Usage-Based Billing in SaaS: Is It Right for You?

Your customers love your SaaS product, but they hesitate at that $99/month price—especially when they might only use it twice a week. Sound familiar?

The old flat monthly fee model isn't working as well anymore. Customers want pricing that matches how much they actually use your product. That's why many SaaS companies are switching to usage-based billing, where customers pay based on what they use, like paying for electricity or water.

This approach can help your business grow, but it also brings new challenges. Getting the pricing right isn't simple, and it changes how you run your entire business.

Want to know more? Read on as we cover:

What usage-based billing in SaaS really means
Why more SaaS companies are choosing this model
The benefits it can bring to your business
The risks and challenges you need to watch out for
How to know if this pricing model suits your product
Tips for rolling out usage-based billing successfully

At the end of this article, you’ll know if usage-based billing is the right pricing model for your SaaS.

What is usage-based billing in SaaS?

Usage-based billing, often called the pay-as-you-go model, is a pricing method where customers pay based on how much they actually use a product. Instead of a flat monthly subscription where every customer pays the same fee, the bill changes depending on usage.

For example, a flat-rate subscription might charge $50 per month no matter how often the product is used. In contrast, a usage-based model charges more like a utility bill: the heavier the use, the higher the cost; the lighter the use, the lower the cost.

In SaaS, usage can be measured in different ways, depending on the product. Some common metrics include:

API calls: an API (Application Programming Interface) lets two systems talk to each other; a call is each time that connection is made
Storage: the amount of data saved in your platform
Data consumption: the volume of data processed or transferred
Active users: the number of people using the product during a set period

This model is already used by some of the biggest names in SaaS like Twilio, which charges customers based on the number of text messages or calls sent through its platform, and Snowflake, which bills for the amount of data stored and processed.

The case for usage-based billing

Wondering why are so many SaaS companies switching to usage-based billing?

Market trends

Customers today expect flexibility. Just like they pay only for the electricity or mobile data they use, they want the same from software. This demand for “pay-as-you-go” pricing is growing fast, especially as businesses look for ways to cut upfront costs.

The shift is already happening at scale. In 2025, 38% of SaaS companies use usage-based billing, a significant jump that shows this isn't just a niche strategy anymore. With the SaaS market nearing $400 billion, usage-based pricing is quickly moving from trend to standard practice.

Key benefits for SaaS companies

For SaaS companies, usage-based billing offers four major advantages that flat-rate pricing simply can't match. It makes products easier to try by removing high upfront barriers, which means more customers are willing to sign up. As those customers grow and use more of the product, revenue grows automatically—no need for difficult upselling conversations.

Perhaps most importantly, usage-based pricing creates genuine alignment between what customers pay and the value they receive. This builds trust and reduces the friction that often leads to customers canceling their subscriptions. In crowded markets where customers carefully compare options, transparent usage-based pricing can be a real competitive advantage.

The challenges to consider

While usage-based billing has clear upsides, it also comes with hurdles SaaS founders need to consider, such as:

Revenue predictability: Unlike fixed subscriptions, usage-based models make it harder to forecast monthly or annual recurring revenue. This can complicate financial planning and investor reporting.
Operational complexity: Real-time tracking isn’t just about counting logins. You may need to track specific actions such as how many reports a customer runs, how many messages they send, or how much data they store. All of this information has to feed into your billing system so invoices are accurate. If usage isn’t measured correctly, customers could be overcharged or undercharged—and either mistake can hurt trust fast.
Bill shock and churn risk: A customer doubling usage in a busy quarter might see their invoice triple overnight. If you don’t give customers usage alerts, spending caps, or predictive dashboards, the surprise can push them to cancel.
Pricing confusion: Telling a customer “you’ll be billed per API call, per gigabyte stored, and per minute of processing” may feel overwhelming. If customers can’t figure out roughly what their monthly bill will be, they may hesitate to sign up or keep using the product.

In short, usage-based billing isn’t plug-and-play. It demands careful planning and strong systems to deliver both fairness for customers and stability for the business.

Is this model right for your SaaS?

Given these benefits and challenges, how do you know if usage-based billing is the right fit for your business?

When usage-based billing makes sense

This model works best when your product's value clearly ties to how much customers use it. Think about APIs, data storage, or communication tools—the more a customer uses these, the more value they get. You'll also need the technical setup to track usage accurately in real-time and bill for it without errors.

Your customers matter too. Startups and growing businesses often love the flexibility to start small and scale up. They'd rather pay $10 this month and $100 next month based on their actual needs than commit to a fixed $50 every month.

When to think twice

Some products don't work well with usage-based pricing. Project management tools, for example, deliver value through organization and workflow—not through the number of tasks created or team members added. If your product's main value doesn't grow with usage, flat-rate pricing might make more sense.

Enterprise customers—large companies with big budgets and strict financial processes—often prefer predictable costs over flexible pricing. They'd rather know exactly what they'll spend each quarter than deal with variable costs, even if those costs might be lower.

You also need to be honest about your capabilities. If you don't have the technical team to build accurate usage tracking, you'll face billing errors that anger customers. Your customer success team will need to help users understand their bills, or you'll get flooded with support tickets and cancellations. Plus, customers need real-time dashboards to monitor their usage—without them, bill shock will drive people away.

The middle ground: hybrid model

Can't decide? Many successful SaaS companies use hybrid models that combine a base subscription fee with usage charges. AWS charges for compute time on top of basic account fees. HubSpot has subscription tiers plus additional charges for extra contacts or features.

This approach gives customers some predictability while still letting revenue grow with usage.

Implementation best practices

Ready to move forward with usage-based billing? Here's how to do it right from the start:

Keep pricing simple: Your pricing should be so clear that customers can estimate their monthly bill in their head. Avoid complex formulas with multiple variables.
Build real-time dashboards: Customers need to see their current usage and projected costs as they happen, not when the bill arrives. Think of it like checking your phone's data usage.
Set up usage alerts and caps: Send automatic warnings when customers hit 75% and 90% of their usual spending. Let customers set their own spending limits to prevent bill shock.
Test with pilot customers first: Don't roll out to everyone at once. Start with a small group of engaged customers to test your systems and fix problems before going wide.

Conclusion

Usage-based billing can unlock significant growth for SaaS companies, but it's not right for everyone. The model works best when your product's value clearly scales with usage, your customers value flexibility over predictable costs, and you have the technical setup to track and bill accurately.

If you're unsure, start with a hybrid approach that combines base subscriptions with usage fees. Test it with pilot customers first, keep your pricing simple, and always give users real-time visibility into their usage and costs. The key is honest alignment between your product, your customers' needs, and your operational capabilities—get that right, and usage-based billing can become a powerful growth engine for your business.