What Is Usage-Based Pricing? Understanding the Core Foundations

This short guide is a primer for usage-based pricing in SaaS - how it works, why it’s growing, and how Finance, Product, and Ops teams can use it to achieve their business goals.

The Rise of Usage-Based Pricing

Over the past few years, usage-based pricing (UBP) has transformed from a niche business model in SaaS to being part of the mainstream.  Once reserved for infrastructure providers like AWS or Twilio, it’s now becoming the default across a broad range of software segments — from DevTools, to FinTech, to AI applications, to messaging and communications etc.

Why? At the core is an attractive value proposition, with customers increasingly demanding flexibility and transparency. They want to pay for what they actually use — whether that’s API calls, compute time, or ID verification checks.  The rise of AI, automation, and product-led growth have then accelerated the trend.

According to OpenView’s latest SaaS benchmarking, more than 60% of SaaS companies now offer some form of usage-based billing — up from just 27% in 2018. That’s remarkable adoption growth in less than a decade.

UBP is no longer niche or experimental. It’s becoming standard.

What Is Usage-Based Pricing?

With usage-based pricing, the cost of a service is based on the customer’s consumption. Rather than paying for expected need (i.e. capacity) the customer pays only for what they actually consume (usage).

If this sounds familiar, that’s because it’s the standard way of pricing in verticals like utilities, telecommunications, and logistics. What has been new is its application to B2B software. 

More ‘pure’ examples are easy to spot. AWS and Snowflake charge based on resources consumed. Zapier charges by task. Twilio by API call.

But it’s applied more subtly as well.  You’ll often see ‘hybrid’ pricing models that are based on feature-based tiers or ‘seat’ fees, but also have usage allowances and overage charges.  That’s UBP too. 

Alternatives to usage-based pricing

Usage-based pricing isn’t always the right choice, and it tends to be associated with one or more of the following: high COGS; usage is a clear proxy for value-derived; self-service scenarios; and where systems are talking to systems, rather than humans talking to systems (e.g. any API business).  

What are the alternatives to usage-based pricing?  Broadly they are subscription pricing (which has been the prevailing model since the arrival of SaaS) or outcome-based pricing (which is increasingly topical, linked to the possibilities of agentic AI).  The table below summarises how these work, who they’re best for, and how flexible they are. 

Why SaaS Companies Are Moving to Usage-Based Pricing

Several macro drivers are pushing SaaS companies toward usage-based billing:

• Evolving customer expectations: Buyers expect fairness, transparency, and the ability to scale spend up or down.
• Product modularity: Modern SaaS is API-first, microservice-driven, and composable — perfectly suited to granular billing.
• AI and automation: Machine learning workloads are variable and data-driven, making consumption based billing the most natural fit.
• Investor pressure: The market rewards SaaS companies that can prove pricing agility and revenue scalability tied to real value delivered.

Benefits of Usage-Based Pricing for SaaS Companies

A. Customer Benefits

• Lower barriers to entry: Customers can start small, with minimal upfront cost.
• Better value alignment: They pay only for what they use.
• Scalability: Spend grows naturally with usage, without disruptive renegotiations.

B. Vendor Benefits

• Faster adoption: Freemium or low-cost entry encourages trial and adoption.
• Efficient expansion: Revenue scales with customer success — no heavy sales lift.
• Margin control: by aligning fees with cost-to-serve, UBP helps avoid loss-making customers.
• Reduced churn risk: Customers are less likely to cancel if their spend flexes with real use.

Top Use Cases for Usage-Based Pricing

1. Developer Tools – API gateways, CI/CD, logging, and observability platforms.
2. AI Platforms – charging per inference, training hour, or token processed.
3. Messaging APIs – SMS, email, and push notification providers.
4. Infrastructure SaaS – compute, storage, databases, and networking.
5. Fintech & Payments – charging per transaction or per dollar processed.

These categories thrive because their value is inherently measurable and scalable.

Challenges of Usage-Based Pricing – and How to Solve Them

A. Pricing Design Challenges

• You need to choose the right metric - your pricing should be attached to a usage vector that your customers associate with success.   
• Your pricing needs to be simple to understand - transparent, not opaque.
• Your fees need to be predictable and controllable, particularly if you’re selling to enterprises.  That’s why many vendors combine fixed and variable elements - e.g. a spend commitment with a generous usage allowance.  

Solution: you’ll need to design specifically for your products, and likely iterate multiple times, but the good news is that UBP’s popularity now means good availability of best practice examples and consultancy expertise.

B. Operational Execution Challenges

• Usage data processing: you need a mechanism to capture and store granular usage data.
• Billing operations: you need to apply pricing to usage data, which is often a complex task ill-suited to spreadsheets.  A lack of automation results in delays, disputes, revenue leakage, and audit risk. 
• Data delivery: billing and usage data needs to be made available continuously and throughout the company, not just once a month to the billing system.
• Pricing flexibility: pricing changes will be a constant as you iterate and customise for individual customers.   

Solution: Automate billing through specialized SaaS billing platforms. Automation ensures quote to cash runs smoothly and finance teams stay audit-ready.

How to Implement Usage-Based Pricing at Scale

Scaling requires careful sequencing across systems and teams:

1. Set up usage metering – Collect precise, real-time usage data across all services.
2. Define rating logic – Translate raw consumption into billable units with clear rules.
3. Integrate with CRM/CPQ/ERP – Ensure billing connects seamlessly into the quote to cash cycle.
4. Enable automation – Use platforms that can automate billing, revenue recognition, and reporting.
5. Finance readiness – Design processes for compliance, margin tracking, and forecasting.

Done right, this creates pricing agility and unlocks new growth pathways.

Usage-Based Pricing With m3ter

At m3ter, we’ve built the SaaS billing infrastructure to make usage-based pricing effortless. Companies like ClickHouse, Onfido, and Snyk trust us to:

• Ingest and process billions of usage events.
• Apply complex aggregation, rating, and pricing logic.
• Automate billing workflows, from metering to invoice.
• Integrate seamlessly into CRMs, CPQs, and ERPs.

With m3ter, SaaS companies gain the agility to launch, scale, and iterate on consumption based billing without engineering bottlenecks.

Ready to Scale With Usage-Based Pricing?

If your billing systems are a blocker to innovation and growth, it’s time to switch. Stop guessing. Start scaling.

Book a demo with m3ter to see how we help SaaS companies automate usage-based billing and unlock new revenue opportunities.

FAQs

Q1. Is usage-based pricing only for infrastructure companies?

No — while it started in infra (AWS, Twilio), it now powers SaaS across DevTools, AI, fintech, and more.

Q2. Should SaaS companies go all-in on consumption-based billing?

Not always. Hybrid models (subscription + usage) often balance predictability with scalability.

Q3. What systems are required for usage-based pricing?

You’ll need usage metering, rating, SaaS billing automation, and integration into your quote to cash stack.

Q4. How does usage-based pricing affect churn?

It typically reduces logo churn, since customers’ spend flexes with their actual use - they feel less locked in.