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Usage-based pricing (also known as consumption-based or pay-as-you-go pricing) is a model where customers are charged based on the amount of a product or service they actually use. This contrasts with traditional fixed-fee subscriptions where users pay a set amount regardless of their usage. This guide will walk you through the benefits, ideal use cases, and the step-by-step process of setting up a usage-based pricing model in ParityDeals.

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Why Choose Usage-Based Pricing? The Benefits

Implementing a usage-based model can offer significant advantages:
  • Fairness and Transparency: Customers pay only for what they consume, which is often perceived as fairer and more transparent.
  • Lower Barrier to Entry: Allows new users to start with minimal or no upfront cost, paying only as they begin to use and derive value from your service.
  • Scalability for Customers: Pricing scales directly with the customer’s usage. As they grow and use more, they pay more; if their usage decreases, their costs also decrease.
  • Value Alignment: Directly links the cost of your service to the value a customer receives. The more value they get (higher usage), the more they pay.
  • Attracts a Wider Range of Users: Can appeal to both small users with occasional needs and large users with high consumption.
  • Potential for Higher Revenue from Power Users: Heavy users contribute proportionally more to revenue.

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When is Usage-Based Pricing a Good Fit?

This model is particularly well-suited for products where usage can be clearly defined, measured, and varies significantly among users. Examples include:
  • API Services: (e.g., per API call, per data processed, per feature accessed via API).
  • Infrastructure & Platform Services (IaaS/PaaS): (e.g., per GB of storage, per CPU hour, per database query, per data transfer).
  • Communication Platforms (CPaaS): (e.g., per message sent/received, per minute of call time, per active user on a call).
  • Data Services & Analytics: (e.g., per query executed, per gigabyte of data scanned, per report generated).
  • AI & Machine Learning Services: (e.g., per token processed, per image generated, per model training hour).

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Step-by-Step Guide: Implementing Usage-Based Pricing

Let’s implement a usage-based pricing model for an illustrative product: “PixelVault Cloud API,” a service that allows developers to store images and process them (e.g., resize, apply filters). Our Key Billable Metrics:
  1. Storage Used (GB per month)
  2. Images Processed (Number of images processed via API)

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Step 1: Define Your Product in ParityDeals

  1. From the side navigation menu, navigate to Product Catalog > Products.
  2. Click the + Create product button.
  3. Fill in the product details:
    • Product name: PixelVault Cloud API
    • Identifier: product-pixelvault-api
    • Subscription type: Select Single active subscription.
  4. Click Create.

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Step 2: Create Your Billable (Metered) Features

These features will track the consumption of your service. Navigate to Product Catalog > Feature entitlements.

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Feature A: Storage Consumed

  1. Click + Create feature.
  2. Fill in the details:
    • Feature name: Storage Consumed
    • Feature type: Meter > Raw
    • Feature unit: GB / GBs
  3. Click Continue.
  4. Define Event Filters: Your application will need to send events related to storage usage. You might set a filter for an event like storage.usage.reported.
  5. Configure Aggregation:
    • Aggregation Method: Maximum (to bill for the peak storage used during the billing period) or Average (if that makes more sense for your model).
    • Over Property: The property in your event that contains the storage amount (e.g., gb_used).
  6. Click Create.

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Feature B: Images Processed

  1. Click + Create feature.
  2. Fill in the details:
    • Feature name: Images Processed
    • Feature type: Meter > Raw
    • Feature unit: Image / Images
  3. Click Continue.
  4. Define Event Filters: Filter for an event like image.processed.
  5. Configure Aggregation:
    • Aggregation Method: Count (if each event represents one image processed) or Sum (if an event includes an image_count property).
  6. Click Create.

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Step 3: Design Your Usage-Based Plan

For this guide, we’ll create a single plan focused purely on usage. You could also create plans with a small base fee plus usage charges. Navigate to your PixelVault Cloud API product page.

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1. Create the Plan

  1. On the product page, click + Create plan.
  2. Enter details:
    • Plan name: Pay-as-you-go API
    • Description: Flexible access to PixelVault API. Pay only for what you use.
  3. Click Create.

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2. Configure Pricing

  1. On the Pay-as-you-go API plan page, click Set price.
  2. Select Paid.
  3. On the “Billing cycle” screen, you must select a cycle. Choose Monthly and click Continue.
  4. On the “Charges” screen:
    • Do not add a “Fixed Charge” if you want a purely usage-based plan. (Alternatively, you could add a small base fee here for API access, e.g., $5/month). For this example, we’ll skip it.
  5. Add Usage-Based Charge for “Storage Consumed”:
    • Click Add usage-based charges.
    • Choose the Storage Consumed feature.
    • Select Prepaid commitment or Pay-as-you-go based on whether you want upfront payment for expected usage or billing in arrears. For typical API usage, Pay-as-you-go is common.
    • For “Pricing model,” select Tiered.
    • Configure the tiers:
      • Tier 1: First unit: 0, Last unit: 100 (GB), Unit price: $0.10 (per GB)
      • Tier 2: First unit: 101, Last unit: 1000 (GB), Unit price: $0.08 (per GB)
      • Tier 3: First unit: 1001, Last unit: Unlimited (GB), Unit price: $0.05 (per GB)
    • Click Add.
  6. Add Usage-Based Charge for “Images Processed”:
    • Click Add usage-based charges again.
    • Choose the Images Processed feature.
    • Select Pay-as-you-go.
    • For “Pricing model,” select Per-unit.
    • Unit price: $0.01 (per image processed).
    • Click Add.
  7. Save the pricing configuration.
  8. Finally, Publish the plan.

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Step 4: (Optional) Offer a Free Tier or Initial Credits

  • Free Tier with Limits: You could create a separate “Free” plan with very limited, hard-capped usage of these features (e.g., 1 GB storage, 100 images processed free per month).
  • Initial Credits: As an alternative to a trial, you could grant new sign-ups a small, one-time package of “processing credits” using the package pricing model on a separate feature.

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Step 5: Design the Pricing Table and Activate

  1. Navigate to Monetization > Pricing table and design a pricing table to present your Pay-as-you-go API plan. Clearly list the per-unit or tiered rates for each billable metric.
  2. Navigate to Monetization > Offerings and create an offering, linking your pricing table and the PixelVault Cloud API product.
  3. Use the generated Offering ID in your application to display the pricing and allow sign-ups.

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Key Considerations for Usage-Based Pricing

  • Preventing Bill Shock: Provide tools for customers to monitor their usage in real-time. Consider setting up alerts when they approach certain thresholds.
  • Clarity and Predictability: Make your pricing extremely easy to understand. Customers should be able to estimate their potential costs.
  • Usage Tracking Accuracy: Ensure your event tracking and aggregation are robust and accurate.
  • Choosing the Right Metrics: Bill on metrics that customers clearly understand and perceive as valuable.
  • Setting Rates: Research competitors and understand your costs to set rates that are both attractive to customers and sustainable for your business.

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Conclusion

Usage-based pricing, when implemented thoughtfully, can be a powerful model for growth, fairness, and customer alignment. ParityDeals provides the necessary tools to define metered features and configure various usage-based charging models, allowing you to tailor a consumption-based offering to your product’s unique value proposition.
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