Consumption-based pricing for SaaS companies: A 2025 guide

Curious about consumption-based pricing for your SaaS?

This model offers clear advantages, but it's vital to understand how it works.

Aligning pricing with how your customers use your solution can pay dividends as you grow. Consumption-based models can attract new users. It can also boost revenue and create a fairer experience for all.

In this guide, we'll explain the advantages (and challenges) of consumption-based pricing. We'll show you how to make a smooth transition that benefits your business and your customers.

What is consumption-based pricing?

Consumption-based pricing is when customers pay only for what they use. No more, no less. Your users track their usage like they track their phone data or streaming minutes.

This consumption-based pricing model works differently from traditional subscriptions. You charge based on actual activity instead of charging the same price every month.

Here's the simple breakdown:

• Customers use your product. They might process transactions, store files, or run computations through your platform.
• You track specific actions. Your usage-based billing system monitors key metrics. Think API requests, data storage, or active users.
• Bills match the actual usage. Customers see exactly what they used.

Companies like AWS and Twilio built massive businesses with this consumption pricing approach. AWS charges for computing power used. Twilio bills for messages sent. Each company found the right metric that matches customer value.

The model creates transparency that customers love. They can start small, scale up when needed, and scale down during quiet periods. Your pricing grows with their success.

Types of consumption-based pricing models

Different businesses need different consumption models. Each type serves specific customer needs and business goals. Here's what works best for different scenarios:

• Pay-per-use model: Customers pay for each action they take. No minimums, no commitments. OpenAI uses this for API calls — you pay for tokens processed. This model attracts developers and startups who want to test before committing.
• Tiered pricing: Usage falls into pricing buckets that get cheaper at higher volumes. Stripe processes payments this way. The more you process, the lower your rate per transaction. This rewards growth while maintaining predictable unit economics.
• Base-plus-usage hybrid: Customers pay a platform fee plus usage charges. Databricks charges a platform fee, then adds compute costs. This combination provides baseline revenue while capturing value from heavy users.
• Credit-based system: Customers buy usage credits upfront and draw them down. Companies like Anthropic sell API credits in blocks. This helps customers budget while giving you cash upfront.
• Value-based outcomes: Pricing ties to business results delivered. For example, Spot.io charges a percentage of cloud costs saved. Customers only pay when they see real value.

Note: Want to dive deeper into how consumption billing works in practice? Check out our consumption billing guide for detailed implementation strategies.

When does each model make sense?

• Pay-per-use fits best when customers have unpredictable needs or want zero commitment. Startups testing your product love this option.
• Tiered usage works when you want to reward loyalty and growth. High-volume customers get better rates.
• Base-plus-usage succeeds when you provide ongoing platform value beyond usage. Your base fee covers support, updates, and infrastructure.
• Credits make sense when customers need budget certainty. Finance teams can approve fixed spending amounts upfront.
• Outcome pricing wins when you can measure and guarantee specific results. Customers pay for success, not effort.

Advantages of consumption-based pricing

Consumption-based pricing creates advantages that traditional models can't match. Here's what makes it powerful:

• Lower barriers to entry: Some companies let new users test their app without huge upfront commitments. One example of this is Snowflake Inc., which grew fast because data teams could test the platform with minimal risk. Small projects turn into major accounts over time.
• Natural account expansion: Customer bills grow as they succeed. You don't need to negotiate upgrades or expansions. Consumption customers tend to expand faster than subscription customers.
• Improved unit economics: Your costs and revenue align. Heavy users who strain your infrastructure also generate more revenue. Light users don't subsidize power users like in flat-rate models.
• Faster sales cycles: Buyers can approve small initial spending without lengthy procurement processes. Your sales team focuses on value delivery rather than contract negotiations.
• Better customer retention: Customers never feel trapped or overcharged. They control their spending and can adjust usage based on their needs. This flexibility builds trust and reduces churn during economic downturns.
• Clear value connection: Every invoice shows exactly what customers received. They understand the relationship between usage and cost. Price increases are easier to justify when you deliver more value.

Note: Explore our collection of usage-based pricing examples from leading SaaS companies. Our post provides real-world inspiration on how companies put these benefits in place.

Challenges of consumption-based pricing

Usage-based billing brings real challenges you need to prepare for. Smart companies address these issues before they become problems. Here's what to watch out for:

• Revenue becomes less predictable: Your monthly revenue fluctuates with customer usage patterns. Seasonal businesses might use less during slow periods. Economic changes affect consumption. You need better forecasting models and scenario planning.
• Implementation gets technical: You must track every billable event. Missing events means lost revenue. Double-counting means angry customers. Your engineering team needs robust data pipelines and monitoring systems.
• Customers worry about bill shock: Users fear unexpected charges from usage spikes. One viral campaign or data processing error could create a massive bill. You need spending alerts, caps, and clear usage dashboards to build trust.
• Sales compensation becomes complex: Reps can't predict commission from usage-based deals. Initial contracts might be small but can grow. You need new compensation models that reward land-and-expand strategies.
• Financial planning requires new skills: Traditional SaaS metrics don't tell the full story. You track usage trends, cohort behavior, and consumption patterns. Your finance team needs different tools and training.
• Support costs might increase: Customers ask more questions about their bills. They want detailed breakdowns and usage explanations. Your support team needs access to granular usage data and billing details.

Smart billing platforms solve many of these challenges. The right billing software handles metering, provides real-time dashboards, and generates clear invoices.

Note: Our detailed usage-based pricing guide provides actionable solutions.

Comparing consumption-based pricing with other models

The goal is fit, not dogma. The right model should map price to value. It should also keep billing clear and respect how your customers use your product.

Practical takeaways:

• Expect variability. If trial and early usage are lumpy, a meter prevents under- or over-charging.
• Protect margins. When your costs scale with activity, usage pricing keeps you whole.
• Add guardrails. Budgets, caps, and alerts reduce bill shock and make finance teams comfortable.

Picking a value metric that sustains margins

Choose a metric that customers recognize and you can measure well:

• Requests or events (per 1,000 or per million)
• Data volume (GB stored or transferred)
• Time or capacity (compute minutes, concurrent workflows)
• Outcomes (messages delivered, jobs completed)

Start simple. You can layer a small base fee later if you need extra predictability.

Implementation notes

• Forecasting: Build usage cohorts and project best/likely/worst revenue bands. Set soft and hard budgets by account.
• Billing experience: Show real-time usage, mid-cycle estimates, and anomaly alerts. Transparency builds trust.
• Change management: Pilot on a small segment first. Then, roll out with documented value metrics and clear customer education.

Note: Read our guide on SaaS monetization strategies for a full picture of your options. It'll help you see how these models fit into the landscape of revenue optimization,

Best practices for businesses adopting consumption-based pricing

Successful consumption-based pricing requires careful planning and execution. Companies that thrive with this model follow specific strategies. Here's your roadmap to success:

• Choose metrics customers already understand: Your pricing metric should connect to value. Twilio charges per message because customers think in messages. Snowflake bills for compute time because data teams measure query performance. Avoid creating new metrics that need education.
• Build trust through transparency: Show customers their real-time usage. Slack displays message counts in the interface. AWS provides detailed cost explorers. 
• Start with a pilot program: Test your consumption pricing with friendly customers first. Gather feedback on metrics, pricing levels, and billing clarity. Iron out operational issues before general availability.
• Create safety nets for customers: Use spending controls that prevent bill shock. Set up automatic alerts at 50%, 75%, and 90% of expected usage. Let customers set hard caps if they prefer. DataDog sends alerts before customers hit pricing tier thresholds.
• Design graduated pricing tiers: Reward growing customers with volume discounts. Your biggest users should get your best rates. This encourages consolidation and reduces churn risk from competitors.
• Provide usage optimization tools: Help customers reduce their bills through efficiency. Datadog shows customers which queries consume the most credits. This builds partnership rather than adversarial relationships.
• Prepare your organization: Train sales on value-based selling. Teach support to explain usage patterns. Help finance model variable revenue. Every team needs new skills for consumption models.
• Track the right success metrics: Track net dollar retention. Watch usage growth within accounts. Measure time from signup to meaningful usage. These metrics predict long-term success better than traditional SaaS KPIs.
• Invest in proper billing infrastructure: Manual billing breaks fast with usage-based models. You need automated metering, real-time aggregation, and flexible invoicing. Modern billing platforms handle complexities that spreadsheets can't.

Note: Looking for a deeper understanding of implementing consumption-based models? Our article on the SaaS consumption model provides a technical framework for adoption.

Get help building a pricing model that fits your business 

You should now see how consumption-based pricing benefits your business and your customers. Managing usage data, configuring pricing tiers, and generating invoices can add extra challenges. 

Orb is your one-stop billing management platform created for consumption-based pricing models. Our platform simplifies every step. It covers everything from capturing detailed usage metrics to generating crystal-clear invoices.

Here's how Orb helps you solve billing with consumption-based models:

• Unmatched billing precision: Don’t worry about missed billable events anymore. Orb ingests raw event data. Customers get precise billing for the value they get.

• Flexible pricing structures: Create and manage different pricing plans with Orb's plan versioning. This lets you adapt your pricing model as your business grows without messy spreadsheets.

• Effortless integration: Orb integrates with your existing tools. These include data warehouses and accounting software, minimizing disruption and simplifying your workflow.

• Reporting and insights: Orb's reports help you gain a deeper view of usage patterns. Use these insights to forecast revenue, improve pricing tiers, and make data-based decisions. 

• Customizable billing metrics: Orb helps you define how you measure and bill usage. You can create pricing plans built for your needs. Orb offers a visual editor and SQL editor for defining billable metrics.

• Hybrid model support: The future of pricing is flexible. Orb's platform accommodates hybrid models. These combine consumption-based pricing with other options like subscription models. Orb gives you the freedom to design the ideal pricing strategy.

Ready to start making a difference with Orb’s help? Check out our pricing info and find a plan that works for you.