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Usage data refers to the information that companies collect about how customers use their products or services.
With the rise of digital services, usage data has become increasingly important across various industries, from B2B SaaS to electric vehicle (EV) charging. It is instrumental in implementing usage-based business models and automating recurring billing processes.
How Usage Data Works
Historically, usage data could be as simple as a visitor’s interactions on a website or minutes spent using a product. However, today, it encompasses a wide range of measurements, such as computing resources, physical telemetry, product consumption, and service utilization.Â
Usage data is collected and processed for two core reasons:Â
First, to create new kinds of services such as subscriptions or pay-per-use (also called pay-as-you-go) business models. This is done by monetizing raw usage data by applying financial meaning and context to the data, usually through a usage-based pricing strategy. This involves understanding what customers value in an offering, how they interact with it, and at what frequency.
Second, analyzing usage data to create and adjust new business models or pricing strategies. Rather than being the pricing metric, usage data is used to inform a pricing model that is not priced in usage metrics. This analysis involves several steps, including consolidating data from disparate systems, aggregating and enriching the data, detecting errors, applying business logic, and registering the data as a revenue-generating event in billing and other systems.
What data is collected is therefore absolutely critical. Usage data includes various metrics such as the frequency, duration, and patterns of usage, providing valuable insights into user behavior and preferences. By monetizing and/or analyzing this data, businesses can identify trends, optimize user experience, and make data-driven decisions to improve their offerings or build completely new pricing models. Additionally, it can help pinpoint areas of friction, enabling companies to address issues and enhance customer satisfaction.
Examples of Usage Data in Action
Usage data plays a crucial role in creating new revenue sources and preventing revenue leakage for both B2B and B2C organizations. Here are two examples illustrating its importance:
1. B2B SaaS company offering tiered pricing plans based on usage: A project management software company aims to provide customized pricing plans to cater to businesses of different sizes and needs. To achieve this, they collect data on the number of active users, project volume, and specific feature utilization. By analyzing this data, the company can offer tiered pricing plans based on usage patterns. This enables them to generate more revenue while also providing better value to their customers.
2. EV charging network implementing pay-as-you-go pricing:Â Perhaps the most easily understood application of usage data in a pricing model today. Although, it is much more sophisticated today than simply charging people for how much electricity they consume. An electric vehicle charging network provider aims to offer flexible pay-as-you-go pricing to encourage EV adoption. To implement this model, they need to collect data on the charging duration, power consumption, and location of charging stations. By accurately processing and billing this data, the company can provide transparent pricing to customers. They can then optimize their network operations based on usage patterns.
Usage data is not just an operational byproduct; it serves as the foundation for a new generation of business models. Understanding how it works and leveraging it effectively is essential for businesses to keep up with the growing demand for subscription-based services.