There isn’t just one way to “do” usage-based pricing, but there are some common approaches:
1. Per unit pricing.Per unit pricing (aka pay per use) is the most flexible and the model that most closely aligns customer usage with value. Zillow’s a good example of this model. Your first listing is free. Beyond that, there’s a $9.99 per listing per week fee. The tradeoff here is that while per unit pricing might be a great way to get people to dip a toe in and try a service, as their usage rises, it can get expensive.
2. Tiered pricing plus overage. The middle approach is a combination of tiered pricing plus overage fees. It works well in B2B or B2C settings where you expect high usage, the software industry’s annual true-ups are a good example of this. With overage pricing, companies charge a fee for usage over and above the tiered allowance. For example, PagerDuty, a leader in digital operations management, offers a variety of different plans, from Free to Business, and even an additional tier called Digital Operations, an “end-to-end digital operations solution tailored to you.” But if you need more global notifications than is allotted for in your plan, you can pay an additional charge per notification.
Another option is for companies to automatically move customers with higher than expected usage to the next tier. Companies can use this combo approach to set usage and pricing thresholds based on what actual usage looks like.
3. Multi-attribute pricing. In a multidimensional model, companies adjust pricing based on a number of factors. Octo Telematics (formerly Omoove), the European leader in technology solutions for the mobility market, provides a good example of this model, leveraging multi-attribute pricing to change pricing based on various attributes including type of car, day of week, time of day, miles driven, and garage location.
This isn’t an exhaustive list. The key is offering customers choice and flexibility. Whichever approach you use, the context should be what your customer journey looks, and what behavior you want to motivate.