Last updated on Friday, April 11, 2025
Across the SaaS industry, one of the most significant shifts in recent years has been the move away from fixed-fee subscription models and toward consumption pricing models. These usage-based pricing structures are changing how companies generate revenue, how customers adopt software, and how success is measured.
What’s driving this change? Flexibility, transparency, and alignment with customer value.
Customers want to pay for what they use, nothing more, nothing less. Meanwhile, SaaS companies are realizing that when pricing reflects real usage, it becomes a powerful lever for trust, growth, and long-term retention.
At their core, consumption pricing models charge customers based on actual usage of a product or service. This can include:
In contrast to traditional subscriptions, where customers commit to a flat rate regardless of usage, consumption pricing introduces a dynamic relationship between product engagement and revenue.
The term “consumption pricing” isn’t one-size-fits-all. In practice, companies apply this strategy in a variety of ways:
Customers are charged only for what they use, with no base fee or commitment.
Example:
Amazon Web Services (AWS) operates on a PAYG model. If you spin up a virtual machine for an hour, you’re only charged for that hour. Turn it off, and the charges stop. This model is ideal for companies with variable workloads or testing needs.
Pricing increases in steps as customers pass predefined thresholds. This helps customers anticipate costs as they grow, while still allowing for flexibility.
Example:
Slack offers tiered pricing on its API rate limits and feature sets. As teams grow and usage increases, they move into higher tiers—often triggering feature unlocks or service level enhancements.
Per-unit pricing decreases as usage increases, rewarding high-volume users with better rates.
Example:
Twilio provides discounted pricing for customers who send large volumes of SMS messages or make a high number of voice calls. For example, after a certain threshold of monthly messages, each additional message is billed at a reduced rate.
Combines a fixed subscription fee with usage-based overages or add-ons.
Example:
Mailchimp uses a hybrid model. Customers pay for a base tier of contacts and emails, but can purchase additional usage as their lists or sending needs grow.
The central appeal of consumption pricing models is that they tie customer spend directly to the value they receive. When customers see real results from increased usage, they’re more likely to expand—and less likely to churn.
This is particularly impactful in usage-intensive industries like:
By removing the commitment of a high upfront subscription, consumption pricing lets customers start small. This makes it easier for product-led growth strategies to succeed—users can test the product, see value quickly, and expand their usage organically.
With traditional subscription pricing, expansion often depends on contract renewals or deliberate upsell efforts. With consumption pricing, customers scale on their own terms. This often results in higher Net Dollar Retention (NDR) and stronger long-term revenue growth.
Usage is a signal. It tells you who’s engaged, who’s at risk, and who’s growing. In the right system, those signals can inform everything from product development to customer success prioritization to revenue forecasting.
Despite its advantages, consumption pricing models introduce a new set of challenges:
Predicting revenue from subscription contracts is relatively straightforward. Usage-based revenue, however, is more volatile. Customer activity may spike or drop unexpectedly, and traditional pipeline forecasts often miss the mark.
Accurate, transparent billing requires detailed tracking of every unit of consumption. If customers don’t understand their invoice—or can’t predict their future costs—it erodes trust.
Internally, sales and success teams must be trained to sell and support usage-based pricing. Externally, customers need tools and guidance to manage their own consumption and avoid surprises.
To successfully implement and scale with consumption pricing, companies should:
Your pricing should track closely with what your customers value most. If you’re a data platform, that might be rows processed. For a comms tool, it might be messages or calls. Clarity here is critical.
Customers should have real-time dashboards, alerts, and forecasts to help them manage their usage. This improves trust, reduces billing friction, and supports long-term retention.
Sales, support, and success need to understand how pricing works—and how usage correlates with customer outcomes. That includes being able to explain pricing tiers, offer optimization advice, and flag anomalies.
Revenue forecasting in a consumption model is no longer just about booked deals. You need tools that integrate usage signals with CRM data and predictive models to anticipate future revenue more accurately.
Consumption-based pricing isn’t a trend—it’s a structural evolution. As software becomes more modular, more integrated, and more tailored to specific workflows, flexible pricing will become the norm.
Companies like Snowflake, OpenAI, MongoDB, and Confluent are leading the way. But increasingly, even traditional SaaS players are exploring usage-based add-ons, hybrid models, or pilot pricing schemes. The flexibility and scalability of consumption pricing models make them well-suited for a wide variety of industries.
The shift toward consumption pricing comes with a new demand: better forecasting.
It’s no longer enough to predict how much a customer will spend based on their contract. You need to understand how their behavior translates into revenue—month by month, product by product.
That’s where revVana comes in.
We help SaaS companies bring usage data into the heart of their revenue forecasting process—natively inside Salesforce. With revVana, teams can forecast consumption-based revenue using real-time usage metrics, AI-driven patterns, and CRM activity, all in one place.
Revenue forecasting sits at the core of any growing SaaS or IaaS business. It’s how leadership plans investments, how teams prioritize resources, and how companies communicate confidence to investors. But for all its importance, revenue forecasting is often stitched together from disconnected spreadsheets, rigid CRM reports, and models that fail to adapt as the business evolves.
Revenue forecasting is a cornerstone in shaping a company’s future outlook and guiding essential business decisions. It influences both short-term and long-term goals, helping prepare the organization for the future. A well-structured forecast is pivotal for budgeting various aspects such as new hires, marketing campaigns, facilities, equipment, and research and development (R&D).
As businesses move deeper into the world of usage-based pricing, one of the most transformative changes is the shift in how revenue is forecasted. Gone are the days when revenue was purely driven by upfront contracts and renewals. In today’s environment, a significant portion of revenue comes from the ongoing consumption of products and services, which grows over time, especially through expansions.