Usage-based pricing
Usage-based pricing is a pricing model where customers pay based on how much they use a product or service. Also known as consumption-based pricing, this model has been gaining traction, especially among SaaS and cloud-based companies looking for more flexible, customer-aligned billing strategies.
As businesses scale and software becomes more integrated into everyday operations, traditional subscription pricing can start to feel rigid. Usage-based pricing offers a way to align cost with value, helping companies lower the barrier to entry, encourage adoption and grow revenue as customers scale their usage.
How does usage-based pricing work?
Usage-based pricing ties cost directly to consumption. Instead of paying a flat monthly or annual fee, customers are billed based on how much of a product or service they use. This can be measured through API calls, data processed, users active, minutes streamed, transactions run and more.
For example, a cloud storage provider might charge customers per gigabyte of data stored each month. A communications API company could bill per message sent or per minute of call time. A SaaS analytics platform might charge based on the number of data sources connected or reports generated. In each case, the meter runs only when the service is used.
What are the benefits of usage-based pricing for businesses and customers?
Benefits for customers
- Lower barrier to entry: Customers can start small and scale usage over time without committing to large upfront costs.
- Fair, transparent pricing: Bills reflect usage, which helps customers feel confident they’re paying for what they truly need.
- Scalability: As needs grow, customers can increase usage without jumping between rigid pricing tiers.
- Reduced risk: Pay-as-you-go pricing makes it easier to test new tools or services without major financial commitments.
Benefits for businesses
- Stronger alignment with customer value: Revenue grows alongside customer usage, creating a natural incentive to deliver ongoing value.
- Improved customer retention: Flexible pricing adapts to customer needs, reducing churn and increasing satisfaction over time.
- Better insights into customer behavior: Usage data helps businesses understand how and when their products are used, informing product development and customer success strategies.
- Revenue expansion through growth: As customers scale, so does the provider’s revenue, without needing to push aggressive upsells.
What are the challenges of usage-based pricing?
Common challenges
- Complex billing systems: Tracking and invoicing based on real-time usage data can be technically demanding. Many legacy billing platforms (or manual solutions) aren’t built to handle variable pricing at scale.
- Unpredictable revenue: Without fixed subscription fees, forecasting revenue becomes more difficult, especially for early-stage companies or those with a short customer history.
- Customer confusion: If pricing isn’t clearly communicated or usage metrics are hard to track, customers may feel unsure about what they’re paying for.
- Internal alignment: Shifting to a new model can impact sales incentives, go-to-market strategies and product design. Teams must work together to realign goals and processes.
How to implement usage-based pricing: a step-by-step guide
- Define measurable usage metrics: Choose trackable metrics that directly reflect the value customers gain from your service (e.g., data storage, API calls or active users).
- Select the right billing technology: Adopt a usage-based billing software capable of accurately measuring, tracking and invoicing based on real-time usage.
- Develop transparent pricing tiers: Create understandable and predictable tiers or rates that communicate pricing structures to customers.
- Communicate the shift clearly: Prepare internal teams, especially sales, customer support and product. Also, inform customers about what to expect with the new pricing model.
- Monitor usage and adjust accordingly: Continuously track usage data, gather feedback and refine your pricing strategy to align with customer needs and business objectives.
How ZoneBilling streamlines usage-based pricing in NetSuite
ZoneBilling automates subscription and consumption-based billing directly within NetSuite, streamlining complex invoicing and revenue recognition processes. Whether your contracts evolve frequently, require regular amendments or involve sophisticated usage billing, ZoneBilling simplifies and enhances your billing operations.
What sets ZoneBilling apart:
- Limitless billing capabilities within NetSuite eliminate cumbersome spreadsheet calculations.
- ZoneBilling automates diverse billing scenarios, allowing your business to scale confidently, regardless of changes in billing, pricing or product models.
- ZoneBilling automatically calculates usage, applies accurate rating and facilitates billing across a wide range of scenarios, including usage tiers, minimums, maximums, pooled usage and more.
With ZoneBilling, your finance team can easily manage usage-based billing complexity, maintain transparent customer invoicing and confidently recognize revenue without leaving the familiar NetSuite environment.