IoT Consumption Pricing: Strategies for Hardware-as-a-Service

The shift from “boxes” to “outcomes”

For decades, the manufacturing and hardware business model has been simple: build a device, sell it for a one-time margin (CapEx), and move on.

The Internet of Things (IoT) has broken that model. Today’s customers don’t just want equipment, whether they are hospitals buying MRI machines or factories buying compressors. They want outcomes. They want to pay for “uptime,” “compressed air,” or “diagnostic scans,” rather than the asset itself.

To weather this shift, IoT businesses must adopt consumption (usage) pricing models. But executing this strategy is more complex than just adding a new price tag; it requires a fundamental re-architecting of how businesses measure value and collect revenue.

Why IoT needs flexible consumption models

Traditional subscription models (i.e., flat monthly fees) are often insufficient for IoT because they don’t account for the variable costs of connectivity and data.

• For the business: You need to cover the cost of cloud storage and cellular connectivity. If a device uses 10x more data than expected, a flat fee erodes your margin.

• For the customer: They want to pay only for what they use. If a machine is idle for a month, customers shouldn’t pay the full price.

By adopting a hybrid consumption model (combining a base subscription with usage fees), you align your revenue with the customer’s success.

The technical barrier: Data mediation

Defining a pricing strategy is easy. Executing it is hard. The biggest hurdle for IoT businesses is Data Gravity.

A fleet of 50,000 sensors might generate 100 million “usage events” per day. Most billing systems wouldn’t be able to ingest this volume of raw telemetry. Before you can bill for usage, you need to clean, aggregate, and map this data.

This process is called mediation. Without a robust mediation layer, your strategy will fail due to system crashes or revenue leakage.

Deep dive: Understand the architecture required to handle this scale in our guide What Is IoT Billing?

3 Proven pricing models for connected devices

1. Hybrid subscription (Hardware + service + usage)

This is the gold standard for Hardware-as-a-Service.

• One-time: Activation fee or subsidized hardware cost.

• Recurring: Monthly platform access fee (e.g., $50/month).

• Usage: Overage fees for data or transactions (e.g., $0.05 per GB over 10GB).

• Best for: Minimizing risk while capturing upside.

2. Prepaid drawdown (“The Wallet”)

The customer purchases credits upfront (e.g., $10,000). As their devices consume services (data, API calls, machine hours), the balance is drawn down in real-time.

• Best for: Improving cash flow and providing budget certainty to enterprise customers.

3. Outcome-based pricing

You charge based on the result achieved.

• Example: Schneider Electric  is transitioning a high percentage of its business to recurring models with flexible billing, enabling consultative and remote monitoring services layered on their products, rather than one-off equipment sales.

• Best for: High-value industrial equipment where uptime is critical.

Real-world success: Schneider Electric

The challenge: Schneider Electric wanted to move beyond transactional hardware sales to building recurring digital relationships with its customers.

The strategy: They adopted a “Total Monetization” approach, launching new subscription and usage-based services layered on top of their physical products.

The Outcome: By utilizing a flexible billing engine, Schneider Electric successfully transitioned significantly from a traditional hardware business to a recurring revenue model. This architecture allowed them to launch new consultative and remote monitoring services globally, tailoring offerings to individual customer needs across more than 100 countries without disrupting existing operations.

Implementing the strategy: The tech stack

To launch these models, you need a technology stack that can handle the “Order-to-Revenue” lifecycle for hybrid products.

1. Mediation engine: To ingest raw sensor data.

2. Rating engine: To price that data in real-time.

3. Subscription management: To handle the recurring flat fees.

4. Revenue automation: To ensure you remain compliant with ASC 606 even when revenue is variable.

Don’t build it yourself.

Trying to build a mediation and billing engine in-house is a common trap. It distracts your engineering team from building the core product.

Solution: Scale your consumption model with an enterprise IoT Billing Platform.

Next steps

Ready to monetize your connected devices?

• Technical deep dive: Read What is IoT Billing?

• Vendor selection: Compare the Best IoT Billing Software