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Where Thought Leaders go for Growth
What is pay as you go? Is it an advantageous pricing model for users and software publishers?
In the world of cloud computing, while subscription pricing is very popular, other applicable payment schemes exist, such as per storage pricing, feature based pricing, freemium, etc.
This is why pay as you go, a pricing model, already used in other areas and well established in the minds of consumers, is becoming an increasingly popular alternative.
But what exactly is it? What are its advantages & disadvantages?
The answers can be found below.
Well, to begin, the name is pretty self-explanatory because you simply pay as you go.
☝️Noting that it can also be found under the following names: "PAYG", "pay per use" or "pay as you use".
Nothing is actually new here, as this pricing system has already been noticed in daily life tasks, especially in the fields of energy and telecommunications. Recently, the pay as you go, that has been progressively gaining momentum and being applied to cloud computing, including both resource hosting services and software offers.
While it may be the platforms and tools dedicated to infrastructures that have developed this pricing, one can’t help but clearly realize that SaaS is interested in pay as you go.
PAYG can take two different forms:
☝️ Note that the credit based sometimes includes a limited time of usage.
For software programs available in SaaS mode, the rates can be calculated on the basis of :
👉 For example: if an emailing software offers subscriptions, just like many SaaS products, it is possible to use a pay-per-use formula. The user buys the number of credits he needs, with each email sending costing one credit.
The PAYG pricing system for IaaS is based on actual resource consumption (storage capacity on servers, virtual machines, etc.).
👉 Here is another example: with the AWS cloud service platform (for Amazon Web Service), users choose their formula by selecting:
PaaS solutions allowing pay as you go take into account :
👉 For example: Microsoft Azure offers pay-as-you-go pricing, and even provides a price calculator on its site. Users have to simply select their options (operations, virtual computer and virtual machine settings, support, etc.) to get a cost estimate for their solution.
There are:
The pay as you go scheme can generate unpleasant surprises at the end of the month, when it comes to paying the bill (higher costs than expected).
In addition, unlike a subscription formula, it does not allow users to anticipate their expenses and the budget to foresee for their software needs.
Building customer loyalty and ensuring recurring revenues becomes more complex with the pay as you go business model.
It is also difficult to predict the revenues that will come in, unlike companies that deploy a subscription-based pricing system (for example: the calculation of MRR and ARR).
In short, there is no one fits all, whether you are a customer or a software publisher. Each formula has its advantages and disadvantages.
👉 On the customer side, it all depends on the need and usage. It involves a calculation to be made, before opting for such or such solution.
💡 It is however possible to start with a tool available in pay as you go, to test it in particular. Then you move towards a subscription, sometimes more advantageous (especially in terms of price) when the needs increase with the growth of the company.
👉 On the software publishers' side, it's the same thing. It's an issue to think about when establishing a pricing strategy.
On the other hand, other software offer a subscription, to which additional fees are added if a certain service threshold is exceeded. With Hub Marketing, for example, users adjust their monthly subscription fee based on the number of contacts in their database.
Isn't a hybrid model, offering both subscription and pay as you go, the best option for both the user and the publisher? Tell us what you think in the comments.