Key takeaways
Usage-based pricing charges customers for what they actually consume instead of a flat fee and is used by many SaaS and AI pricing models.
Common models include pay-as-you-go, tiered, volume-based, overage, prepaid credits and hybrid – SaaS companies combine usage charges with a base subscription instead of using a pure pay-as-you-go model.
Running usage-based pricing requires metering and billing infrastructure. Airwallex Usage-based Billing provides the billing layer, so you can avoid building it from scratch.
Usage-based pricing charges customers for what they consume – API calls, tokens, storage, or another unit of value – instead of a fixed monthly fee. It's the model behind modern SaaS and AI products, from cloud infrastructure to generative AI tools.
If you're scoping SaaS payment processing and pricing decisions, usage-based pricing is worth understanding properly before you commit to it. This guide covers how it works, the common models, worked examples in Australian dollars, and how SaaS platforms can launch it without building their own billing infrastructure.
What is usage-based pricing?
Usage-based pricing is a pricing model that charges customers based on how much of a product or service they consume, rather than a fixed subscription fee.
Instead of billing every customer the same amount each month, you meter actual usage and charge accordingly – for example, under a simple per-unit model, a customer sending 10,000 API calls pays more than one sending 500. This differs from flat-rate subscription pricing, where the recurring fee does not vary directly with usage.
Common value metrics include:
API calls or requests
Tokens processed (common in AI products)
Storage used, in gigabytes or terabytes
Seats plus usage, in hybrid models
How does usage-based pricing work?
Usage-based pricing works by metering a customer's consumption of a defined unit, then billing them at a set rate for that usage at the end of each billing cycle.
Choose a value metric: Decide what unit of usage reflects the value customers get, such as API calls, tokens, or storage.
Set pricing rules: Define per-unit rates, tiers, volume discounts, allowances, overage charges or a hybrid structure.
Meter usage: Track consumption accurately, either in real time or at the interval your pricing model requires.
Calculate the bill: Apply the relevant pricing rules – such as per-unit, tiered, volume-based or hybrid pricing – to the metered usage.
Invoice and collect: Generate an invoice and charge the customer's selected payment method.
What are the types of usage-based pricing?
There are some common models for structuring usage-based pricing, each suited to different usage patterns.
Model | How it works | Suited to |
|---|---|---|
Pay-as-you-go | Customers pay a flat rate per unit consumed, with no base fee | Products with highly variable usage, like API platforms |
Tiered | The rate per unit changes at set usage thresholds | Businesses that want to reward high-volume customers |
Volume-based | A single discounted rate applies to all units once a volume threshold is reached | Simplicity for customers who scale quickly |
Overage | A base allowance is included in a subscription, with extra usage billed on top | Hybrid subscription-plus-usage products |
Prepaid credits | Customers buy a credit balance upfront and draw down as they use the product | AI tools and platforms with unpredictable usage patterns |
Hybrid | Combines a fixed subscription fee with variable usage charges | Most fast-growing SaaS and AI companies |
Hybrid pricing – a base subscription plus variable usage, similar in structure to recurring billing with an overage component – is now a common approach in practice, rather than pure pay-as-you-go. It gives you predictable base revenue while still letting usage scale with customer value.
What is an example of usage-based pricing?
An example of usage-based pricing is a cloud API platform charging A$0.01 per API call, so a business making 50,000 calls in a month is billed A$500 that month.
Other common examples include:
Per-unit pricing: A storage provider charging A$0.02 per gigabyte stored each month
Tiered pricing: An AI platform charging a lower rate per 1,000 tokens once a customer passes a set monthly threshold
Volume-based pricing: A messaging platform charging A$0.05 per SMS up to 10,000 messages, then a discounted rate per SMS once that volume is reached
Hybrid pricing: A project management SaaS charging a A$49 monthly base fee plus a per-unit charge for automation runs over an included allowance
What are the benefits and drawbacks of usage-based pricing?
Benefits
Lower barrier to entry: Customers can start small and pay a rate for what they use, without committing to a large subscription upfront.
Cost aligned with value: Customers pay for the value they actually receive, which can help build trust and reduce price objections.
Revenue scales with customer growth: Your revenue grows as your customers use your product more without having to increase your prices.
Drawbacks
Harder revenue forecasting: Variable usage makes monthly recurring revenue harder to predict than with fixed subscriptions.
Risk of bill shock: Customers can be surprised by a large bill if usage spikes unexpectedly, which can damage trust without alerts or caps.
Needs reliable metering infrastructure: You need accurate usage tracking and consistent pricing rules to calculate charges correctly.
How Airwallex helps you launch usage-based pricing
Usage-based pricing requires metering, pricing and billing infrastructure to track consumption and calculate charges accurately. Airwallex’s usage-based billing provides this billing layer so you can avoid building it from scratch.
Send usage events via API and configure meters so usage can be tracked, fees calculated and customers billed based on actual consumption.
Launch flat, tiered, volume-based, and per-unit pricing models, and test new plans quickly as your pricing evolves.
Combine usage-based billing with Subscription Management if you're running a hybrid model – a base subscription plus usage – which costs 0.50% per successful transaction.
Manage usage-based billing alongside your other Airwallex billing workflows, collect payments directly in your Airwallex account and settle funds into your multi-currency wallet.
Frequently asked questions
What is consumption-based pricing?
Consumption-based pricing is another term for usage-based pricing. Both describe charging customers according to measured consumption rather than a flat fee.
What is the best usage-based pricing type?
There's no single best type – it depends on how predictable your customers' usage is. Hybrid pricing can suit businesses that want a predictable base subscription alongside usage-linked charges, while pure pay-as-you-go can suit products with highly variable usage, such as APIs.
What's the difference between usage-based pricing and usage-based billing?
Usage-based pricing is the strategy – deciding to charge customers based on consumption rather than a flat fee. Usage-based billing is the process of calculating and invoicing based on tracked usage. Pricing is the decision; billing is the infrastructure that executes it.
How is usage-based pricing different from subscription pricing?
Flat-rate subscription pricing charges a recurring fee that does not vary directly with usage. Subscription pricing can also include tiers, seats or usage charges. Usage-based pricing scales with consumption, while hybrid models combine both approaches.
This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.
The Airwallex Editorial Team
Airwallex’s Editorial Team is a global collective of business finance and fintech writers based in Australia, Asia, North America, and Europe. With deep expertise spanning finance, technology, payments, startups, and SMEs, the team collaborates closely with experts, including the Airwallex Product team and industry leaders to produce this content.
