Is Usage-Based Billing Right for You? What You Need to Know Before Switching

Usage-based billing (UBB), also known as metered billing, charges customers based on their precise consumption patterns, making it distinct from fixed fees or subscription models. This pricing framework is gaining rapid traction among SaaS companies, with 61% of them adopting or experimenting with UBB in 2023, up from 27% in 2018. Between 2018 and 2022, the number of Software-as-a-Service (SaaS) companies adopting this model grew from 27% to 46%, highlighting a significant rise in just four years. By aligning costs with actual usage, UBB offers flexibility and a stronger connection between price and value.

One notable factor contributing to the rise of UBB is the rapid growth of AI and AI-powered products. These technologies often demand dynamic resource consumption, such as computing power, storage, or API calls—needs that align naturally with a usage-based approach. AI-powered tools are inherently scalable, allowing businesses to experiment without committing to high upfront costs. This inherent scalability and cost flexibility make UBB particularly appealing for AI-driven solutions.

As more SaaS companies turn to this model, it’s clear that UBB not only fosters greater revenue potential but also aligns with customers’ preference for pay-as-you-go pricing. For SaaS founders and developers, understanding how to implement and optimize this model is key to driving both customer satisfaction and business growth in a competitive market.

What Is in This Article

• What is usage-based billing?

• Benefits of usage-based billing

• The challenges of usage-based billing

• Usage-based billing in action

• Is usage-based billing right for your SaaS?

• Finding the right usage-based billing software

What Is Usage-Based Billing?

Usage-based billing is a pricing model where customers are charged based on their actual use of a product or service, rather than a fixed subscription fee. This model aligns the cost directly with the value delivered, making it a popular choice for SaaS companies whose products see varying usage across different customers. UBB also supports hybrid pricing structures, which blend predictable fees with variable components based on usage.

For example, a SaaS company offering cloud storage might charge customers based on the amount of data stored or the number of API calls made. Usage-based pricing can include metrics such as:

• Volume of data (e.g., storage space used or bandwidth consumed)

• Transactions processed (e.g., payment gateways, API calls)

• Active users or seats

• Features accessed (e.g., premium functionalities)

As a customer’s usage grows, so does their payment. This creates a mutually beneficial relationship: customers only pay for what they use, while SaaS providers benefit from scalable revenue.

Benefits of Usage-Based Billing

Alignment of Cost with Value

In a usage-based model, customers pay in proportion to the value they derive from the product or service. This makes the pricing feel fairer to customers, as they’re not paying for features or capacities they aren’t using. For businesses, it enables flexibility in accommodating different customer needs.

Scalability and Growth Potential

Usage-based pricing grows with your customers. As their needs expand, so does your revenue, without the need to adjust pricing structures or overhaul your plans. If your SaaS product is designed to scale with customer usage, UBB allows you to seamlessly capture the increased value without reinventing your pricing model.

Reduced Customer Churn

When customers feel that they’re only paying for what they use, they tend to be more satisfied. The fairness of the pricing model often leads to improved customer retention. Customers are also less likely to abandon your service because they aren’t locked into an expensive subscription plan that doesn’t reflect their actual use.

Transparency and Trust

UBB aligns pricing with customer consumption. Customers pay only for what they use, reducing the risk of overpaying—and minimizing dissatisfaction.

Lower Barriers to Entry

UBB allows new users to start small—often with a free plan—and scale their costs as they see more value. This lowers the financial barrier to entry and makes your product more accessible to startups or budget-conscious customers.

Challenges of Usage-Based Billing

Predictability Issues

For customers, usage-based pricing can introduce unpredictability. A customer might love your service but be hesitant to use it more frequently if they’re unsure how their bill will grow. This can lead to reluctance to fully engage with your product, potentially leaving money on the table.

For your SaaS company, this unpredictability could mean uneven revenue from month to month, especially if customers have unpredictable usage patterns.

Complex Billing and Invoicing

Usage-based billing requires accurate tracking and reporting of each customer’s usage in real-time, which can complicate your billing process. You’ll need to ensure that your system can handle dynamic pricing accurately and that you can easily generate and reconcile complex invoices.

Customer Education and Communication

Since usage-based billing can feel more complex than simple flat-rate pricing, customers might require more education to understand exactly what they’re being charged for and why. Effective communication is key to ensuring that customers feel confident in the model and trust your billing system.

Usage-Based Billing in Action

Here are a few real-world examples of how SaaS companies implement usage-based billing:

• Twilio charges based on the number of messages or voice minutes consumed, enabling fine-grained billing at the developer level.

• OpenAI prices its APIs by token usage, letting developers build and scale AI applications affordably.

• Snowflake bills per second of compute and per gigabyte of storage, aligning cost directly with cloud resource usage.

• SendGrid and Postmark offer pay-per-email billing, ensuring customers pay only for the volume they send.

These companies demonstrate how usage-based pricing supports scalable customer acquisition, experimentation, and revenue alignment.

Is Usage-Based Billing Right for Your SaaS?

Usage-based billing can be incredibly beneficial, but it’s not suitable for every SaaS business. Here are some key considerations to help you decide if it’s right for you:

Does Your Product Scale with Usage?

If your SaaS product is designed to scale based on how much it’s used—particularly for infrastructure, cloud services, or AI-based solutions—then usage-based billing is a natural fit.

Are Your Customers Comfortable with Variable Pricing?

Customers should have a good understanding of how their usage translates to cost. In B2B contexts, variable pricing is becoming increasingly common—especially when it maps clearly to the value provided.

Can Your SaaS Track Usage Accurately?

The ability to track usage in real-time is crucial. Without accurate, reliable tracking, customers could be overcharged or undercharged, damaging your reputation and customer satisfaction. Ensure you have the right tools in place to track usage efficiently.

Are You Prepared for Complex Billing Logic?

Managing usage-based billing requires solid infrastructure. You’ll need the technology to track, rate, and invoice usage across different dimensions, and ensure your billing workflows scale with your product.

Finding the Right Usage-Based Billing Software

Implementing UBB demands more than just tracking—it requires software that integrates into your revenue stack, scales with your business, and supports your monetization strategy. Here’s what to look for:

Transparency and Auditability

Choose tools that offer full visibility into how charges are calculated. Open-source foundations or auditable billing logic can significantly improve trust and clarity for your internal teams.

Fair and Scalable Pricing

Look for billing platforms that charge based on transparent, business-aligned metrics—like number of subscriptions—rather than taking a percentage of your revenue. This approach allows you to scale without giving away a portion of your growth.

Developer-First Architecture

The best billing platforms are built with developers in mind, offering clean, well-documented APIs to automate metering, billing, and invoicing across your revenue stack.

Advanced Pricing Features

Many providers support only basic UBB setups. Look for tools that allow your team to experiment with complex, hybrid pricing models—without developer involvement. Flexibility here is essential to meet diverse customer needs and shorten sales cycles.

Ease of Use

Your billing system should be intuitive for both your team and your customers. A clean interface UX make it easier to maintain satisfaction and avoid disputes.

Conclusion

Switching to a usage-based or hybrid pricing model can provide a competitive advantage for SaaS companies. It offers transparency, flexibility, targeted spending, and limited downside for customers. From a business perspective, it decreases onboarding time, reduces churn, aligns product with business, and provides unlimited upside. However, there are some considerations to keep in mind, including predictability, simplicity of pricing structure, ease of implementation, and product fit.

Interested in how Meteroid can support your transition towards Usage Based Billing? 👉 Talk to an expert to learn more.