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More Small Businesses Switch to Pay-As-You-Go Pricing

The switch is designed to reduce customer churn and increase revenues . / Credit: Parking meter image via Shutterstock

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.

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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."

Reach BusinessNewsDaily senior writer Ned Smith at Follow him on Twitter @nedbsmith.We're also on Facebook & Google+

Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.