If you’re reading this, you probably know the benefits of usage-based pricing already (and if you don’t, this post should get you up to speed). As you might imagine, moving from a traditional subscription-based pricing model to a usage-based one isn’t without its complexities. For example, how do you estimate revenue when it fluctuates day-to-day and week-to-week? How do you help customers who are worried about a few lines of bad code inadvertently causing a ton of usage? How do you charge for usage accurately while still ensuring that someone malicious can’t run up a huge bill they don’t intend to pay? As you may have guessed by the title of this post, all of these questions — and more — can be answered with the same feature: credits.
What are credits?
At their most basic, credits are like “tokens” that can be used to pay for a customer’s invoice. At the beginning of a billing cycle, a customer buys credits for the amount that they expect to see on their invoice. At the end of the cycle, their invoice’s total is deducted from their credits, and any remainder is billed to the customer. Any unused credits can either expire or roll over to future billing cycles.
At first, using credits can seem like complexity for complexity’s sake. Having customers go through the extra step of guessing their invoice total and then prepaying it seems like extra work for everyone. As a business, you now have to keep track of another balance, not to mention integrating it into your invoicing system and user experience. As a customer, you only want to buy the credits you plan to use, no more and no fewer.
Credits make usage predictable
However, credits offer a way for your customers to tell you, with better accuracy, the usage you can expect for the month ahead. While you may only have your customers’ historical data to base predictions off of, your customers likely know more about their own operations than you ever could. Credits allow customers to receive invoices based on their real usage while allowing you to more accurately predict revenue and demand.
Credits also have direct benefits for your customers as well. Everyone has a story about a massive usage bill from some kind of cloud hosting provider. All it takes is for a hacker to get their hands on someone else’s API key, or for a bit of code to accidentally convert from milliseconds to seconds, and suddenly a $20 monthly bill becomes a $20,000 one. Accidents happen, but the best accidents are the ones that you can avoid altogether. With credits, customers can effectively set an upper bound on how much they expect to spend each month. If they go over that limit, they can be notified or even have their access suspended until more credits are purchased. Through credits, customers can plan and budget around their usage just as well as you can.
Credits help deter fraud
Credits can similarly prevent customers from racking up usage onto illegitimate credit cards. While traditional wisdom says that requiring a credit card in order to make an account will protect you from malicious users, someone with a handful of prepaid debit cards would probably beg to differ. It’s not uncommon for someone to sign up for an account with a burner email, rack up a ton of usage (mining crypto, sending out spam, cracking a password, you name it), and then disappear when their card fails to cover their invoice. With credits, this sort of scheme isn’t possible; if someone plans to use your service, they have to pay for it up-front. If someone shows up with a prepaid debit card, they are welcome to buy as many credits as they’d like, so long as they can pay for those credits up front.
Credits are your new favorite tool.
There are a whole plethora of other reasons that credits might be beneficial. You can sell credits at discount rates to customers who buy a lot of them. You can use them as a marketing tool, giving some away for free to new and potential customers. You can create credits that expire if you want to incentivize usage in off-peak months. Credits are another tool in your pricing toolbelt, and like all tools, its uses are limited only by your creativity.
It shouldn’t be a surprise to know that Octane offers first-class support for credits. We recently published an in-depth guide on our Credits feature as well as a start-to-finish article on setting up a credit-based price plan. If you’re interested in adopting usage-based pricing, or if you want to learn more about credits, get in touch with us. Our powerful pricing capabilities and simple integration will make your billing smart, effective, and painless.