proactively engage customers as they near their limits with offers of alternative, upgraded, and potentially more lucrative usage plans that generate new revenues for the company.
- Deepened customer loyalty through forgiveness policies: Customers may occasionally exceed their usage threshold. Businesses can use this as an opportunity to earn greater loyalty and customer satisfaction by forgiving one-time usage overages, automatically upgrading the customer to a higher value plan, or engaging with the customer to discuss usage and better understand their needs.
- Driving adoption: Instead of limiting users to an individual product or service, providers can allow customers to utilize their monthly allowance across the platform, increasing new product adoption.
- Data-informed experience improvements: With access to usage and behavioral data, providers can leverage AI and analytics tools and use the rich insights generated to inform product design enhancements and continuously improve overall customer experience.
Modern billing platforms make committed consumption a reality for all industries
The concept of committed consumption is not actually new. Historically, only the largest enterprises, particularly those in telecoms, utilities, and media, had the resources and capacity to acquire the billing systems needed to manage the level of billing sophistication the model demands.
Gartner estimates that while fewer than 10% of SaaS companies use committed consumption today, that number will increase to 60% by 2028, driven, in large part, by the increased accessibility of modern and sophisticated cloud billing platforms. These platforms, like Aria Billing Cloud, are designed to automate complex usage tracking, calculate overage charges, and capture the critical billing data and insights needed to accurately manage committed consumption plans, thereby increasing revenue predictability, driving adoption, and ultimately accelerating revenue growth.
Want to see how committed consumption could work for your business? Book a demo of Aria Billing Cloud today.
