Credit burndown is an increasingly popular B2B pricing model, and it’s not hard to see why. It offers a way to implement usage-based pricing without sacrificing the ability to forecast future revenue. But there are some important challenges and stumbling blocks to know about the pricing model. Here’s what credit burndown is, why it matters, and how to get the most out of it.

Credit burndown is a variant of usage-based pricing that might be seen as a middle ground between a pure pay-as-you-go model (where you are charged in response to what you consume) and a subscription-based model (where you pay upfront to access something for a specific term). 

In the credit burndown model, customers pay on a recurring basis for a specific number of credits that go into a credit pool. Those credits can then be applied towards one or more kinds of services. For example, one credit may be worth 100 calls, or 2 gigabytes of storage.

If a customer’s usage exceeds the credits available, they will be billed for the difference. If a customer doesn’t consume every credit by the time they purchase more, some companies will choose to roll over unused credits, while others won’t.

Usage-based pricing often poses a challenge for finance and RevOps teams — namely, it’s very difficult to predict upcoming revenue. Some use cases have more extreme fluctuation than others — usage predicated on API calls can fluctuate much more than usage predicated on using a desk in a coworking space — but the issue is intrinsic to the pricing model. 

“Some use cases have more extreme fluctuation than others, but all pay-as-you-go pricing can complicate predictions."

Because credit burndown requires an up-front commitment, it gives finance and RevOps much greater forecasting ability for future revenue. What users pay is still dependent on their usage, so they will likely find it appealing. And credit burndown can streamline pricing for a company that offers many kinds of services, since one type of credit can be applied to all of those services. And for companies who wish to mitigate infrastructure strain by limiting each customer’s usage, credit burndown provides a clearly suggested limit for resource consumption — namely, the number of credits used.

There are some drawbacks to credit burndown, which can be sorted into two categories: customer perception, and logistical complexity. 

Customer Perception

As a middle ground between pay-as-you-go and subscription models, credit burndown may seem lacking compared to both. Customers often seek usage-based pricing as a way to mitigate risk — you pay for what you use, no more or less — and credit burndown requires a substantial minimum commitment. And unlike a subscription model, where customers can lock in their spend for a term up-front, credit burndown may require users to pay additional fees later in a term based on excess usage.

Improving customer perception:

Customers will likely be more receptive to credit burndown if it is offered alongside other pricing models, such as subscription pricing. For many companies, such a complicated revenue model was historically infeasible, but this is changing. Now is the time to ensure your go-to-market infrastructure can support any kind of usage-based pricing model alongside subscriptions, including pay-as-you-go, usage tiers with overage, and (of course) credit burndown.

“Customers will likely be more receptive to credit burndown if it is offered alongside other pricing models, such as subscription pricing."

Logistical Complexity

Credit burndown requires a number of moving parts to work properly. Quoting, usage rating, and billing systems all need to work in concert to properly measure and charge for credit usage. If your usage rating system is not equipped to handle credit burndown, for example, you may struggle to assess how many credits the customer used. And in the long-term, not knowing usage patterns makes it harder to understand customer needs and plan your product roadmap and infrastructure accordingly. 

A particular challenge to plan for is customers who request to adopt credit burndown midway through a term. You’ll need to offer them a prorated number of credits for the remainder of the term, which many companies aren’t prepared to do.

Addressing logistical complexity:

The most reliable way to ensure success with complex revenue models is to have integrated quoting, usage rating, and billing on the same platform. It’s the only way to ensure that 100% of your quotes can be properly invoiced and that nothing gets lost in translation. Nue’s tooling spans the entire revenue lifecycle from quote-to-revenue, so sales reps can put together complex combinations of pricing easily.

“The most reliable way to ensure success with complex revenue models is to have integrated quoting, usage rating, and billing on the same platform."

In addition, Nue’s integrated data model provides robust tracking across the customer lifecycle, so you can be confident that you know exactly how many credits remain for each customer, and allow customers to switch to credit burndown mid-term if they choose.

If you are interested in learning more about how to implement credit burndown with Nue, book a demo or learn more about our Usage Accelerator product.