How Usage-Based Pricing Models Are Reshaping SaaS Economics

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Apr 25, 2025

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How Usage-Based Pricing Models Are Reshaping SaaS Economics

Usage-based pricing (UBP), also known as consumption-based pricing, is transforming the Software-as-a-Service (SaaS) landscape by aligning costs directly with customer usage. This model, which charges customers based on actual consumption rather than a fixed subscription fee, is gaining traction as companies seek more flexible and scalable monetization strategies.

Why the Shift Toward Usage-Based Pricing?

Traditionally, SaaS companies have relied on fixed, tiered subscription models that charge customers a flat fee regardless of their usage levels. However, UBP is becoming increasingly popular due to its ability to:

Better Align Costs with Value: Bain & Company found that more than 50% of enterprise software buyers prefer usage-based models because they only pay for what they use, making spending more predictable.

Drive Higher Revenue Growth: OpenView’s 2022 Expansion SaaS Benchmark Report revealed that usage-based SaaS companies grew revenue 38% faster than their peers using traditional subscription pricing.

Improve Customer Retention: Vendors using UBP often see lower churn rates because customers don’t feel locked into high upfront costs, making them more likely to stay engaged.

Where Usage-Based Pricing Works Best

While UBP is gaining traction, it’s not a one-size-fits-all solution. It works best for software with measurable usage metrics and variable consumption patterns. Some of the top-performing categories include:

Infrastructure & Developer Tools
1. Examples: AWS, Azure, Google Cloud, Twilio, Datadog, Snowflake
2. Why it works: Usage fluctuates by project or traffic load. Customers understand paying per API call, compute hour, GB stored, etc.

Communications Platforms
1. Examples: Twilio (SMS, calls), SendGrid (emails), Zoom (pay-per-minute APIs)
2. Why it works: Communication events are discrete and measurable. Customers are happy to pay per unit (e.g., message, minute).

Data & Analytics Platforms
1. Examples: Snowflake, Looker, BigQuery
2. Why it works: Charges based on query volume, compute time, or data scanned/storage.

Fintech / Payments / Transactional Apps
1. Examples: Stripe, Plaid, PayPal APIs
2. Why it works: Pricing tied to transactions processed or revenue generated.

APIs / Developer-First Products
1. Examples: OpenAI, Mapbox, Algolia
2. Why it works: Clear metrics like token usage, map loads, or search queries make metering fair and transparent.

Where UBP Doesn’t Typically Make Sense

UBP can backfire in categories where users expect unlimited access or where usage doesn’t correlate directly with value. In these cases, subscription pricing often performs better:

Productivity & Collaboration Tools
1. Examples: Slack, Notion, Trello, Asana
2. Why not: Users expect unlimited, seamless access. Metered usage might discourage adoption or active use.

CRM / ERP / HR Software
1. Examples: Salesforce, Workday, HubSpot, BambooHR
2. Why not: These systems are role-based and deeply integrated. Pricing by usage adds friction and confusion.

Design & Creative Software
1. Examples: Figma, Canva, Adobe Creative Cloud
2. Why not: Creatives rely on flexibility. Usage caps may stifle creativity and generate billing anxiety.

Learning Management Systems (LMS)
1. Examples: Teachable, Thinkific, Docebo
2. Why not: Success means higher usage. Penalizing that through metered pricing could discourage growth and engagement.

Customer Support & Helpdesk Platforms
1. Examples: Zendesk, Intercom (outside API usage)
2. Why not: High usage can stem from product success or scaling teams. Charging more for that may feel punitive.

Real-World Examples of Usage-Based Pricing Success

Several leading SaaS companies have adopted usage-based pricing with impressive results:

Snowflake – The Pioneer of UBP in Cloud Computing

Snowflake, a cloud data warehousing company, implemented a consumption-based model where customers pay for the storage and computing power they actually use. The impact? Snowflake's revenue surged by 106% YoY in its first full year post-IPO as enterprise customers scaled their spending in line with their needs.

Twilio – Pay-Per-Use Drives High Retention

Twilio, a leader in cloud communications, charges customers per message, call, or API request. This model has helped them achieve a 130%+ net revenue retention rate, meaning existing customers increase their spending over time without needing aggressive upselling.

AWS & Azure – Pay-As-You-Go Cloud Dominance

Amazon Web Services (AWS) and Microsoft Azure have built multi-billion-dollar businesses by offering pay-as-you-go cloud computing. AWS generated $90 billion in revenue in 2023, largely due to its usage-based pricing that allows businesses to scale their cloud infrastructure on demand.

Challenges of Implementing Usage-Based Pricing

Despite its advantages, UBP presents challenges that SaaS companies must address:

Revenue Predictability: Unlike fixed subscriptions, UBP introduces variability in cash flow, requiring robust financial forecasting.

Customer Education: Companies must clearly communicate pricing structures to prevent unexpected billing surprises. A survey by Vendr found that 41% of software buyers worry about unpredictable costs in usage-based models.

Sales Strategy Adjustments: Sales teams need to focus on driving adoption and usage rather than just closing deals, shifting incentives toward long-term engagement rather than upfront contracts.

The Future of SaaS Pricing

As software purchasing behavior evolves, UBP is expected to continue reshaping the industry. According to OpenView, usage-based pricing is projected to be the dominant pricing model for SaaS by 2030, as businesses seek greater flexibility in how they pay for software.

For SaaS companies, the key to success in a UBP-driven world will be:

Leveraging Data Analytics to predict usage trends and improve revenue forecasting.

Balancing Usage-Based and Subscription Models for predictable revenue streams.

Investing in Customer Success Teams to help users optimize and expand their usage.

By aligning pricing with customer value and consumption, SaaS companies can build more scalable, resilient, and customer-friendly business models—driving long-term growth in an increasingly competitive market.

Sources:

Vendr: Why More SaaS Companies Are Shifting to Usage-Based Pricing + The Implications for Buyers & Sellers

Bain: Is Consumption-Based Pricing Right for Your Software?

About Bloom Equity Partners

We’re big fans of mission-critical enterprise software, technology and tech-enabled business service companies with a competitive moat and a loyal, diversified, and growing customer base. Whether the business is bootstrapped, VC-backed, or a division of a larger organization, Bloom is completely agnostic to the structure. We are actively seeking investment opportunities that fall within the criteria below. We welcome the opportunity to discuss potential investments with founders, operating executives and intermediaries.

Our Investment Criteria

Industry: B2B Software and Technology-Enabled Companies
Geography: North America, Europe, Australia and New Zealand
Revenue: $5M - $50M
Growth: No requirement
Profitability: Negative - $10M EBITDA
Investment Type: Operational control required

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