Pay-as-you-go SaaS is a pricing model in which users are billed based on actual usage rather than a flat subscription fee. Instead of paying a fixed monthly or annual rate, customers pay for what they consume, whether that’s application programming interface (API) calls, storage, number of users, or another usage-based metric. This pricing model is common in the global software-as-a-service (SaaS) market, which was worth an estimated $399.1 billion USD in 2024. It’s especially popular for cloud services, infrastructure tools, and developer platforms.

Below, we’ll explain how pay-as-you-go SaaS works, the benefits for businesses, and the potential challenges of this pricing model.

What’s in this article?

• How does pay-as-you-go SaaS work?
  
• What are the benefits of PAYG pricing for SaaS businesses?
  
• What are the challenges of PAYG pricing in SaaS?
  

How does pay-as-you-go SaaS work?

Many software pricing models expect users to commit up front, whether they end up using the service just a little or a lot. Pay-as-you-go (PAYG) works the opposite way. Instead of locking users into a fixed subscription, it charges them based on usage: if users use more, they pay more, and if they use less, they pay less.

PAYG SaaS platforms track usage in real time, usually based on one or more of the following:

• Computing power: If users are running workloads in the cloud (AWS, Google Cloud), they’re paying for the processing time and memory they use.

• Storage and bandwidth: The more users store or transfer, the higher the cost. Examples include cloud storage or data warehousing (e.g., Dropbox, Snowflake).

• Active users: Some software charges based on the number of people using it.

• Feature-level consumption: Some tools charge based on specific actions, such as the number of AI models users run, reports they generate, or transactions they process.

PAYG billing can happen in one of two ways:

• Real-time metering: Some platforms let users see their usage costs in real time, like a running tab at a bar. This is helpful for companies that need to keep a close eye on spending, especially with high-variable workloads.

• Monthly billing: Others tally everything up at the end of the billing cycle and send the user the bill.

Either way, the pricing structure is usually transparent, with rates published up front, so users know exactly what each unit of usage costs.

What are the benefits of PAYG pricing for SaaS businesses?

SaaS companies often default to a subscription model, flat monthly or annual fees, typically bundled into tiers. It’s predictable, easy to sell, and can work well for many products. But it also can leave money on the table, lock some customers out, and force businesses to commit to a level of service they might not need. That’s where PAYG pricing comes in. Instead of a flat fee, customers pay based on how much they use. It’s more fair, flexible, and—in many cases—more profitable.

Here’s why SaaS companies are embracing PAYG, and why it works so well.

It can be easier to get customers in the door

One of the biggest hurdles in selling software is getting customers to commit to a price before they’ve fully bought in. PAYG pricing makes it easier for customers to say yes because they’re not overcommitting. Instead of locking into a contract, customers can start small and scale up if they see value. For SaaS companies, this means a bigger funnel, more conversions, and an easier path to long-term adoption.

You can get more revenue from heavy users

Subscriptions are helpful for predictable revenue, but they assume all customers are roughly using the product equally when they’re not. Some will barely use the product, while others will run massive workloads through it every day. With PAYG, high-usage customers pay in proportion to what they use, while lower-usage customers can stay without overpaying. You’re not capping revenue potential, and you don’t lose lower-usage customers who might otherwise churn due to cost. Revenue scales with customer success: as your customers grow and use more of your service, your revenue naturally increases.

You might see higher retention and lower churn

SaaS churn happens when a customer realizes they’re not using the product enough to justify the cost. The moment a customer feels they’re not getting their money’s worth, they’ll likely start looking for alternatives. But offering PAYG can help take that argument off the table.

If a business uses your product less in a particular month, their bill is lower. They don’t have to make a hard decision about whether to keep paying. This is effective for seasonal businesses, because if demand fluctuates (as in ecommerce, event planning, and hospitality), customers don’t have to cancel and resubscribe based on their busy seasons. The longer a customer sticks around, the more valuable they become. PAYG can help keep them engaged even when usage dips.

Costs and revenue stay in sync

One of the biggest challenges if you run a SaaS business is balancing infrastructure costs with revenue. Subscriptions can give you stable income, but they don’t necessarily reflect the real cost of running your service. Under a subscription model, you’re keeping resources available for customers who might not even be logging in. PAYG pricing makes that connection much tighter, as you’re only allocating resources when they’re needed. If usage spikes, you’re earning more to cover the added cost. If it drops, so do your expenses. This pricing model makes sure you’re charging in a way that reflects the cost of providing the service.

It can be a competitive advantage

Customers generally don’t want to pay for features they don’t use or seats they don’t need. PAYG gives them control over their costs. If you experience wide variation in how customers use your product, PAYG lets them customize their costs to their needs instead of fitting into a generic pricing tier. And if competitors are offering flat pricing, letting your customers pay only for what they use can be a major differentiator. PAYG positions SaaS businesses as flexible and transparent in an environment where competitors might still be using rigid subscription plans.

It encourages continuous product improvement

When pricing is tied to how much someone uses a product, SaaS companies have a built-in incentive to keep making product improvements. Instead of just getting customers to sign up, the focus shifts to getting them to actively use the product. There’s more attention on high-value features, since the more useful the tool is, the more customers will use it. This creates a healthy cycle in which the more value customers get, the more they use the product and the more revenue the business earns as a result.

What are the challenges of PAYG pricing in SaaS?

PAYG pricing is flexible, fair, and has the potential for higher revenue from heavy users. But while this model aligns costs with usage, it also can introduce unpredictability, complexity, and potential friction for both businesses and customers. Here’s what SaaS companies need to be mindful of when considering PAYG.

Revenue becomes less predictable

PAYG pricing comes with less predictable revenue than subscription pricing. A customer might spend $500 one month and $50 the next, depending on their business cycles. While historical data helps, variable pricing makes it more difficult to project revenue over time compared to steady subscription fees. This can make budgeting more complicated.

To counteract this, some SaaS companies combine PAYG with baseline subscription fees to maintain revenue consistency.

Customers might struggle with unexpected costs

PAYG pricing gives customers control over what they pay, but that doesn’t mean they’ll always like the outcome. Unlike a fixed subscription, where costs are easy to plan for, PAYG means customers have to monitor usage closely to avoid overspending. If a customer’s bill suddenly jumps, they might start looking for alternatives with more predictable pricing.

To mitigate this, SaaS companies often provide cost-tracking dashboards, real-time usage alerts, and spending caps to help customers manage their bills.

Pricing can get too complicated

Customers need to understand what they’re being charged for. But the more granular the pricing, the harder it can be to explain. If customers don’t understand the pricing model, they might struggle to connect price with value and go with a simpler, flat-rate competitor—even if your model would be more cost-efficient for them.

Companies should always break pricing down into understandable units (e.g., “per GB stored”) to make costs easier to grasp. A well-structured pricing page, clear examples, and real-time cost estimation tools can also help make PAYG pricing more digestible.

It requires more tracking and billing work

With PAYG, you need a real-time tracking system to calculate and accurately bill for usage. If your system fails to track usage correctly, you risk undercharging (and losing revenue) or overcharging (and angering customers). On the billing side, PAYG requires itemized billing, which means more work in invoicing, customer support, and dispute resolution. Customers will also likely have billing questions, and your team needs to be ready to handle disputes over unexpected charges or perceived discrepancies.

SaaS companies moving to PAYG often invest in third-party billing platforms such as Stripe to handle the added administrative work.

It can be more difficult to drive up-front commitment

Subscriptions lock in revenue up front, which gives SaaS businesses more certainty. PAYG, on the other hand, lets customers start small and scale up gradually. This structure is great for customers, but riskier for businesses. If there’s no financial commitment, some users won’t engage deeply, which can lead to lower overall spending. And without a contract or a set renewal date, customers can drop off at any time without much thought.

Not every customer wants PAYG

Many business customers don’t want variable costs. They would rather pay a flat fee, even if it means occasionally overpaying for unused capacity. And if all your competitors offer subscriptions, PAYG might feel unfamiliar or risky to buyers. If customers believe they’re paying more for PAYG access than they would for a traditional subscription, they might feel cheated.

Some SaaS companies combat this by giving customers a choice between flat-rate and usage-based pricing.