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Business logic/advantages aside for this particular analysis, what is the recommended user experience related to recurring, pre-paid billing when the customer's allocation has been exceeded: charging overage, or renew the subscription early for the next period?

(In this case, post-pay and service disruption--or disabling subscriptions until the next billing period like is typical with cell service--are not options.)

Lingo defined for clarity:

By recurring, I mean that this is a payment which needs to be made on a regular basis to keep the subscription active.

By pre-paid, I mean that this payment is made for the billing period ahead of time (before it is used).

By overage, I mean that the next cycle's payment is increased to compensate for usage over the allotted amount. Advantage: Payments are made on a regular basis. Disadvantage: Payments are variable amount depending on usage.

By renewing early, I mean that the subscription is renewed for another billing period as soon as its allocation is depleted or exceeded. In other words, you pay regularly at each billing period, or whenever you use up all your allotment, whichever comes first. Advantage: Payments are the same amount. Disadvantage: Payments may occur on an irregular basis depending on usage.

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    FWIW, I've never seen the “renew early” in any sort of recurring payment, only ever when a certain amount of credit is purchased and automatically replenishes on exhaustion. – coreyward Apr 7 '14 at 21:52
  • Is the Overage unit rate the same as normal case, and would you expect users to stop/restrict usage of the service if they knew they had already exceeded their quota for the period? – Alok Apr 7 '14 at 22:03
  • Typically, no, overage is extra, for example: algolia.com/pricing -- and no, let's suppose service disruption is not an option (I think I said this in the question, let me know if I am misunderstanding you or need to be clearer). – Matt Apr 7 '14 at 22:04
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Overage and Prepaid are at the foundations of the hated mobile phone pricing model, which users perceive as intentionally deceitful and unfair. The user feels forced to spend more than they should in order to avoid penalizing overage charges. They also invite some users to play games with the limits, which causes friction.

Confusing and onerous billing practices are keeping mobile phone companies at the bottom of cross-industry customer satisfaction surveys year after year. I would not deliberately emulate their pricing model.

Pay-as-you-go can be viewed as expensive, but ultimately fair. Tiered usage pricing can be structured to bring the costs down for your heaviest users. Prepaid can also work here, if you're careful not to "expire" paid-for services, or require monthly minimums that chip away at the users' balances.

A monthly all-you-can-use subscription model is simplest, but you can't account for heavy users without imposing caps.

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