Usage-based pricing: Models, examples, and solutions

Usage-based pricing (UBP) has quickly become the go-to model for modern SaaS and AI companies. According to OpenView, nearly 60% of SaaS companies now use or are testing UBP.

Instead of charging flat subscriptions, businesses now align price with actual product usage, whether that’s API calls, compute minutes, or data processed. The result? Customers pay for what they use and companies unlock a scalable path to recurring revenue that grows with adoption.

In this guide, we’ll break down how usage-based pricing works, explore the most common models, highlight real-world examples from leading SaaS and AI platforms, and share best practices for designing a usage-based model that drives predictable growth.

Whether you’re moving away from seat-based pricing or building your first metered product, this article will help you understand how to implement usage-based pricing effectively—and how platforms like Alguna make it easier to operationalize.

What is usage based pricing?

Usage based pricing is a revenue model where customers pay based on how much they use a product or service—not on fixed tiers or seat counts.

Sometimes called consumption-based pricing, this model directly ties cost to customer activity, such as API calls, storage used, transactions processed, or compute time consumed.

In a usage-based model, pricing scales with value. That means when customers use more, they pay more, which directly aligns revenue growth with product adoption.

This approach is especially common among SaaS, fintech, and AI companies, where usage can vary widely between customers.

For example:

• An AI platform might charge per token, inference, or minute of compute time.
• A payments API might bill per transaction or per active user session.
• A cloud storage service might be priced by gigabyte stored or bandwidth consumed.

By linking price directly to usage, companies gain more predictable growth potential while giving customers flexibility and fairness—paying only for what they actually use.

How usage based pricing models work

Usage-based pricing models work by tracking how customers interact with a product and charging them based on actual consumption. Instead of pre-set subscription tiers, revenue is generated dynamically, scaling up or down with product usage.

At the core, this model relies on three key components:

1. Usage measurement: The system tracks measurable units such as API calls, tokens processed, data volume, transactions, or active sessions. These metrics represent how much of the product a customer consumes.
2. Metering and data collection: Usage data is automatically collected in real time through metering tools or billing integrations. This ensures accurate, transparent billing and eliminates manual tracking.
3. Billing and pricing logic: Once usage is measured, billing engines apply predefined rules—such as pay-as-you-go rates, volume tiers, or hybrid pricing (combining subscriptions with variable usage).

For example:

• A cloud platform might bill $0.10 per 1,000 API requests.
• An AI tool could charge per inference or token generated.
• A fintech app might take a small fee per transaction processed.

Because costs scale with usage, customers can start small and expand naturally as they grow. Meanwhile, companies benefit from revenue that increases alongside customer adoption. This creates a win-win alignment between value delivered and value captured.

Let’s break this down more granularly, using Twilio as an example.

Usage based pricing examples: Twilio

Usage based pricing vs. subscription

While both subscription and usage-based pricing (UBP) have their place in SaaS, they represent two different philosophies.

Subscriptions focus on predictability: A stable monthly fee for ongoing access.

For example, Salesforce charges a monthly fee per user for its CRM tools, regardless of usage.

Usage-based pricing focuses on flexibility and fairness: Charging customers based on the actual value they consume.

For instance, Twilio bills per text message or API call, while AWS bills for compute hours and data storage used.

Usage based pricing vs subscription: Breakdown

Choosing usage based pricing vs. subscription

Choose subscription pricing when:

• Customers value predictability, especially in enterprise or procurement-led sales where budgets are set months in advance and fixed contracts simplify approvals.
• Usage patterns are relatively uniform across your customer base, meaning most users consume a similar amount of product or functionality.
• Vendor costs are mostly fixed and don’t fluctuate with usage, making it efficient to bundle access into one steady fee.
• Sales-led models dominate, where long-term contracts, predictable ARR, and consistent invoices help with forecasting and investor reporting.
• Customer relationships are high-touch or service-heavy, making per-use billing impractical or administratively cumbersome.

Choose usage-based pricing when:

• Usage varies widely among customers, which is common in infrastructure, API, and AI-driven products, where both small and large users coexist.
• Your product’s value scales with engagement, so heavier use equals more benefit (and more willingness to pay).
• The cost to serve scales with usage, allowing you to maintain healthy margins while aligning price to value.
• You want to lower barriers to entry, letting customers start small, pay little upfront, and expand naturally over time.
• You operate in product-led or self-serve markets, where transparent, consumption-based billing helps drive adoption and organic growth.

Hybrid models: The best of both worlds

A hybrid pricing model combines the predictability of subscriptions with the flexibility of usage-based billing — giving companies the best of both worlds. Customers pay a base fee for guaranteed access or seats, plus a variable charge that scales with usage.

For finance teams, this approach ensures steady recurring revenue while still capturing upside from high-usage customers. For users, it offers flexibility and fairness — paying more only when they get more value.

That’s why hybrid pricing has become the go-to structure for modern SaaS and AI companies: it balances stability with scalability, supports diverse customer types, and aligns price directly with real product value.

Usage based pricing examples: SaaS and AI companies

Early on, usage-based pricing leaders like AWS, Snowflake, and Twilio redefined how software is sold by letting customers pay only for what they use.

Today, companies like OpenAI and AssemblyAI have popularized token- and minute-based billing, where every bit of usage directly drives revenue.

Below provides an overview of how leading SaaS and AI companies have implemented usage-based pricing models.

Common metrics in usage-based pricing: Examples

The foundation of any usage-based pricing model is choosing the right metric.

A metric represents the measurable unit that reflects how customers derive value from your product. The best metric is simple to track, easy for customers to understand, and directly tied to costs or outcomes.

Here are the most common units and metrics SaaS and AI companies use in usage-based pricing:

1. Per transaction: This model is well-suited for financial and payment platforms where each transaction has a clear cost and value. Payment processors, such as PayPal, charge a small percentage and a fixed fee per completed transaction.
2. Per API call or request: Common for API-first products that scale with customer activity. For example, Plaid charges per connected account or API call.
3. Per compute unit or storage volume: Ideal for cloud and infrastructure software where usage directly maps to cost. AWS and Snowflake bill for compute hours, storage consumed, and data transferred.
4. Per message, email, or data volume: Used by communications, analytics, and observability platforms where data throughput equals value. For example, Datadog pricing is based on the number of hosts, logs, and metrics monitored.
5. Per token or AI unit: Popular in AI and ML services where usage depends on computational workload, OpenAI charges per 1,000 tokens processed.
6. Per minute or engagement: Works for automation or conversation tools where outcomes or time define value. Intercom’s Fin AI assistant charges per resolved conversation.

Pros and cons of usage based pricing

Done right, usage-based billing can unlock stronger customer relationships, higher retention, and scalable revenue growth. But it also comes with new complexities to manage behind the scenes.

Let’s examine both the pros and cons of usage-based pricing that businesses must carefully manage when implementing usage-based pricing.

Benefits of usage-based pricing

1. Fairness and value alignment: Customers pay only for what they use. It’s transparent, easy to understand, and feels fair, which naturally builds trust. No more paying for unused capacity or oversized plans.

2. Lower barriers to entry: Pay-as-you-go pricing removes friction. New customers can start small, test the product with little risk, and scale as they see value. It’s a proven accelerator for product-led growth.

3. Natural expansion and high retention: When customers grow, your revenue grows automatically. 

Snowflake, which recently reported an NRR above 120%, demonstrates how usage-based models expand alongside customer growth. Twilio, with a retention rate of 107%, underscores how usage-driven pricing fosters durable customer relationships. 

4. Aligned incentives: UBP ties your success directly to your customers’. The more they use and benefit from your product, the more you earn, aligning everyone around shared outcomes.

5. Broader market reach: Startups, enterprises, and everyone in between can access your product at a price that fits. UBP scales from micro-accounts to large-scale deployments without rigid plan boundaries.

6. Competitive differentiation: Flexible pricing stands out. It signals confidence: you’re effectively saying, “Pay us when you find value.” That transparency often wins deals in markets crowded with fixed-fee competitors.

7. Better product intelligence: When pricing depends on usage, tracking it becomes essential, and that means you gain rich insight into how customers engage. Those insights fuel smarter product decisions and expansion strategies.

8. Creative monetization: UBP opens the door to free credits, volume discounts, or usage-based overages. Customers appreciate flexibility, and you capture more value from heavy users without alienating smaller ones.

Challenges in implementing usage-based pricing:

1. Revenue volatility: Usage fluctuates, and so will revenue. Forecasting becomes harder, which can make investors uneasy. Many companies offset this by offering hybrid pricing, which combines a stable base fee with variable usage charges.

2. Customer “bill shock”: Spikes in usage can result in unexpected invoices. Avoid this by using transparent dashboards, spending alerts, and clear usage summaries. Predictability builds trust.

3. Operational complexity: Accurate metering and billing aren’t trivial. You’ll need infrastructure that can track usage in real time and tools to automate rating and invoicing.

4. Planning and sales alignment: It’s trickier to set quotas or forecasts when revenue depends on behavior, not contracts. Sales and finance teams need to adapt, focusing on usage growth rather than just sign-ups.

5. Customer understanding: Some customers, especially in enterprise, still prefer fixed costs. Education and communication matter: show customers how UBP can be predictable with the right controls.

6. The right value metric: If your metric doesn’t reflect value, you’ll frustrate users or limit growth. Keep it simple, intuitive, and directly tied to outcomes.

7. Organizational change: UBP touches every function, including product, finance, and customer success. Everyone must rally around using data, engaging proactively, and fostering a culture of continuous value delivery.  

Usage based pricing software: Best platforms to automate metering

When companies transition from flat subscriptions to consumption-driven pricing, one of the first questions they should ask is: “Can our billing system handle it?”

Traditional billing tools were designed for simple seat- or plan-based subscriptions. They struggle when pricing depends on granular metrics, such as API calls, tokens, or compute time, or when hybrid contracts combine fixed fees with variable usage.

That’s where new-generation usage-based pricing software comes in. These tools ingest real-time usage data, automate metering and rating, and synchronize with CRMs, data warehouses, and ERPs to ensure billing is accurate, transparent, and scalable.

Usage based pricing implementation best practices for SaaS and AI companies 

Implementing a usage-based pricing strategy for your AI or SaaS product requires careful planning and consideration. The goal is to align cost with value while minimizing disruption during rollout.

Here’s how to do it right:

1. Choose the right value metric

Start by identifying a metric that directly represents value to your customers, such as the number of API calls, data volume, active users, or transactions. The key is simplicity, measurability, and fairness.

Ask yourself: If a customer sees this on their bill, will it make sense to them? If not, rethink it. Avoid metrics that discourage usage or don’t scale with customer outcomes.

2. Roll out gradually with a hybrid approach

When figuring out how to implement usage-based pricing for your SaaS product, start small. Pilot it with select customers and gather feedback. Many successful transitions begin with hybrid models, such as a base subscription plus variable usage charges. This approach provides predictable revenue while customers acclimate to flexible billing.

3. Invest early in metering and billing infrastructure

Accurate usage tracking is non-negotiable. Automate your metering, instrument your product to emit usage data, and conduct extensive testing. Specialized platforms like Alguna streamline metering, rating, and invoicing, which is crucial for scaling without errors or manual overhead.

4. Prioritize transparency

Prevent bill shock by displaying customers' usage in real-time. Provide dashboards, usage alerts, and clear documentation explaining how billing works. When customers understand their consumption, trust increases and disputes decrease, which are two cornerstones of a strong usage-based pricing implementation.

5. Use safeguards and controls

Offer usage caps, anomaly detection, and grace credits for unexpected spikes. These not only protect customers from runaway costs but also demonstrate partnership and reliability.

6. Align internal teams

Usage-based pricing is more than just a pricing model. It requires organizational change and alignment:

• Finance teams: Update forecasting for variable revenue and monitor NRR closely.
• Sales and CS: Train them to sell value and confidently handle budget concerns.
• Product & Engineering: Implement tracking, watch for behavior changes, and fine-tune metrics as needed.
• Support: Equip agents to quickly interpret usage data and resolve billing questions.

7. Focus on driving value and improving NRR

If customers succeed, your revenue follows. That’s the essence of how to improve NRR with usage-based pricing.

Invest in education, onboarding, and success programs that encourage broader use of your product. Utilize analytics to identify power users for targeted upsells and re-engage low-usage accounts before usage based pricing churn.

8. Communicate clearly and early

When introducing a new model, transparency is your ally. Explain why the change benefits customers (“You’ll only pay for what you use”) and outline any caps, credits, or transition policies. Proactive communication builds goodwill and prevents pushback.

Frequently asked questions about usage based pricing

Who has the best usage-based pricing model?

There’s no single “best” model. It depends on your product, market, and users. But several companies set the benchmark for fair, scalable pricing:

• Snowflake: Pure usage-based model charging credits for compute and storage. Its 158% NRR in 2023 is proof that alignment between price and value drives expansion.
• Twilio: Developer-friendly pay-per-message and pay-per-call model that scales effortlessly from startups to enterprises.
• AWS: The pioneer of pay-as-you-go billing, charging precisely for compute time, storage, and other resources used.

The best usage based pricing models share three traits: transparency, flexibility, and a clear link between usage and perceived value.

How do you implement SaaS usage based pricing?

Successful usage based pricing implementation starts with clarity and precision:

1. Define the right metric: Choose a measurable unit that reflects customer value (API calls, compute time, data volume).
2. Design the structure: Decide whether to use a pure approach or a hybrid (base + usage).
3. Instrument your product: Automate usage tracking and event logging.
4. Select a billing system: Platforms like Alguna or Stripe Billing handle metered invoicing.
5. Test internally: Run shadow billing to validate accuracy.
6. Communicate clearly: Show examples and educate customers on how billing works.
7. Roll out gradually: Pilot with new users, monitor adoption, and refine as needed.

It’s as much a customer-experience challenge as a technical one. Transparency and accurate billing matter as much as pricing itself.

What are the pros and cons of usage-based pricing?

Pros

• Fairness and flexibility: Customers pay for actual usage, with smaller users paying less and heavier users paying more.
• Low entry barrier: No large upfront commitments.
• Automatic expansion: Revenue grows with customer success.
• Lower churn: Usage drops? So does the bill — keeping users onboard.

Cons

• Revenue volatility: Harder to forecast consistently.Customer uncertainty: Usage spikes can cause “bill shock.”
• Implementation complexity: Accurate tracking and billing are essential.
• Hybrid pricing models, which combine a base fee with variable usage, often strike the best balance between predictability and flexibility.

How can usage-based pricing improve NRR?

Usage-based pricing directly boosts Net Revenue Retention (NRR) by tying revenue to customer activity. As usage increases, so does spend, without requiring upsells or contract renegotiation. 

For example, if a customer processes 50% more transactions this year, their bill grows proportionally. Over time, this leads to built-in expansion revenue. 

When executed well, UBP turns customer growth into recurring revenue growth: a compounding flywheel that strengthens long-term retention and scalability.

Putting usage-based pricing into practice

Usage-based pricing is reshaping how modern software companies grow. Instead of charging for access or static plans, it links price directly to value; customers pay for what they use, and businesses scale with that usage.

Yes, it takes planning: clear value metrics, reliable data pipelines, and billing systems that can handle variable, event-driven charges. But when done right, it drives stronger retention, higher NRR, and deeper customer trust.

If you’re ready to evolve your pricing model, make sure your systems are built to support it. Platforms like Alguna simplify the heavy lifting by automating metering, billing, and revenue recognition, allowing your team to focus on growth rather than spreadsheets.