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Also known as: consumption pricing, pay-as-you-go, metered billing

Usage-Based Pricing

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Definition

Usage-Based Pricing: Usage-based pricing charges customers based on their actual consumption of a product or service—API calls, data storage, users, or transactions. This model aligns cost with value received, lowers barriers to entry, and scales revenue with customer success. It requires robust metering and clear pricing communication.

Example Usage

“Switching to usage-based pricing increased our trial-to-paid conversion 2x. Customers start small and grow into larger bills as they scale.”

Common Misconceptions

Usage pricing means unpredictable revenue. Good forecasting uses historical patterns to predict future consumption.
All features should be usage-based. Hybrid models with base subscriptions plus usage work well for many products.
Usage pricing is always cheaper for customers. Heavy users may pay more than with flat-rate subscriptions.

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