How to Maximize Margins in a Consumption-Based Economy?

When we talk about change, it isn’t restricted to changing business or market conditions but also the new ways modern customers seek to engage with businesses. Today’s customers have a new set of expectations and want the organizations they interact with to be aware of these expectations and drive efforts in engaging with them in a personalized yet consistent manner. Although subscription-based models have been a huge success, today, customers are more interested (and comfortable) in making payments based on their usage – rather than paying fixed, subscription prices. 

This has caused the sudden rise in the consumption-based economy, compelling businesses to move from subscription-based billing models towards consumption-based billing models to satisfy these newfound needs of customers. But how can businesses maximize margins in a consumption-based economy?

5 ways to increase margins

As customers get increasingly particular about the price they pay for the services they receive, businesses need to quickly alter the way they sell their products and services. 

Although companies like Netflix, Spotify, and Uber continue to sustain long-term relationships with customers via subscription-based billing, imagine if you only had to pay Netflix for the number of movies or shows you watched in a month! The new era of the consumption economy requires businesses to build offerings around customer needs and bill them based on service usage – rather than a fixed monthly cost. 

If, as a business, you are looking to move beyond simple subscriptions and towards usage-based pricing, you need to have the flexibility to bill and rate your customers in a way that price is automatically calculated based on usage. If you want to enable customers to pay as they go, for the services they use, while simultaneously increasing your margins, here are 5 ways: 

1. Enable accurate usage rating: 

One of the first steps you need to take to maximize margins in a consumption economy is by enabling accurate usage rating. By calculating charges based on actual usage of any service in terms of storage kilobytes, number and duration of calls, software usage, messages sent, bandwidth, or more, you can ensure accurate, usage-based billing that improves customer satisfaction. Such accurate usage metering can also help in detecting over-licensing, reducing unnecessary costs, and promoting better compliance while ensuring efficient use of IT assets. 

2. Ensure effective revenue tracking and reporting: 

Another sure-shot way of improving margins is by ensuring effective revenue tracking and reporting. By leveraging automation, you can ensure revenue tracking accuracy as well as scalability. A modern revenue tracking solution can help in efficiently calculating product usage, applying relevant charges, and developing accurate and timely invoices. The solution can also help you accurately track and categorize revenue for accounting purposes and take steps to boost revenue further. 

3. Improve taxation calculation accuracy: 

Inefficient taxation calculation often causes lower-than-expected margins. Improving taxation calculation accuracy is a great way to improve your margins. You can do this by using tools that capture required tax information and calculate tax in real-time for every customer and every invoice. Through integration with taxation platforms, these tools ensure you apply the correct taxation codes to the products and services you offer – thus minimizing any potential tax audit risk.

4. Setup order orchestration: 

You can also witness your margins increasing if you set up an orchestration process where capabilities across order orchestration, provisioning and activation capabilities are automatically integrated with downstream systems. By setting up order orchestration, you can configure workflows that outline the flow of operations for order fulfillment, define the tasks that need to be completed before the system provisions and activates a service, and deliver a more seamless service activation experience for your customer. 

5. Automate the order fulfillment process: 

Automating the order fulfillment process and eliminating any form of manual intervention can aid in a steady surge in margins. By taking the order fulfillment process through several stages as pre-defined in the workflow, you can easily and accurately provision and activate the service. You can also associate rules with individual tasks and instantly activate, modify, deactivate, suspend, or resume services across any network device or application.

As usage-based billing becomes increasingly popular, businesses need to revamp their strategies to keep up with today’s consumption-based economy. This includes designing creative pricing models that give customers the freedom to pay for what they use, enabling them to add or change plans with a simple click of a button, providing them real-time visibility into what they’re paying for, and aligning price with value to reduce churn. 

Is your business equipped to succeed in today’s consumption economy?

Read: Gen Z Are Driving the Consumption Economy – What Does It Mean for Merchants

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