Flat-fee pricing may be taking the first steps toward joining the belief that the earth is flat in the dustbins of history. A growing number of small- to medium-size businesses (SMBs) are forgoing a traditional pricing model in favor of a pay-as-you-go billing model known as activity-based pricing, a new survey shows. The switch is designed to reduce customer churn and increase revenues.
Activity-based billing is where a business charges a fee based on how customers use a product or service, as opposed to a flat subscription price. According to a survey of more than 400 SMBs, nearly 28 percent of them said they currently use activity-based billing models to bill their customers. And nearly half of those not yet using activity-based pricing (49 percent) said their companies have considered or are planning to switch. The survey was conducted by iGR, a market research consultancy focused on the wireless and mobile industry.
Many of the companies have made the switch to support high rates of growth in their customer bases and/or revenues, the survey found.
They also feel that activity-based pricing gives them an effective defense against increasing competition from traditional providers. It is this competition that generally initiates the decision to move to activity-based billing and thereby provide some differentiation in the marketplace, the survey found.
Activity-based pricing also gives them a tool to actively evolve and future-proof their businesses.
In addition to showing interest in transitioning to an activity-based milling model, SMBs are also becoming more comfortable buying services and products from vendors that use a similar model, the survey found.
"Such findings indicate an opportunity for firms offering activity-based billing services, as many of the companies iGR surveyed are considering or planning to implement such a model in their firm," said Iain Gillott, president and founder of iGR. "Companies assessing their own business models and supporting systems should certainly consider activity-based billing. With the right tools and an accessible solution—perhaps in a cloud-based environment –an SMB could experience greater flexibility, accuracy and reliability in how they track accounts."