The pay-per-use model ensures that customers only pay for what they actually consume

Mis à jour : avr. 27

  • Principles:

Pay-per-use is a business model under which consumers pay for a product or service according to their use of it. When the pay-per-use model is implemented, the use of the product or service is measured and customers are charged depending on the duration, the number of units used etc.

In addition, pay per use includes also when you pay a unique price each time you use the service. This single price is often low to encourage repetition.

  • Advantage & Challenge:

The pay-per-use model arguably gives the company more information about how customers use and value their products and services. Companies operating on pay-per-use can get greater feedback to refine their pricing and how they package products and services, to drive their profitability. Moreover, pay-per-use may also be used to provide training or capacity-building around product use, especially to encourage product adoption and maximize productivity. Once the consumers will have observed the possibilities of leverage, they will be more likely to take this option.

It might be hard for companies deploying this model to make an estimate of sales which leads to an unpredictable income. To make sure that this model is profitable, the company has to figure out the fixed and variable cost structure in order to set the right price per use.

For customers, the origins of the incurred costs are highly transparent when the pay-per-use model is used. It also leads to more flexibility and more options to choose from. There are also no high upfront capital expenditures as clients only pay for what they actually use.

Nevertheless, the model can be expensive during frequent use periods and thus the total cost of ownership is not always cheaper compared to classic business models.

  • Evolution of the business model & maturity:

Pay-per-use has already been around for some time, mainly in the utility sectors, so it is not due to technological advancements that this way of reaching consumers has emerged. Nevertheless, digital advancements have led to a change in the "pay per use" model, making it applicable to various industries. In addition, these changes led to the creation of variations to the initial pay-per-use model:

  • The pay-per-view model: Customers can watch films or sporting events on demand without having to subscribe to a television network.

  • The pay-per-click model: Advertisers are charged according to the number of times internet users click on a given ad.

Moreover, the extension of the pay-per-use business model to the software industry was enabled by the wide penetration of the internet and increasing bandwidth. Like utilities, software could now be distributed cheaply everywhere through the ether. You have a large scale distribution at low transaction cost and improved protection against piracy.

Nowadays, the Pay-per-use model is taking many industries by storm. Providing high-quality products and services at a low barrier of entry, the prominence of this business model is the logical consequence of an era of growing consumer expectations. Access to quality products, and not ownership, is becoming the norm.

  • Product adapted to the business model:

Initially, just a few sectors, mainly utilities (gas, electricity, phone), used pay-per-use as the default revenue model. However, it has recently expanded to markets that you would not expect at first, such as mobility, entertainment and software. In these sectors, the pay-per-use business model is now popular, sometimes in combination with the subscription model.

  • Key figure:

One of the most rapidly emerging pay-per-use models can be found in the mobility sector, more specifically the bike-sharing market. The global bike-sharing service market is estimated to grow from 3.3 billion U.S. dollars in 2020 to over 13.7 billion U.S. dollars by 2026.

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