What is Usage-Based Pricing?
Definition
A pricing model where customers pay based on how much they use a service rather than a fixed subscription fee.
Understanding Usage-Based Pricing
Usage-based pricing (also called pay-as-you-go or consumption-based pricing) charges based on actual usage metrics like API calls, storage used, messages sent, or compute time. Examples include AWS (compute hours), Twilio (per message), and Snowflake (per query). Hybrid models combine a base subscription with usage-based overage charges.
This model benefits light users who pay less and heavy users who only pay for what they need. However, costs can be unpredictable and difficult to budget for compared to fixed subscriptions.
Related Terms
Subscription
A recurring payment arrangement where a customer pays at regular intervals to access a product or service.
Tiered Pricing
A pricing strategy where a service offers multiple plan levels with different feature sets and price points to serve different customer segments.
Billing Cycle
The recurring time period between billing dates for a subscription service, such as monthly, quarterly, or yearly.
Pricing Model
The strategy a subscription service uses to structure its pricing, including flat-rate, tiered, usage-based, or hybrid approaches.