Why SaaS Companies Are Adopting Consumption Pricing Models

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.

What Are Consumption Pricing Models?

At their core, consumption pricing models charge customers based on actual usage of a product or service. This can include:

• Number of API calls made
• Amount of data stored or transferred
• Minutes of processing time
• Messages sent
• Workflows triggered
• Seats activated, beyond a baseline

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.

It’s not a new idea, but it’s gaining significant traction, particularly as cloud-based, API-first, and AI-driven products become more central to business operations.

Common Types of Consumption Pricing Models

The term “consumption pricing” isn’t one-size-fits-all. In practice, companies apply this strategy in a variety of ways:

1. Pay-As-You-Go (PAYG)

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.

2. Tiered Usage

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.

3. Volume-Based Discounts

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.

4. Hybrid Models

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.

Why SaaS Companies Are Shifting Toward Consumption Pricing

Aligning Revenue with Delivered Value

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:

• Data and analytics (e.g., Snowflake, which charges based on compute and storage consumption)
• AI services (e.g., OpenAI, which prices based on tokens used or images generated)
• Developer tools (e.g., Postman, which tracks API calls made)

Lowering Barriers to Entry

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.

Creating a Path for Natural Expansion

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.

Capturing Real-Time Customer Intent

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.

Challenges of Consumption-Based Revenue

Despite its advantages, consumption pricing models introduce a new set of challenges:

1. Forecasting Becomes Harder

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.

2. Billing Complexity

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.

3. Educating the Market

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.

Best Practices for Managing Consumption Pricing Models

To successfully implement and scale with consumption pricing, companies should:

1. Choose Metrics That Reflect Value

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.

2. Invest in Usage Visibility

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.

3. Equip Customer-Facing Teams

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.

4. Build Forecasting Around Usage Patterns

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.

Why Consumption Pricing Models Are Here to Stay

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.

Bringing It All Together with Better Forecasting

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.