Blog Consumption-based Subscriptions

Metered vs Consumption Billing: What's the Difference and Which is Right for your Business?

Brendan O'Brien

20 April 2023

Most consumers think of subscriptions as the simple, monthly fee paid to gain unlimited access to a streaming service or to have one of the popular subscription boxes delivered to their homes. In these scenarios, the price paid is the same each month, save for occasional increases, without any consideration for the actual amount of product or service consumed.

On the opposite end of the spectrum are metered engagements where the user of the product or service is charged based on tracked usage and the amount consumed. Today, metered subscriptions are more commonly found in B2B environments where enterprise users tend to be more interested in paying only for what they use and have a greater appetite for price variability.

Residing somewhere in the middle of these two extremes are lesser-known flexible consumption subscription models. In a flexible consumption environment, users are offered a more tailored and dynamic model where they can choose to access certain aspects of the service without having to commit contractually or pay for the entirety of a service that will most likely never be used.

Subscription service providers that only offer one of the two extremes are likely missing an opportunity to reach a larger addressable market that is increasingly seeking this middle ground of subscription.

To put this in more practical terms, if Netflix, for example, was to offer a flexible consumption model, users could select from different tiers of content services, perhaps paying more for premium content and less for content that is older or less popular. When a new series or movie becomes available in a higher tier, the user could choose to increase their subscription commitment, even just temporarily. Whichever subscription level they select, they would continue to be invoiced based on the subscription tier price and not on the volume of content consumed.

In a business environment, flexible consumption models would allow users to eschew the structured and rigid license models and have greater flexibility to scale with increased seats or licenses as their needs evolve and the size of the organization fluctuates. At the same time, businesses would be able retain a degree of the cost certainty that make subscriptions so appealing in the first place, without having to worry about being invoiced for every megabyte of data consumed, further reducing the possibility of dreaded bill shock.

Of course, the ability to offer a flexible consumption model is dependent on the prowess of the billing system. Most simple subscription companies deploy platforms with limited abilities to account for variations in user behavior. Once a user is onboarded, the system is charged with spitting out the same invoice month after month.

On the other end of the spectrum, metered-based subscription suppliers typically have more sophisticated systems to granularly track usage and convert it into the monthly invoice. But in all likelihood, they lack the flexibility and agility to respond to on-demand, more frequent, or more complex changes in user engagement with the service.

Without the modern billing capabilities needed to develop flexible consumption offerings, suppliers could be stuck in either the simple or the metered world, missing the opportunity to reach and unlock an untapped segment of the market.

In this era of prolonged economic uncertainty, subscriptions are among the first costs to be scrutinized by belt-tightening consumers and businesses. Flexible consumption models represent the further maturation of the subscription industry, offering greater flexibility to users and, for suppliers, an opportunity to increase market share, engender greater customer loyalty, and preempt revenue losses from churn.

Learn about the customer care implications of usage-based subscription models

Brendan O'Brien

Chief Innovation Officer & Co-Founder at Aria Systems. Brendan leads the product direction and drives the launch of new products. He introduced the world to cloud billing, and innovated database-driven, enterprise-grade web applications – before the concept of “cloud” was even on the horizon. Brendan is at the forefront of the recurring revenue revolution that is empowering enterprises — and specifically enabling information systems and new business models to secure predictive revenue streams while improving business processes.

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