Lago, best Paddle alternative for usage-based Billing

What is Paddle?

Paddle, a merchant of record (MoR), is a payment solution that helps SaaS businesses sell their products and services online. It offers a variety of features, including payment processing, tax compliance, subscription management, and fraud protection.

What is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is a third-party service provider that takes on the responsibility of processing financial transactions on behalf of other businesses or organizations. MoRs typically manage a spectrum of financial functions, including Checkout, Payments, Tax compliance, Subscriptions, Invoicing, Refunds & Chargebacks and Fraud Prevention. MoRs are commonly used in e-commerce and subscription-based businesses.

Here are some of the benefits of using an MoR:

• Reduced complexity: MoRs handle all of the complexities of payment processing, such as setting up merchant accounts, collecting payments, and processing refunds.
• Compliance: MoRs can help you ensure that you are compliant with all applicable laws and regulations regarding payment processing.
• Fraud protection: MoRs have sophisticated fraud prevention systems in place to protect your business from fraud.

Of course, there are also some potential drawbacks to using an MoR, such as:

• Loss of control: Limiting control over transactions and customer relationships.
• Lack of flexibility: MoRs may face limitations when handling complex pricing models. You do not have the option to build on top of it in order to address your specific needs.
• Dependency: Relying on an MoR can lead to business disruptions if they encounter issues.‍
• Fees: MoRs typically charge service fees from 5% to 8% on average.

What is Lago?

Lago is an open-source metering and usage-based billing solution. It offers a self-hosted and cloud-based, scalable, and modular architecture to manage subscriptions, usage based billing and all the nuances in between. It's the go-to choice for companies that require a powerful tool to handle complex billing logics, allowing you to build a comprehensive billing system from scratch with ease.

Is Lago a Merchant of Record (MoR)?

Lago is not a Merchant of Record; it does not handle Checkout, Payments, Tax compliance, or Fraud protection. Instead, Lago specializes in Billing, handling the Billing process from Metering to Invoicing. It's designed to be a robust option for businesses utilizing subscriptions, offering the ability to keep control over the data and connect the billing engine to any software.

How is Lago different from Paddle?

This article points out the differences regarding Billing capability between Paddle and Lago. Following that, it provides readers with a comprehensive overview and extends support for evaluating and selecting the most suitable billing system, tailored to your business' stage and specific needs.

1. Control over the Billing process

Paddle offers convenience by handling billing on your behalf, saving you time, but it limits your control over specific billing steps. When using Paddle, you are relying on their predefined billing processes and systems, which may not align perfectly with your specific business needs. For instance, Paddle's refund policy provides your customers with a 14-day window to cancel and request a refund, starting from the date of purchase. You cannot modify this timeframe to better suit your business needs.

Lago automates billing while giving you full control and customization options. Lago's Open Source nature allows you to build on top of it, making it more adaptable to your business needs. Lago is agnostic to adjacent verticals, allowing you to integrate with any adjacent tooling, streamlining your operations.

2. Feature comparison

Usage-based Billing 

Paddle supports simple products and subscriptions. However, it may not be flexible enough when it comes to handling complex subscription models and usage-based billing. For example, Paddle does not offer a native way to create tiered pricing with discounts on volume. To handle usage-based billing, you may need to integrate with another billing solution.

Lago is a usage-based engine by default, offering high flexibility for complex pricing models and high volume processing. Lago also empowers pricing iteration, particularly valuable as your business scales and optimization becomes paramount.

Subscription management

Paddle simplifies subscription management and takes charge of customer relationship and dunning management. It's a great choice if you prefer not to manage accounts payable and payment follow-up.

Lago enables you to send invoices via email, monitor the payment status in real-time and trigger payments. You can retain hands-on control over the payment process and your communication with customers. This approach lets you manage customer relationships and remain flexible with specific contracts.

Invoicing

Paddle's invoices are branded with Paddle's name and logo, which can be confusing for customers.

Lago allows you to use your own branding on invoices. This helps to create a more consistent and professional experience for your customers.

3. Transparency matters

When choosing a third-party solution for Payments and Billing, it's essential to ensure your team understands its architecture. This knowledge is invaluable, especially for tricky scenarios. You want to avoid being in the dark when trying to resolve critical issues.

If you opt for a closed-source solution like Paddle, push for transparency and try to understand how it works.

Lago, being an Open Source Billing solution, offers complete transparency, allowing engineers to audit its code and even build on top of it. And the best part is, it’s always free and accessible. So, Lago serves as a fall back option without vendor lock-in concerns.

4. Pricing

Paddle’s Pay-as-you-go Plan includes a 5% fee plus $0.5 flat fee per checkout transaction. It includes Checkout, Subscription, Payment, Tax, Fraud Protection, Reporting, Billing. Invoicing is excluded for this plan. For large-scale businesses, Paddle offers custom pricing.

Lago offers a forever-free Open source solution for small businesses, allowing access to fundamental billing features. Besides, Lago provides Startup and Enterprise Plans with access to premium features listed here.

Conclusion

Paddle is a good choice for businesses looking for an all-in-one solution covering payment processing, tax compliance, subscription management, and fraud protection. It's especially useful in the early stages when resources are limited, allowing you to focus on core activities. However, as your business scales and pricing models become more complex, you might need to integrate with other tools for greater flexibility.

Lago is a solid choice for businesses requiring a high-powered billing solution, especially for complex subscription and usage-based billing. It offers advanced features and high flexibility. Lago is suitable for businesses at various stages of growth due to its scalable and modular architecture. You can even integrate Paddle with Lago in order to combine Lago's powerful metering & billing engine with Paddle’s MoR capabilities.

TL;DR: Table of comparison Lago vs. Paddle

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