Seamless implementation of commitments with m3ter

With m3ter Commitments, you can have your end-customers commit to a specified level of usage or minimum spend, improving predictability and customer retention.

Key takeaways:

• m3ter Commitments enables you to bill for commitment amounts using a flexible billing schedule in advance or arrears, and manage the burndown of the commitment in real time.
• Define the terms of the commitment, including billing details, prepayments, overage pricing, and more.
• Set up rule-based alerts to be triggered when an end-customer gets down to a certain percentage remaining of their commitment, avoiding overage surprises and enabling proactive upsell conversations.
• Ensure GAAP-compliant reporting with m3ter’s analytics and reporting tools.

Overcoming unpredictability with usage-based pricing

Since the usage-based pricing (UBP) model started to gain traction in software, naysayers have harped on about pure usage-based pricing models for the potential unpredictability they introduced on both sides. 

For the customers, UBP could make it difficult to predict costs, and they might struggle with billing surprises due to unanticipated spikes in usage or poor forecasting. For the vendors, the dependence on variable usage could create challenges with revenue unpredictability and cash flow.

Commitments address the unpredictability challenge of UBP. With this model, end-customers commit to a level of usage to gain access to favorable pricing and known spend. A commitment is typically billed in advance, but can also be billed in arrears or on an agreed billing schedule. Commitments provide both customers and vendors with predictability, as well as the opportunity to track consumption to ensure tailored renewals for better customer retention.

Credit models are popular, too – a large proportion of m3ter customers offer annual or multi-year commitments to their end-customers.

The term “Commitments” is often used interchangeably with “Prepayments”, but there is a subtle difference:

• Commitments – The goal is long-term spend. The customer commits to a certain level of spend or usage in order to get a reduced rate. If they don’t reach this level of spend, the company would (in theory) require them to pay the original rate, although this type of governance doesn’t always happen.
• Prepayments – The goal is to receive cash upfront. The customer receives a reduced rate in exchange for prepaying for their usage over a specific time period.

The good news: Regardless of which one you use, m3ter Commitments can elegantly handle both use cases.

The fix: m3ter Commitments

With m3ter Commitments, vendors can bill for the commitment/prepayment amounts using a flexible billing schedule in advance or arrears and manage the burndown of the commitment in real time.

Commitments are used to agree to a specified level of usage or a minimum spend over a contract period. The Commitment is usually expressed in fiat currencies, although it can also be used with a custom currency such as token or credit. 

Commitment billing

m3ter Commitments can handle any level of billing complexity, whether your model has customers pay in full upfront and have it drawn down, or pre-pay a certain amount and you can bill for the remaining amount minus the prepayment. You can apply the Commitment to just one product, to multiple products, or to specific charge types (e.g. apply to usage spend only, and not to subscription or one-time charges).

m3ter also allows the merchant to specify which products and charge types can be included or excluded from the Commitment drawdown.

Advanced overage pricing rules

If the end-customer exceeds their Commitment amount during the contract period, m3ter supports flexible overage pricing rules, allowing you to specify a completely different set of pricing rules that apply only when the end-customer moves into overage.

Business impact: Increased revenue from overages without manual burden on Billing Ops. Overage pricing can significantly boost a company's revenue by charging customers for exceeding their committed usage. This additional income stream can be substantial, especially if overage rates are set higher than regular usage rates. m3ter manages the Commitment so your Billing Ops teams don't need to do it manually. Billing Ops can manage exceptions (e.g., over- or under-utilization) by leveraging the Events notifications and Data Explorer reporting in the m3ter platform.

Rule-based alerts

Set up rule-based alerts and notifications to be triggered when an end-customer gets down to a certain percentage remaining of their Commitment (e.g. within 10% of depletion). 

Business impact: Major implications for both end-customer satisfaction and the upsell motion. 

Overages can lead to sticker shock and an unhappy end-customer, so it’s best to get out in front of these and leverage them for an upsell. 

These alerts create a well-informed Sales team that will know in advance when one of their accounts is likely to hit overages, so they can use that information to trigger a contract renewal. If an account is using up their Commitment amount ahead of schedule, that signals a likely renewal at an increased amount, which should be quota retiring for the rep.

GAAP-compliant reporting

m3ter also addresses the significant revenue recognition challenges that are associated with Commitments. The generally accepted accounting principles (GAAP), and in particular Accounting Standards Codification 606 (ASC 606), mandate how revenue is recognized for SaaS services, particularly around prepayments. Revenue should be recognized in line with usage throughout the period, not when the upfront amount has been billed. 

Business impact: m3ter supports GAAP-compliant reporting via analytics and reporting on usage, billing, and commitment/prepayment drawdown data, providing you with insights into your revenue streams, usage patterns, and financial performance. 

Getting started with m3ter Commitments

Implementing Commitments with m3ter ensures steady cash flow, reduces revenue leakage, and offers end-customers cost savings on bulk purchases. 

Learn more about Commitments in our Docs today, and schedule a demo and see how the powerful m3ter platform can automate your complex billing and Commitments.