Usage-based pricing for software-as-a-service (SaaS) means customers pay based on how much they use a product (e.g., gigabytes of data storage, number of user seats), instead of a flat monthly fee. This model is common in services and products where usage varies widely, including cloud computing and developer tools. For example, nearly 30% of SaaS companies preferred usage-based pricing models in 2023. Usage-based pricing aligns costs with value, which makes it easier for customers to get started and increase usage naturally as they grow.

Below, we’ll discuss the advantages that usage-based pricing can offer for SaaS businesses, how this type of pricing works, and how Stripe can help your business implement it.

What’s in this article?

• How does usage-based pricing work for SaaS businesses?
  
• What are the main advantages of usage-based SaaS pricing?
  
• What are the drawbacks of usage-based SaaS pricing?
  
• How can SaaS businesses improve their usage-based pricing models?
  
• How does Stripe help SaaS businesses with usage-based pricing?
  

How does usage-based pricing work for SaaS businesses?

With usage-based pricing for SaaS, customers pay based on how much they actually use the service rather than paying a flat fee. Costs adjust depending on usage metrics such as the number of application programming interface (API) calls, transactions, or user seats. This model works well for services where usage varies widely, such as cloud services, communications platforms, and data tools. Here’s how you might implement it:

• Pick what to charge for: Decide what metric makes the most sense. Should you charge per gigabyte, transaction, or active user? Whatever the metric, it needs to reflect real value.

• Measure usage: Your system needs to track consumption in real time so you don’t overbill or underbill customers.

• Bill customers based on what they’ve used: Some businesses solely use pay-as-you-go, while others use tiered pricing or a mix of base fees plus usage.

• Help customers plan ahead: Many SaaS businesses offer spending caps, prepaid credits, or discounts as usage increases to keep pricing predictable.

• Make it easy to scale: Ensure that customers can start small and increase usage over time without hitting artificial pricing walls.

What are the main advantages of usage-based SaaS pricing?

Usage-based pricing is a shift in how SaaS businesses interact with customers and provide value. It is the opposite of the traditional “sell first, prove value later” strategy, allowing customers to start using a service with minimal risk and scale as they see results. Below are some reasons this model works so well.

It lowers the psychological barrier to entry

Instead of forcing customers into a flat-rate plan, usage-based pricing gives them room to try a product. For instance, a startup that experiments with a new API can just pay for what it uses, instead of having to justify spending $500 per month. Eliminating the customer’s psychological barrier to entry can lead to acquisitions, which is especially important in competitive markets.

It ties growth to adoption

Traditional pricing models can create artificial limits: a business might hesitate to add more users because it’ll jump to a higher pricing tier. With usage-based pricing, customers spend more naturally as their businesses grow. The SaaS business doesn’t need to upsell, as its revenue will increase as customers use more of the service.

It monetizes high-value users without alienating everyone else

Flat-rate pricing forces businesses to balance between keeping their services affordable for average customers and maximizing revenue from high-value users. Usage-based pricing removes that trade-off: average customers can use the service with lower spend while heavy users can scale into much higher revenue bands without feeling like they’re being penalized for success.

It removes the need for churn

Traditional churn happens when customers stop seeing enough value to justify paying a service’s flat fee. With usage-based pricing, customers don’t necessarily leave; they just pay less. This keeps them involved with your product and increases the chance they’ll scale up again later rather than disappear completely. It also means businesses aren’t losing potential revenue in the long term just because a customer had a slow quarter.

What are the drawbacks of usage-based SaaS pricing?

While usage-based pricing makes scaling easier and links cost with value, it also presents challenges that can surprise SaaS businesses if they’re not careful. Here are some drawbacks to the usage-based pricing model and ways to manage them.

Revenue can be unpredictable

Unlike a flat-rate subscription, usage-based revenue isn’t guaranteed; it increases and decreases in accordance with customer activity. That’s great when usage is high, but if there’s a seasonal dip or an industry slowdown, your revenue can decrease.

• How to manage it: Many businesses incorporate a base subscription fee to create a revenue floor while still enabling scale. That way, there’s some predictability even when usage fluctuates.
  

Big bills can surprise customers

Pay-as-you-go pricing might be affordable when usage is low, but costs can rise fast—sometimes faster than customers expect. If they’re surprised by a bigger-than-expected bill, they’re more likely to either downgrade or leave altogether.

• How to manage it: Making pricing more transparent through usage alerts, clear rate cards, and spending caps can help customers control their spending. Some businesses also offer discounts at higher volumes so pricing doesn’t escalate too aggressively.
  

Customers can find it harder to budget

Finance teams don’t like surprises. With flat-rate pricing, they know exactly what to expect every month. With usage-based pricing, costs fluctuate, which makes it harder for businesses to plan ahead.

• How to manage it: Commitment-based discounts, prepaid credits, or even customizable usage ceilings can make this model more agreeable for businesses with strict budgeting processes.
  

Customers might hold back on usage

If customers are too worried about costs, they might decrease their usage of a product instead of fully adopting it. That’s bad for engagement, retention, and long-term growth.

• How to manage it: The best usage-based models encourage adoption. Volume discounts, free tiers, and clear messaging about the return on investment can help customers feel comfortable using a product without constantly checking their bills.
  

It can be harder to sell

If customers don’t immediately understand how they’ll be charged, they might hesitate to sign up for a service. Sales teams can also struggle with enterprise buyers (i.e., individuals who make purchasing decisions on behalf of large organizations) who want predictable costs.

• How to manage it: Businesses that succeed with this model often invest in education—detailed pricing pages, in-product cost calculators, and hands-on guidance to help customers understand what they’re paying for.
  

It requires accurate data and billing

Usage-based pricing requires real-time usage tracking, accurate billing, and a way for customers to see exactly what they’re using. If tracking is even slightly off, you risk losing your customers’ trust and creating billing disputes.

• How to manage it: A strong billing system, detailed usage logs, and customer dashboards that show real-time use help prevent confusion and frustration.
  

How can SaaS businesses improve their usage-based pricing models?

Usage-based pricing can drive growth, but if a model isn’t structured well, it can either miss some potential revenue or frustrate customers with unexpected charges. Here’s how to fine-tune your pricing model so customers see it as a fair exchange of value.

Charge for things that actually create value

One of the biggest mistakes a SaaS business can make is charging for something just because it’s easy to track. If your pricing metric doesn’t align with how customers perceive value, they’ll feel like they’re being taxed instead of rewarded for success.

An example of a good usage-based pricing model would be a data platform that charges per query processed. In this scenario, customers get direct value from processing more queries. A bad example would be a customer relationship management (CRM) system that charges per contact stored. In this scenario, customers are penalized for simply growing their databases.

The best pricing metrics make customers feel like they’re paying for outcomes, not just usage.

Make costs as predictable as possible

If customers don’t know how much money they’ll owe each month, they might be more hesitant to increase their usage. But locking in pricing too much can limit your revenue potential. Find the right balance using the following:

• Prepaid credits: Customers commit up front by purchasing a specific amount of credits, but they’re still in control of usage.

• Volume discounts: The customer’s costs go down as usage increases, which minimizes anxiety around scaling.

• Usage caps and notifications: These notify customers as usage increases so they aren’t caught off guard.

Incentivize the right behavior

If customers are always looking for ways to use less of your product to save money, something’s wrong. Pricing should encourage adoption rather than make people hesitant. To incentivize increased use, consider the following:

• Threshold-based perks: Provide discounts, extra features, or priority support for customers who hit certain usage levels.

• “Ramp-up” pricing: Let customers ease into higher usage without immediately maximizing costs.

• Bundled usage: Bundle certain features together instead of charging per interaction to make pricing feel more generous.

When customers feel like they’re getting more value as they grow, they’ll increase their usage with confidence.

Decrease revenue volatility with hybrid pricing

Purely usage-based pricing can make revenue swings unpredictable, especially early on. Many SaaS businesses stabilize revenue by adding a base subscription fee alongside usage-based charges. Here are some examples:

• A cloud provider might charge a small monthly fee for baseline access, then bill per gigabyte stored.

• A developer platform could charge a flat rate for basic API access and charge per request above a certain threshold.

This approach gives customers flexibility while providing your business with more revenue consistency.

Make pricing transparency a selling point

Many SaaS businesses bury pricing details or make it hard to estimate costs. That slows down sales cycles and can increase churn or lead to friction with customers when they are surprised by costs. Maximize transparency with the following:

• Interactive pricing calculators: Let customers model their expected usage before they commit.

• Real-time dashboards: Show current usage and projected costs directly in the product.

• Easily understood pricing pages: If someone needs a sales call just to understand your pricing, it’s probably too complicated.

The easier you make it for customers to understand their bills, the more likely it is they’ll stick around.

Track customer behavior and adjust over time

Usage-based pricing should develop as you learn how customers use your product. The best SaaS businesses treat pricing like a product feature and constantly improve it. You’ll want to look out for the following:

• Drop-off points: If customers are reducing usage to control costs, that’s a signal that pricing might be limiting adoption.

• Expansion trends: If customers aren’t naturally scaling up and you need aggressive upsells to increase revenue, you should rethink your strategy.

• Churn patterns: If lower-usage customers are canceling outright instead of staying on board at reduced spend, try to find out why.

How does Stripe help SaaS businesses with usage-based pricing?

Stripe can help SaaS businesses manage the hardest parts of usage-based pricing, including usage tracking and automated billing. Here’s how.

Usage tracking

Stripe’s metered billing automates usage tracking by:

• Letting businesses define any usage metric (e.g., API calls, data processed)

• Capturing usage in real time and storing it for accurate billing

• Enabling flexible reporting so customers can see how much they’ve used at any time

Instead of relying on spreadsheets or custom scripts, SaaS businesses can send usage data to Stripe, which will handle the rest.

Automated billing

Usage-based pricing can create friction with customers when they don’t know how much they’ll be charged. Stripe mitigates this issue with the following:

• Automated invoicing: It calculates the right amount based on actual usage and sends invoices automatically.

• Real-time billing previews: Customers can see estimated charges before the end of the billing cycle.

• Custom billing cadences: Businesses can bill daily, weekly, monthly, or even per transaction—whatever makes the most sense.

With Stripe, businesses can avoid last-minute invoice shocks and minimize disputes over unexpected charges.

Hybrid pricing

A lot of SaaS businesses use base subscriptions plus usage fees to balance predictability with flexibility. Stripe makes this easier to do by:

• Letting businesses combine flat fees and metered usage in a single invoice

• Supporting tiered pricing so per-unit costs decrease as usage increases

• Handling minimum spend commitments so even lower-usage customers contribute to revenue stability

Built-in revenue recognition

Revenue recognition can be a challenge for SaaS businesses, especially with variable billing. To help them stay compliant, Stripe’s automated revenue recognition provides:

• Accurate revenue reporting, even when usage fluctuates

• Deferred revenue tracking so revenue isn’t recognized before it’s earned

• Customizable rules so finance teams can adjust how revenue gets recognized based on contract terms

This means finance teams don’t have to manually reconcile invoices and revenue reports every month.

Payment recovery

One of the biggest risks with usage-based pricing is involuntary churn, which is when a customer’s payment fails and they suddenly lose access to a service. Stripe can mitigate this issue with the following:

• Smart Retries: If a charge fails, Stripe automatically retries it at a time its AI algorithms determine is best.

• Dunning automation: Using dunning, Stripe sends reminder emails to customers before their payment cards expire.

• Adaptive Acceptance: Stripe uses network data to increase the chance of card payment authorization.

These features can help keep revenue flowing and help prevent the loss of customers due to temporary payment issues.

Global expansion capabilities

Stripe handles the following features for SaaS businesses that sell internationally:

• Multiple currencies: Stripe charges customers in their local currencies without creating extra work for businesses.

• Localized payment methods: Stripe accepts Automated Clearing House (ACH) transfers, Single Euro Payments Area (SEPA) Direct Debit, digital wallets (e.g., Apple Pay, Google Pay), and more.

• Tax compliance: Stripe automatically calculates value-added tax (VAT), goods and services tax (GST), and sales tax based on the customer’s location.

This means SaaS businesses can expand globally without additional payment logistics work.