What is the SaaS Usage-Based Model?

Updated on: October 16, 2026

Author: Ioana Grigorescu, Content Manager

Reviewed by: Meir Amzallag, CEO & Co-Founder

What is the key difference between a usage-based and a consumption-based pricing model?

Usage-based and consumption-based pricing models refer to effectively the same thing, specifically the approach to charge users considering how much they use a product. Usage charges can also sit on top of a subscription in a hybrid plan; in Growth Unhinged’s 2026 poll of 230 B2B software and AI companies, 37% said they have hybrid pricing, against 25% who said they had it a year earlier.

The terms are used interchangeably, expressing a customer’s usage behavior within the software. Software licensing calls it consumption-based or metered licensing. Common forms are pay-as-you-go billing per unit and prepaid credits.

How can a SaaS company determine the appropriate usage metrics for a usage-based pricing model?

To determine the right metrics for a SaaS product using the usage-based pricing model, businesses need to:

Match metrics with value: Choose the metrics that adequately display the value your users obtain as a result of using your product, such as API calls, data stored, compute time, or transactions processed.
Effort: It’s relevant to select metrics that are simple to track to ensure ongoing evaluation.
Flexibility: The metrics you will track should scale with usage levels. This supports the implementation of tiered pricing.

What are the advantages and disadvantages of implementing a consumption-based pricing model for SaaS products?

Consumption-based models present both pros and cons to SaaS businesses, which include:

Advantages

Matches value delivery and product price.
SaaS businesses can respond to different usage requirements.

Disadvantages

Consumption-based models are less predictable in comparison with traditional subscription tiers.
Building and maintaining consumption-based revenue models can be a more elaborate process.

Pro Tip

Provide your users with information and tools to monitor their product usage and allow them to estimate costs.

How does a freemium model differ from a tiered subscription model in terms of revenue generation?

The freemium model differs from tiered subscription pricing in how predictably it generates revenue:

Freemium Models: Users are given access to a basic version of the software for free. The goal of this revenue model is to widen the user base and ultimately convince as many customers as possible to switch to higher-priced plans. In this case, the amount of revenue generated is reliant on the effectiveness of the conversion strategies employed.
Tiered Subscription Pricing: SaaS businesses provide potential customers with multiple plans to choose from that differ in terms of usage levels, price points, and features. In this pricing strategy, revenue generation is more predictable, as it depends on the required upfront subscription fee.

Aspect	Freemium Model	Tiered Subscription Model
Access Structure
User Entry Point	Free basic version	Paid plans with varying features
Feature Access	Limited free features	Full features based on plan level
Revenue Generation
Revenue Predictability	Dependent on conversion strategy	More predictable upfront
Conversion Mechanism	Upgrade to premium features	Choose appropriate plan tier
Business Strategy
Primary Goal	Expand user base	Immediate revenue generation
Market Approach	Lower entry barrier	Clear value proposition

Pro Tip

You can always select a hybrid model that combines consumption-based principles with a regular subscription fee for basic features.

When should a SaaS company consider transitioning from a perpetual licensing model to a subscription-based model?

SaaS companies should consider transitioning from perpetual licensing to the subscription-based model in three situations:

You are looking to obtain more predictable revenue streams.
The majority of your competitors are already employing the subscription model.
You are regularly performing software updates.

Conclusion

In SaaS (software-as-a-service), usage-based pricing models are gaining popularity, and hybrid plans with them: in Kyle Poyar’s 2026 State of B2B Monetization survey of 230 B2B software and AI companies, the share that said they were hybrid went from 25% a year earlier to 37%. This is partly due to these models integrating customer value delivery and flexibility.

However, to ensure effective implementation of this model, it is relevant to have a solid understanding of your software and your users’ usage behaviors.

This will help you create appropriate tiers and identify the right metrics to evaluate pricing performance.