First some background before I ask the question…
In my work for tractbilling.com, I’m trying to understand which metrics are used to measure the success of activity-based billing models. If anyone out there has any insight, feel free to add your comments…
Activity-based billing is the process of measuring activities, aggregating them, applying utilization and other fees, generating invoices and receiving and recording payments. Activities are anything you can measure. Activities can include:
- the download of a song, wallpaper, movie, book, image or other piece of content;
- the launch of a streaming connection for music or a movie; or access to a digital version of an article;
- creation of an object in a SaaS application, e.g. a new project in a program; management application, an expense report, a time-sheet;
- the scan of a QR or bar-code; or redemption of a coupon;
- SMS messages, miles, points, credits, calories, gallons, distance, tokens, speed, or temperature;
Activities are anything you can measure or imagine. To monetize customer activities businesses have to break activities into measurable components that can be rated, metered and charged. The more activities that engage your customer, and the better the incentives for increased consumption, the more likely they are to remain loyal.
Now the question…
Because activities can be so varied, it is generally difficult to arrive at a common measurement metric. Simple subscription business models use ARPU (average revenue per user) as a key metric. But does ARPU work in a subscription+activity business? My gut says…sometimes. And when it does, it is important to break down the components and precisely define how they are added to the ARPU mix.
For example, in an activity model you may measure one or all of the following: DLL usage, storage, bandwidth, access cycles, transactions, real and near real time, usage, account numbers, duration or more.
How do you translate DLL usage in an application into an ARPU? And once you do, how do you demonstrate the measure makes any sense. MRR (monthly recurring revenue) is applicable if you can derive an accepted metric for the activity/transaction “unit” of measurement.
What do you think?
It is up to you and your business to think through the nuances of your business model, your activity-based revenue and your subscription revenue to define rules for properly measuring and managing your business.