Podcast
Billing

The Evolution of Usage Based Billing

All businesses have unique needs when it comes to how they bill their customers. One of the most popular billing methods is usage-based billing. Guests, Janna Hermon and Sam Burkmon join host, Jake Jones to discuss how usage-based billing has evolved over the years. What are some of your biggest struggles around usage-based billing? Let us know by emailing hello@zoneandco.com

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Sam Burkmon
Janna Herman
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34 min listen
April 21, 2022

About the Episode

All businesses have unique needs when it comes to how they bill their customers. One of the most popular billing methods is usage-based billing. Guests, Janna Hermon and Sam Burkmon join host, Jake Jones to discuss how usage-based billing has evolved over the years. What are some of your biggest struggles around usage-based billing? Let us know by emailing hello@zoneandco.com

Transcript

Jake

Welcome to Finance in the Clouds!

Modern finance is broken, forcing finance and accounting teams to work like it's 1985, the year Excel was invented.

Here we talk about the struggles finance teams face in fast-growing companies and discuss how they can spend less time surviving and more time in the clouds.

I'm your host, Jake Jones, Multimedia Producer and Brand Influencer at Zone & Co.

And I'm joined this week by Janna Herman, Director of Product at Zone & Co, and Sam Burkmon, Head of Brand and Marketing at Zone & Co.

Thank you both for joining me today!

Janna

Yeah, thank you, happy to be here.

Sam

Same, yeah thanks for having us, Jake, excited to talk.

Jake

All businesses have unique needs when it comes to how they bill their customers. And one of the most popular billing methods is usage-based billing, due to it proving to increase revenue and being liked by customers. However, there are a lot of challenges that come with it.

And so today, we're going to be talking all about the evolution of usage-based billing.

So Janna, we've kind of brought you in to talk about this. And really, this whole podcast kind of stemmed from a conversation that you and Sam actually had where you said "all billing is usage-based billing." So why don't we just start there? What was your kind of thought behind that expression?

Janna

Lots of different thoughts, but essentially, you know, in the types of products and services that we're seeing today, it's very infrequent that somebody has very complicated billing needs. Or very difficult to manage billing needs that are just one and done. Everything you buy, you're buying more than once. Whether that's buying different things from the same company on a regular basis or buying the same thing with some slight variation at different points in time. And things that people don't traditionally see as usage-based billing really are variable, right? You're engaging with the same customer over and over, perhaps under the same contract, perhaps not. And that variance is what companies find difficult to manage. So when we look at billing scenarios, in the eyes of ZoneBilling, the usage model may make more sense for, for scenarios that are traditionally not seen as usage.

Sam

[I’m] curious, like, [about] how you reached that from a technical perspective? Because I think that's–from some of our conversations before–what I've sort of understood [as] leading to that perspective is that what is the best approach to solving the need and then what we call that right, maybe in the grander, like, market and term that is usage-based billing, right? There's so many different terminologies for all the methods or the models that we use to charge customers.

And I think what's so fascinating is that when you kind of take that more from what seems like a first principles principles approach is where you kind of reach this conclusion of like, well, well, ultimately we're just dealing with different variables or a variation in billing and it's how complex is that? Which is then– what does the solution look like? Is that kind of like an accurate reflection of how we get to that conclusion? Which I think is different than like if you're saying it from a growth perspective, you know what I mean?

Janna

Mm hmm.

And complexity isn't the only factor there. But exactly what you're saying sort of what are the variables and how someone's engaging the customer over time? That's where we see people looking for help, in terms of how do I manage my contract with this customer? How do I manage billing them the right amount all the time? And that just kind of overarching problem statement is where, from the technical side, we're, we're approaching a solution by saying, well, even though this contract may look static or the premise of this agreement with the customer, at the beginning might look static, we know it's going to change over time. So technically, we're going to treat everything like a variable, and that will help us be more agile.

Jake

Right. So it's really about flexibility and being able to adjust for what your client might need in the future. Exactly.

Jake

Awesome.

Sam

I don't feel like, right? If I'm thinking about, sort of, trying to message this, if you will. Like, I don't feel like we could ever go out and say like everything is really usage-based billing because I don't think, again, that's, like, to your point, the vantage point is that the business is looking at it. Either from the point of initial relationship with the customer or even the stage that the business is at. 

But I think what's been fascinating about being in this process long enough is like, well, every business is going to run into this, and then how we come to them and say like well, here's how you can approach that in the way that you want, but maybe we look at it differently.

Janna

Right. So the reason I say complexity is in everything is maybe there are only one or two variables. But maybe next year you swap out variable A for variable C or maybe you're adding a new product to your portfolio that you're selling and you want to use a mix of those variables and one more or something like that. So, while, you know, individual engagements with individual customers can be pretty simple. The flexibility and potential for growth in one ERP system becomes a lot. The doors are open, right? If you set it up the right way in the first place, which is to be flexible.

Jake

Right. Well, and it's interesting you bring that up because some of our conversations we've had on the podcast before, just about growth and how to prepare yourself for that growth. Like you're saying, you're solutions, your solutions may be simple right now, but you don't know what the next year, the next two years, the next three years, you know, into the future, how complex something is going to get. And obviously, as you're trying to grow and improve your business, you want to, you want it set up for that, for that five or six years down the line scenario, because that's going to be easier to transition into. So that's really fascinating that even just how you bill is such an important part of that. So that's really cool.

Sam

Yeah, actually, I kind of want to spend some time there. Because I think that's one of the things, too, that, you know, we see a lot is like when you're and our business goes through this as a software business, right? Is there sort of a stage when unlocking or opening that next door of growth, like, comes with some of these requirements of moving to a new billing model that's maybe more advantageous for both the customer and the business, etc. Right? I think that's why we've seen subscriptions and memberships, usage, etc., grow. We're finding more win, win, win situations, I feel like in that financial model. 

But what I, I also know like as a, having been responsible for implementing some of that. It comes with a lot of challenges when you change something like pricing and so many different levels of the business and the technical complexity of that can often prevent moving forward with the solution. 

And so like one thing I'm curious from your vantage point, Janna, is you know, like how do you see, you know businesses responding to, like, the immediate needs, right? However simple or complex they might be versus really like thinking ahead and saying, what I'm trying to build isn't about today. It's really about tomorrow. Because I have to assume I'm going to run into this issue versus, you know, hope that I won't, by preventing it in some way, shape or form. Do you, do you see more businesses? I guess a better way to ask is like, do you see where businesses prioritize the short term or the long term, you know, and how they then solve it, technically?

Janna

I do think that most people when they're looking for a technical solution to the problems they have today. Whereas, you know, when they're choosing a platform to buy, they may be thinking about the next three to five years and maybe longer. But then the solutions within that platform that they choose are often, what do I need right now? 

I think ZoneBilling is a very different product in that sense, where all of our implementations are essentially forward-looking. And the product is designed in a way so that, you know, if you're using one set of features right now, it doesn't preclude you from using another set of features tomorrow or a different module tomorrow. The product is set up in a way that allows you to make those business decisions without having the technical impediment.

Jake

Yeah. Flexibility is so important to have and that's an awesome feature that ZoneBilling has and can offer its customers. So that's awesome. That you bring that up Janna. How do customers feel about usage-based billing? Is this something that customers it's pretty easy to use? Is it difficult? Is there a reason we maybe shy away from it or go towards it? What's kind of the status there?

Janna

I mean, I think it's definitely popular, in that if you sell anything where you can get additional revenue based on how much someone is using that thing, in any capacity, right? Whether that's user licenses of a software product or um shipped products or anything where you know, there may be different events occurring over a certain period of time. You want to get the additional revenue from that. So people are definitely leaning towards this model. 

However, I would say there's probably some hesitation within operations, in some of these companies. Because It is more difficult to manage. If you don't have a proper technical solution, you need to, you know. I've seen things such as emailing customers back-and-forth about, "How many transactions did you do this month?" And that's not a situation that the operations or billing team wants to be in.

Sam

I think that one of the things that I get interested in is like, how do they end up in that situation? Like, like what? What was the impetus or what forced them into that scenario? You know, was it demand for growth? Was it, you know, a grab bag decision of let's try this or, you know, in like how do you get so far down the line before not recognizing, like, a solution is necessary. 

Janna

Funnily enough, I've personally experienced this, but yeah.

So I think there are two reasons this occurs. One is, I think, a good reason, right? Which is that we have a model that we don't know if we want to sustain and we're going to try it out and do it manually and see if it works for us, in terms of revenue. And if it does, then we want to automate that model and support it, and that's great.

The other scenario I've seen is just a total disconnect within companies operationally where, you know, there's a PowerPoint to production in terms of here's how we're going to sell it. And nobody on the back-end of the business is prepared to sell it that way and support that model and are often caught by surprise. So that is obviously the less desirable reason, but it definitely happens.

Jake

Yeah, it's so important to have that communication. Do you think, Janna, that–I know we kind of talked at the beginning of our billing and usage-based billing, and there's a lot of layers to that–but do you think usage-based billing is a model that most businesses should really look at and consider to use as their billing model? I don't know if it's quite right to say it's a one-size-fits-all solution, but is it something that maybe could work in a lot more instances?

Janna

I think from a technical standpoint, you know, anything that is a variable, in terms of what you are building to your customers, is something that can be managed really well with a usage-based billing model in ZoneBilling. 

I think that, you know, if you're a company that wants a steady revenue stream that doesn't really look towards growth and doesn't want to engage with customers in this way where it is variable. That might be, you know, a little excessive. If you have a very static contract with your customer that never ever changes and you know, their either your customer, or they're not. Then, you know, you don't really have usage-based billing. 

But if you are trying to work the growth angle and trying to kind of manage this ever-evolving relationship with the customer. Then yeah, I definitely think usage-based billing, in whatever shape that takes, is, you know, a good model to go towards.

Sam

I kind of giggle as you're talking, Janna. Because like I kind of saw you smile too. Because like I'm not sure that like one of those is really like one of them more seems like a stage, where the other one seems like long-term reality. 

And maybe that's just my experience in business.But like that variation has always shown up for me in, in some stage of growth, you know what I mean? And I think it's really interesting, is like is there sort of like a coming to terms of like that, that variability is going to happen. So it's like a question of how early do you plan for it versus how long can we withhold from variation? And part of this I think is really relevant with the pandemic. Growth is not the only impetus for having to change your pricing or billing and honestly, therefore your business model, right? Because it's the, it is the core of the transaction. 

So I you know, I witnessed lots of businesses being forced to do this. And, and I also wonder, you know, is that how you kind of end up in this chaos? Because you couldn't anticipate that need and therefore have a solution to really like react to it effectively.”And so you're kind of forced to do it manually. You know, and going digital whether that was a usage-based model or not seemed to force a lot of companies into that like renovation situation, you know, or pivot situation.

Janna

Absolutely. And I was just thinking, I don't know, a whole lot of companies where it can buy something and it's either, you know, on or off. Right?

And there aren't tiers of service or, you know, my energy company counting how many kilowatts I've used this month. Even the most, kind of, old school “have been around for a long time” companies have this variation and this, you know, challenging pattern of billing that they're dealing with. And they've just never–some of these companies have never had a good way to execute on that and have a lot of overhead trying to manage it.

So, yeah, growth is definitely one reason, but the other reason is literally just operating day-to-day in a way that's, in a way that helps you survive in lean times.

Jake

Right

Sam

Yeah.

I mean, I mean, what's been interesting in listening to these podcasts that, you know, Jake has been hosting too, especially as we talk to people, you know, in finance roles historically, or still today. And the stage, generally, at what finance seems to get involved, you know, and that is obviously going to be business-to-business or sort of the front-end versus the back-end that you sort of spoke to in the PowerPoint to production.

Right? Because growth is such a focus is like this game of catch-up constantly and not really having like the technical solution being such a factor of risk mitigation.You know what I mean? And having to deal with that, like unknown, I can imagine is somewhat chaotic.

You know, and honestly, like I'm a marketer, so like, of course I want to toss out new pricing models and all this kind of stuff because, hey, the competitor released this thing and now people won't buy it at this price anymore or this way.  Or they just released a subscription or now it's seat-based.And so you feel this need, right, to like change or you won't survive. 

Meanwhile they're like we're holding on by a thread already. Like, you know, what are we going to do with this new change? And I just find that interest, you know, interesting like watching businesses how long they decide to hold out for before they're like, okay, we need something to do. We need to fix this now or whatever.

Janna

I mean, I think another part of this is just the changing consumer, right? There are so many options for everything that, again, I don't know of anyone who I engage with as a customer where I am just going to keep doing the same thing in exactly the same way over and over

and over forever. Life changes and people are mobile and people want different things all the time. And there are other people selling it to them. So if you're not ready to, kind of, you know, meet that support call that says, hey, I want to change what I'm doing and easily facilitate that then they're just going to go somewhere else.

Jake

Yeah, it seems like just from conversations I've had with lots of people on this podcast, but it seems like that the point that that decision is made is when it's already almost too late.Right?

And like you said, they start to see those calls go through and we can't, you know, we can't accept this work or we have to send somebody somewhere else. So, yeah, that's, that's rough. This is definitely something to consider and look at as a, as a, business owner and like we said, kind of try to prepare yourself for that growth early.

Janna, as people are looking to maybe switch to usage-based billing. What are some things that they maybe should look for or consider or even prepare as they start to look towards that transition?

Janna

You need to understand how you're going to capture the data that you're looking for. So whether that is through a system. If it's software or reports of some kind, if there's something physical happening. You need to understand the operational flow of how that information is going to get back to you so you can appropriately bill. I think that, sometimes there are gaps in that process that aren't really accounted for until someone does it for the first time. But coming from an operational background, I also think it's easy for me to say that and less easy to think about in the context of everything that goes along with launching a new product or service or business model.

So I would, definitely, just bring the operational process to light early on and think about how that information is all going to get captured. So we can make money from it.

Jake

Yeah, well, it sounds like too, if it doesn't go quite as smooth as you wanted from the beginning, maybe stick with it and work out the kinks and then decide. So, that's awesome.

Janna

I also think that, as I mentioned earlier, the sort of try-before-you-buy is an approach sometimes and can tell you, you know, what may or may not be valuable before you go and invest a lot of time and money in building a very complicated or very robust process to support a model that you're not sure you're going to stick with.

Jake

That's great advice for sure.

Sam

It's interesting, like the more time that I've spent–because since I've been here at Zone & Co, working in FinTech for only like the last three years–the more that I've kind of understood, right? Like what are all these, like variables that affect the ability to deliver something like a new pricing model, right? And having spent most of that time, then on the go to market side, right. Like how do we decide what people are willing to buy and what they're not and what's the model that they are? And how do we get them to understand the pricing, let alone actually transact on it? 

I can look back on my career and say, like, I've clearly underestimated the amount of effort that goes into truly seeing profit from that change. Versus a different, honestly, just a different type of revenue, you know, without really knowing the cost of it.

And so much of that in retrospect is, like, technical debt, you know? And not having that solution in place from the point of like, do you even know how to collect what you want to bill for? Let alone process it in a way that you can send it where you're not collecting cash so late that it impacts your cash flow, right? That the profit margin is actually there because of the effort it takes to put that pricing model into place. When from the front side, it's like “yeah but people click on it a lot.” It kind of gives you this false impression of the lift to get something out, and therefore, the true potential to scale, which is why I love that, you know, try-before-you-buy model. And then being able to bring in that back-end from the beginning, at both a strategy, strategy and a technical level and say let's test this. To me it's like gives so much potential to both sides of the business, you know, versus what feels like this tension of like I want to grow faster than I can and I'm just going to basically see how much I can, you know, balance on that, teeter on that line before we tip one way or the other, you know.

And I feel like there's probably a better way than that, you know, and I see that obviously because of our product. But the human element of all of this, I think is also a factor, too, you know?

Janna

One other thing I would say, which is not going to be fun for anyone to think about, is think about getting audited, and don't make your life more difficult than it needs to be. Keep it as simple as possible. In a way that supports your goals and your needs.But try to think about what you would need to produce in the event that you have to back it all up. So, I'm serious. It's funny, because it's serious, you know?

Jake

I feel like that could be a motivational poster or something. Like, we need t-shirts…Yeah, t-shirts that say, "just remember you could be audited" or something like that. That's pretty funny….

So, sorry Janna I cut you off.

Janna

No, that's okay.

I think the point I'm trying to make is that good design is simple. And that applies to not only, you know, software implementation, but just general operational processes. And try to pare it down, you know, upfront.

Sam

What I think is so cool about that as it kind of brings me back to like I think what you are helping us also like seeing this is that like, it's really isn't about complexity per se, right? It's like at what stage does variation show up?

And therefore, how do you respond to that in the short-term and how do you respond to that in the long-term? 

And what I hear you saying is, like, if you can find a way to guarantee you can handle it in the long-term and you can stay as simple as possible along the path. You're probably going to run into the least amount of issues. And in order to do that, there's a certain mindset, I think, of forward-thinking-ness.

And then there's also like a technical side to this, right? Like you have to have the ability to activate that mindset in order to reach that goal and get down to something simple versus unnecessarily building something super complicated.You know, in, like, the vein of growth.

Janna

Right. Make the impact of unforeseen changes as minimal as possible, right? You should be able to change one thing and pivot to a new model or something like that. 

So that is an approach that we hold in our minds and we implement ZoneBilling. That scalability, that's not necessarily about volume, that it's about flexible systems moving forward.

Jake

So it almost sounds like “try to keep your business model simple but scalable.” And that's really kind of a good sum up there.

Sam

Yeah. You know, I wonder if it's like that thing, you know, sometimes when you... I don't know when I get personally afraid of something like sometimes I'll either completely back away from it or like I'll over jump into it, you know, like I'll

Jake

You'll double down. 

Sam

Yeah, exactly. Like just go all the way down the rabbit hole. And I feel like that's what sometimes this feels like is, you know, I'm either going to keep it so simple that all we have is a static contract. And I'm too afraid to move off of that, whether that's the revenue recognition part or whatever that the fear is coming from. Versus like, okay, now I'm just going to go on and create the most complex model that I possibly can because that feels like what I have to do to extract the growth out. 

And I just, I like that you're bringing in this like there's a really nice way to balance that tension in the business. You know, keep the simplicity to protect yourself and at the same time allow for variation because it's going to show up. You know, whether you want it to or not.

And I think we all agree, like the more proactive you can be in that, probably the better. Or I won't speak for you all, that's what I think.

Janna

I completely agree about being proactive.

And I think that that's where, that's where people maybe are falling a little flat today, in terms of planning for the future. Because not only might you want to change your billing model, but, you know, there might be new revenue accounting rules released or there may be new stipulations about audit for your company. 

So the world is going to get complicated no matter what. And the more you can do to simplify upfront, the better you're going to be able to handle this incoming, I dunno, paintballs to dodge.

Jake

What would you say to, like, encourage someone to take that step?

Not a, not a, like Sam said, not a double down, jump-into-more complication. But, what would you say to encourage someone to take that step to kind of in that middle ground that we're talking about? What would would kind of be your encouragement to take that step, to be proactive and but, but not overdo it?

Janna

Yeah. I think that when there is a lot of strategic thought going into what platform to choose and what software you need to support your business. The same amount of thought should go into, you know, what is my business goal next year and two years from now, and five years from now?

Because–just because if these enterprise softwares are flexible and reliable and all of those things doesn't mean that it's going to be used in a way that's amenable to those easy changes I was talking about. 

So really and building an environment that you want to live in and you can scale in is just as important as selecting the software if not more important. And I would encourage, like the strategic thinkers driving the purchasing decisions to also apply the strategic thought to you know, what happens inside that platform that supports future growth

Sam

I–as I was hearing this…like, do you both know, Brené Brown?

Jake

Yeah. 

Janna

Yeah.

Sam

She's just like, whenever she says like "embrace the suck" or whatever–I think [that] is something that she says, I don't know. I feel like I've seen a hashtag or something like that. 

I just feel like that's what it's like. Just embrace the variation, like, embrace [that] the - the shit's coming.

Janna

I think that's a really great philosophy for not only the software, but life, is [that] you don't know what's [coming] around the corner and the only way you can prepare for it is to prepare to, you know, pivot quickly.

Jake

And just remember, you will be audited, so…

Janna

And you will be.

Sam

Oh, yeah, there's nothing better than trying to remember why you bought a helicopter three years ago or something.

Like it's just, you know? It's like,, trying to navigate. There's so much complexity and the way we talk about billing because of this same issue. 

And what I found so incredible about the software is how it's–because of what I would call your first-principles approach to it, is like you have distilled it down to a series of consistent challenges that then you can build to solve any of whatever those needs are, as they're defined.

And I think what we're trying to find is a way to do that too, in terms of, like, how we talk about this. Because–and something that's popping up for me, like variable billing–like it's getting so hard for someone to self-identify “what is my business model?” Because there is so much variation in what is possible, you know, like it's like tax codes or rev rec regulations, like, okay, there's this many things and you can interpret it in a bajillion different ways. 

And that's what this feels like too. And I'm really intrigued by the opportunity to be able to talk about it in a more universal way because I feel like it would be helpful. Because we're all dealing with the same stuff, you know? Whether you call it an insertion order or you call it an invoice or you call it a subscription, you know, whatever it might be, or a contract. Like, it's to your point, it's like how do we engage with the person who wants stuff from us, you know? And do it in a way that works for both of us. And to your point, that will change.

Janna

I also think that, like, what we're trying to do is very, you know, philosophical in that you're trying to take a lot of different scenarios and complexity and anecdotes, anecdata, if you will. And turn it into, and turn it into broad statements about businesses and consumers and how they engage with each other.And we all know that nothing is one-size-fits-all. But there are these themes that keep coming up again and again and again and variable billing or variable engagement with your customers or unpredictable engagement with your customers is definitely a major theme.

Jake

Janna and Sam, we've had a great conversation today about usage billing.

Really enjoyed listening to both of you talk and just learning about the evolution of usage-based billing and how, you know, it can be a really great tool for a lot of businesses to–like we've talked about–engage with their customers and really interact with what their needs are.

I'm excited to see how it will continue to evolve into the future.

Janna

Cool, thank you, Jake. Really nice speaking with both of you today as well.

Sam

Same, yeah, it was so great to see the both of you, great conversation.

Jake

Now we want to hear from you listening at home. What are some of the biggest struggles around usage-based billing for you? Let us know by emailing hello@zoneandco.com if you enjoyed today's conversation. Be sure to subscribe to Finance in the Clouds wherever you get your podcasts and we will see you next time, Bye!

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