Understanding the Pay-as-You-Go Pricing Model for SaaS Businesses

The shift to usage-based pricing is reshaping how SaaS and AI companies monetize their products. According to OpenView, nearly 39% of SaaS companies now price primarily on usage, a sharp increase from a decade ago. This trend is driven by the rise of AI APIs, cloud infrastructure, and the need for flexible, scalable billing models that align with real customer value. For technical teams, the challenge is not just in setting the right price, but in building a billing system that can meter, invoice, and report on usage at scale—without slowing down product development or introducing errors.

What Is Pay-as-You-Go Pricing in SaaS?

Definition and Core Principles

The pay-as-you-go (PAYG) pricing model charges customers based on actual consumption rather than a fixed subscription fee. Instead of paying a flat rate, users are billed for the specific resources or features they use—such as API calls, compute time, storage, or even the number of AI tokens processed[1]. This approach is also known as usage-based or consumption-based pricing.

How It Works

• Real-time metering: Usage is tracked in real time, often down to the millisecond or event level. This is critical for AI and infrastructure workloads, where costs can spike quickly.
• Transparent rates: Pricing is published up front, so customers know exactly what each unit of usage costs.
• Flexible billing cycles: Some platforms offer real-time cost dashboards, while others bill monthly or when a usage threshold is reached.

Example: A cloud storage provider charges per gigabyte stored and per API request, so a customer’s bill reflects their actual usage each month.

Types of Pay-as-You-Go Pricing Models

Consumption-Based vs. Credit-Based

There are two main PAYG structures in SaaS:

Consumption-Based

Customers pay for what they use, as they use it. This is common in cloud infrastructure (e.g., AWS EC2 charges by the second for compute resources) and payment processing (e.g., a percentage per transaction)[2].

Credit-Based

Customers pre-purchase credits, which are then redeemed for services. This model provides upfront cash flow for the business but can introduce breakage if customers don’t use all their credits.

Types of Pay-as-You-Go Pricing Models

Consumption-Based vs. Credit-Based

There are two main PAYG structures in SaaS:

Consumption-Based

Customers pay for what they use, as they use it. This is common in cloud infrastructure (e.g., AWS EC2 charges by the second for compute resources) and payment processing (e.g., a percentage per transaction)[2].

Credit-Based

Customers pre-purchase credits, which are then redeemed for services. This model provides upfront cash flow for the business but can introduce breakage if customers don’t use all their credits.

ModelHow It WorksBest ForExample Use CaseConsumption-BasedPay for actual usage as incurredVariable, unpredictable usageCloud compute, API callsCredit-BasedPrepay for credits, then consumeBudgeting, upfront commitmentsEmail marketing, prepaid APIs

Benefits of Pay-as-You-Go Pricing for SaaS

1. Lower Upfront Costs and Faster Adoption

PAYG reduces the barrier to entry. Customers can start small, pay only for what they use, and scale up as their needs grow. This flexibility is especially attractive for businesses with fluctuating or unpredictable workloads[2].

2. Revenue Scales with Customer Growth

As customers use more resources, their spend increases. This aligns vendor revenue with customer value and supports higher net revenue retention (NRR). Industry data shows that companies with usage-based pricing models see year-over-year revenue growth of 29.9%, compared to the SaaS average of 21.7%.

3. Deep Customer Insights

Metering usage at a granular level provides valuable data on how and when customers use your product. This informs product development, pricing optimization, and customer success strategies.

4. Fairness and Flexibility

Customers appreciate not paying for unused capacity. PAYG models are perceived as fair, which can improve satisfaction and reduce friction in the sales process[3].

Callout: For AI and API-first companies, PAYG is often the only viable way to monetize high-cost, variable workloads without overcharging low-usage customers or undercharging power users.

Challenges and Drawbacks of Pay-as-You-Go Pricing

1. Revenue Predictability

Unlike flat-rate or tiered models, PAYG introduces revenue volatility. Forecasting becomes more complex, especially when large customers ramp usage suddenly or unpredictably.

2. Customer Retention

Without a subscription commitment, customers can reduce or stop usage at any time. This can increase churn, though it also means customers are less likely to cancel outright if their needs temporarily decrease.

3. Implementation Complexity

Accurate metering, billing, and reporting require robust infrastructure. Tracking usage in real time, handling edge cases, and ensuring audit-ready invoicing are non-trivial engineering challenges—especially at scale.

Insight: Many SaaS teams underestimate the technical debt of building and maintaining a custom usage-based billing system. Delays, errors, and compliance risks can quickly erode the benefits of PAYG.

Hybrid Pricing Models: Combining Predictability and Flexibility

What Is Hybrid Pricing?

Hybrid pricing blends PAYG with other models, such as subscriptions or minimum commitments. This approach offers predictable baseline revenue while allowing customers to scale usage as needed.

Common Hybrid Strategies

• Subscription + Overage: Customers pay a flat monthly fee for a base level of service, then pay-as-they-go for usage above that threshold.
• Commitment + PAYG: Customers commit to a minimum spend (often annually), with additional usage billed at PAYG rates.
• Freemium + Usage: Free tier with usage caps, then PAYG for additional consumption.

Example: An AI platform offers 1 million tokens per month in its subscription, with additional tokens billed at a per-unit rate.

Implementing Pay-as-You-Go: Technical and Operational Considerations

1. Choose the Right Metric

Identify the resource that best reflects customer value—tokens, API calls, compute hours, storage, or seats. For AI and infrastructure, this often means tracking events at millisecond granularity.

2. Build or Adopt Real-Time Metering

Accurate, real-time metering is essential. Systems must ingest and process thousands of events per second, apply pricing rules, and aggregate usage for billing and analytics.

3. Automate Invoicing and Collections

Automated invoice generation, multi-currency support, tax compliance (e.g., EU VAT, US sales tax), and dunning are critical for scaling globally and reducing manual errors.

4. Provide Usage Transparency

Customers expect to see real-time usage and cost data. Embedded customer portals and API access to usage metrics improve trust and reduce support tickets.

5. Analytics and Reporting

Finance and product teams need dashboards for MRR, gross revenue, invoice collection, and usage trends. This data supports pricing optimization and strategic planning.

Technical Specification Example:

{
 "event": "api_call",
 "timestamp": "2025-06-17T22:45:54Z",
 "customer_id": "12345",
 "usage": 1,
 "resource": "ai_token"
}


This event-driven architecture enables millisecond-level metering and supports complex pricing logic.

Why SaaS and AI Companies Choose Lago for Usage-Based Billing

Lago provides a developer-friendly, API-first billing platform purpose-built for complex usage-based and hybrid pricing models. Key differentiators include:

• Real-time event ingestion: Processes up to 15,000 billing events per second, supporting tokens, GPU-seconds, API calls, and more.
• Flexible pricing engine: Supports pay-as-you-go, subscriptions, commitments, revenue-share, and hybrid models without custom code.
• Enterprise-grade compliance: SOC 2 Type 2 certification, GDPR alignment, and 99.9% SLA.
• Multi-currency and tax logic: Handles global invoicing, VAT/GST, and FX rounding out of the box.
• Developer control: JSON-based configuration, open API, and no vendor lock-in. Optional self-hosted edition for full data control.
• No revenue-share fees: Unlike some billing providers, Lago does not take a percentage of your recurring volume.

For mid-market and enterprise SaaS companies shifting to usage or hybrid pricing, Lago accelerates go-live timelines (weeks, not quarters) and reduces engineering overhead, while providing finance-grade governance and analytics.

Comparing Usage-Based Billing Solutions

Conclusion

Pay-as-you-go pricing is now a core strategy for SaaS and AI businesses that need to align revenue with customer value, support rapid scaling, and offer flexible, fair pricing. While the model introduces technical and operational complexity, the right billing infrastructure—like Lago—enables real-time metering, hybrid pricing, and global compliance without slowing down product teams. As usage-based monetization becomes the norm, investing in robust, developer-friendly billing systems is key to staying competitive and maximizing growth[2].

Ready to modernize your billing? Explore how Lago can help you implement usage-based and hybrid pricing models with speed, accuracy, and control.