There is no usage-based pricing and billing without accurate usage instrumentation. Outages are a given. Is the system architected to auto recover? Ask the vendor to prove it. Do real POCs and test this out. What is the cost profile? How long does it take? Is there manual intervention?

Metered billing is a pricing model where customers are charged based on their actual usage of a service or resource. It allows for flexible billing based on consumption rather than a flat fee.

From day-one, begin tracking usage and meter exhaustively. Usage data is valuable all throughout an organization, from engineering and product development, to sales and marketing. Leverage this data to begin understanding customer usage and adoption and find the optimal pricing model for your solution.

Metered billing is a pricing model where customers are charged based on their actual usage of a service or resource. It allows for flexible billing based on consumption rather than a flat fee.

Metering is a technology category that is responsible for tracking all usage as it occurs. The metering service is the system of record and source of truth throughout the business for answering all questions relating to: “Who consumed what resource? How much of it? And for how long?

Meter data serves as the foundation of all usage-based pricing models. In order to succeed with usage-based pricing, it is critical to have a complete, accurate, and scalable usage metering service. This usage is then rated and billed to customers based on their consumption. 

Usage-based pricing is a more fair and transparent business model where customers pay only for what is consumed. Contrast this with a traditional subscription where customers pay a flat rate in exchange for some amount of usage or permissions. In a usage-based model, the billable amount scales with usage and customers can right-size their usage to align with their budget. It also helps mitigate churn as companies can simply reduce usage rather than completely churning to a new solution.

Usage-based pricing is ideal for companies looking to shorten the sales cycle and implement a product-led go-to-market motion. By eliminating contracts and charging only for what is used, enable companies to get started via self-service and bypass the time-consuming negotiation and contracting process.
 
It is also ideal for products built on cloud resources. That is products where the underlying resources consumed by users scale up and down should also have pricing models that scale accordingly. This includes cloud platform solutions, infrastructure providers, and especially generative AI technologies built on commercial LLMs with tokenized pricing models. 

From day-one, begin tracking usage and meter exhaustively. Usage data is valuable all throughout an organization, from engineering and product development, to sales and marketing. Leverage this data to begin understanding customer usage and adoption and find the optimal pricing model for your solution.

We like to say, you cannot back into metering from pricing, so don’t neglect this key artifact for succeeding with monetization from day one.