Introducing Progressive Billing: Usage-Based Billing Done Right

A new era of billing for AI and infra companies

We’re proud to unveil a game-changing feature that will transform how companies handle usage-based billing: Progressive Billing.

In the fast-paced world of AI, where APIs and token-based pricing are the norm, ensuring fair and secure monetization is critical. Traditional billing systems often fall short, billing customers only at the end of the period, leaving room for misuse and even fraudulent activity. Imagine the scenario: a customer exhausts vast amounts of API tokens in a short span, only to disappear before the billing cycle ends. The result? Lost revenue, strained trust, high costs and a broken system.

But not anymore.

The birth of progressive billing: solving real problems

The spark for Progressive Billing ignited from a clear and urgent need voiced by some of the biggest AI unicorns. These companies faced a recurring nightmare—customers were overusing their APIs, sometimes fraudulently, racking up massive usage without paying a dime.

AI monetization should be a trust-trust process, a win-win outcome. You get to use powerful APIs, but only if you prove to be a reliable customer. That’s where Progressive Billing steps in.

What is Progressive Billing?

Progressive Billing, also known as threshold billing, is simple yet powerful.

Instead of waiting until the end of a billing period, Lago automatically triggers an invoice the moment a customer’s cumulative usage hits predefined thresholds. We don’t simply warn you or your customers. We also make sure to invoice them at different steps of their usage.

This proactive approach ensures that no one can overuse your services without paying for them, drastically reducing the risk of unpaid services or fraud.

How does it work?

At the core of Progressive Billing are two concepts: lifetime usage and billing thresholds. Here’s how it works:

• Lifetime Usage: Lago continuously tracks and aggregates the total usage across all billing periods. It’s a persistent measure, meaning even if a customer’s usage dips and peaks, the total usage is always considered.
• Billing Thresholds: You define specific usage thresholds, and when a customer’s lifetime usage hits these marks, an invoice is automatically generated. This ensures that usage is billed promptly and prevents overuse without payment.

We understand that every business is different, so we’ve made Progressive Billing incredibly flexible. You can choose between:

1. Step-Based Thresholds: Set multiple thresholds, each with a specific usage amount. Every time a customer reaches a threshold, an invoice is triggered.
2. Recurring Thresholds: Once the final step-based threshold is reached, Lago continues to issue invoices each time the lifetime usage increases by a set amount.

A brand new invoicing behavior

With Progressive Billing, invoices aren’t bound by billing periods. Instead, they’re generated whenever a threshold is crossed—period. This means no more waiting until the end of the month to get paid.

Not all customers are the same, and your billing approach shouldn’t be either. Progressive Billing can be configured at the plan level, but it’s also fully customizable per customer or subscription. If you trust a customer more, you can adjust their thresholds or provide more lenient payment terms. This feature gives you the control to tailor billing to individual customer relationships.

Stay alerted with real-time notifications

But billing is just one side of the coin. Staying informed is equally important. Lago’s alerting system ensures you’re always in the loop. Whenever a customer crosses a threshold, Lago sends a webhook notification detailing the subscription and the threshold exceeded. This real-time alert system empowers you to take immediate action if necessary.

Progressive Billing isn’t just a new feature—it’s a new way to bill usage for SaaS or AI companies. It’s about creating a fair, secure, and efficient billing system that aligns with the needs of today’s AI or infrastructure companies. With Lago, you can now confidently manage your billing, ensuring that every API call, every token, and every service is accounted for and paid.

For additional details, feel free to explore the documentation and watch the demo video.