What Is Consumption Based Pricing? Pros, Cons & Examples

SaaS pricing models are evolving, and businesses must adapt to stay ahead. Traditional subscription-based pricing is being replaced by consumption-based pricing (also known as usage-based pricing) and value-based pricing. These models align costs with actual usage or delivered value, making them attractive to vendors and increasingly common across the industry.

This shift presents opportunities and challenges for organizations managing SaaS expenses. While these models can provide flexibility and better cost alignment, they also introduce unpredictability, requiring a more strategic approach to budgeting and procurement. Understanding these trends is essential for controlling costs while maximizing software value.

What Is Consumption-Based Pricing?

Consumption-based pricing, also called usage-based pricing, charges customers based on how much of a service they use. Instead of paying a flat subscription fee, costs scale with activity, such as API calls, data storage, or user sessions. This model is popular in cloud computing, analytics platforms, and AI-powered tools where usage fluctuates.

For businesses, this can mean cost savings during low-usage periods but unexpected expenses when usage spikes. Effectively managing consumption-based pricing SaaS requires real-time monitoring to avoid budget overruns. 

What Is Value-Based Pricing?

Value-based pricing SaaS models set prices based on the perceived value a product delivers rather than usage volume. Vendors determine pricing based on the impact their software has on business outcomes, such as increased revenue, efficiency, or cost savings.

For example, AI-driven customer support tools may charge based on the number of tickets resolved rather than the number of agents using the platform. This approach aims to justify higher prices by linking cost directly to business value. While appealing in theory, it can be difficult for companies to evaluate and negotiate fair pricing.

How Consumption and Value-Based Models Compare to the Subscription Model

Traditional subscription models charge a fixed, recurring fee, typically monthly or annually, regardless of usage. This offers cost predictability but may lead to waste if licenses go unused.

By contrast, consumption-based pricing SaaS models charge for actual use, which can reduce waste but introduce cost variability. Value-based pricing SaaS models charge based on business impact, which can align spending with ROI but may lack transparency.

As SaaS vendors increasingly abandon rigid subscription fees, organizations must adapt their procurement strategies to optimize spending under these newer models.

AI and the Shift to Consumption-Based Pricing

According to the 2025 SaaS Management Index, spending on AI-native applications surged by 75.2% year-over-year. This explosive growth signals increased reliance on AI and a shift to the consumption-based pricing model.

• AI tools depend on flexible infrastructure and on-demand computing and require more resources.
• Pricing scales with usage, whether pure consumption or hybrid, a combination of consumption and subscription models.
• Customers gain cost control and budget scalability.

AI tools depend on flexible infrastructure and on-demand computing, which makes traditional flat-rate subscriptions not enough anymore. As a result, vendors who embrace AI are turning to consumption-based pricing structures that scale with usage.

This model stands to benefit both the provider and the consumer. It helps ensure vendors are compensated for their resources, but also gives customers cost control based on their actual use. For example, generative AI platforms may charge per image generated or text edited, while predictive tools bill based on the volume of data processed.

AI is also developing hybrid models that merge subscriptions with usage-based pricing to offer clear baselines as well as scalable tiered services. This has become popular among enterprise clients who need budget scalability that doesn’t interfere with usage.

As businesses continue integrating AI across workflows, matching spend and usage is becoming critical. Consumption-based pricing helps make sure software costs actually reflect the value the product provides in real-time.

Consumption-Based Pricing: How We Got Here

The shift toward consumption-based pricing SaaS didn’t happen overnight. As technology evolved, so did the way software was packaged and sold. Rising prices, companies paying closer attention to their tech stack, and other economic pressures have forced change across the industry. 

The rise of AI-native applications and changing customer expectations have also driven vendors to rethink their pricing strategies. Now, forward-thinking SaaS companies are starting to offer usage-based and value-based pricing to better align costs with customer needs.

Slowed Revenue Growth Means New Strategies

Across the SaaS sector, revenue growth has slowed. In 2024, “Median year-over-year growth for public SaaS companies has fallen below 20% for the first time.” This is a result of vendors favoring profitability over high growth, increasing competition in the market, and organizations being more cautious of software spending. As revenue growth slows, SaaS companies are rethinking their monetization strategies, forcing the addition of new approaches.

The Effects of AI Integration

As more SaaS companies integrate AI into their offerings, they are rethinking their monetization strategies. While 31% of companies are not yet monetizing AI, many are actively experimenting with new pricing structures:

• 46% use subscription-based AI pricing
• 25% have shifted to usage-based models
• 22% offer hybrid pricing (a mix of subscription and usage-based models)
• 7% charge based on AI-driven outputs or results

This aligns with Zylo’s 2025 SaaS Management Index, which notes that businesses are increasingly facing unexpected charges due to AI pricing structures. As vendors refine their models, many are moving toward usage-based billing, where costs scale based on real-time demand rather than fixed rates.

The Convergence of FinOps and SaaS Management

FinOps, a framework originally designed to manage cloud costs, is now extending into SaaS. According to the FinOps Foundation, organizations that apply FinOps practices to SaaS spending gain better visibility into software usage, reduce waste, and optimize licensing strategies. 

Traditionally, SaaS spending has been managed as a static operational cost. Organizations pay fixed subscription fees regardless of usage. As more SaaS vendors adopt consumption pricing,  IT and SAM leaders have an opportunity to learn and implement FinOps practices to manage their SaaS applications.

The 2025 SaaS Management Index by Zylo reports that:

• 91.2% of IT leaders recognize software optimization as a way to reduce costs
• 66.5% of IT leaders have experienced unexpected SaaS charges due to AI-based or usage-based pricing models
• Companies underestimate their SaaS spend by 304% on average

These insights highlight the growing complexity of SaaS cost management and the need for real-time monitoring and proactive cost optimization—which FinOps practices facilitate. In 2025, we anticipate SaaS Management and FinOps will begin to converge, catalyzed by AI and consumption-based apps.

Types of SaaS Commonly Priced by Consumption

Applications that involve variable workloads, demanding infrastructure, or output-based operations are commonly priced by consumption. For example:

• Cloud infrastructure platforms like Amazon Web Services (AWS) and Microsoft Azure charge users for storage, bandwidth, and compute resources. AI and machine learning tools also use this model, billing per token, inference call, or generated asset.
• Data analytics platforms charge based on the amount of data queried or processed, which allows users to pay in proportion to their actual workload. In addition, communication APIs like Twilio and SendGrid bill per SMS, call, or email sent.
• Monitoring and security tools may charge based on the volume of data ingested or the number of incidents handled. These high-volume services scale naturally with user activity to make consumption-based pricing SaaS the most efficient model.

In each of these options, software usage and business value are linked. This allows vendors to align pricing with actual customer behavior, while offering flexibility and transparency at the same time.

Consumption-Based Pricing Models

SaaS vendors are using consumption-based pricing more often to align with actual usage, which offers buyers greater flexibility and cost control. You will commonly see these types of pricing models:

• Hybrid pricing is one of the most widely used models. It includes a base subscription fee for core platform access and is then combined with usage-based charges for premium features, overages, or expanded integrations. This provides a predictable baseline cost, but still scales with actual demand.
• Prepaid consumption bundles allow customers to buy usage credits in advance, often at a discounted rate. These bundles are useful for budgeting and tracking while still supporting scalable use cases, such as data integrations.
• Overage-based pricing applies when usage exceeds a user’s contracted thresholds (ex: the number of connected applications, users, or data volume). In this model, customers pay a fixed rate for the base contract, and additional fees only arise when specific usage caps are surpassed.
• Custom feature-based pricing lets customers customize their platform experience by choosing optional add-ons, such as price benchmarking, vendor negotiation services, or advanced reporting tools. These features are priced separately and can be added as needed.

Each of these models calls for clear and well-communicated expectations between buyers and vendors, especially when pricing is variable. Successful implementation depends on transparent contract terms, real-time usage monitoring, and regular reviews to ensure team and budgetary alignment.

Pros and Cons of Consumption-Based SaaS Pricing

The consumption-based SaaS pricing model offers greater flexibility and cost alignment but also presents budget predictability and cost control challenges. As more vendors adopt usage-based pricing, businesses must evaluate whether this model meets their needs and how to manage its risks effectively.

Pros of Consumption-Based Pricing SaaS

• Aligns cost with actual usage. Unlike fixed subscription models, consumption-based pricing ensures businesses only pay for what they use. This reduces wasted spending on unused licenses and underutilized software.
• Scales with business growth. Usage-based pricing allows companies to scale SaaS spending in real time. As software needs fluctuate, businesses can adjust their usage and costs accordingly.
• Encourages better software utilization. When pricing is tied to consumption, companies become more strategic about their SaaS usage, ensuring optimized resources like storage, processing power, and API calls.
• Drives competitive vendor offerings. As demand for flexible pricing grows, vendors are refining their consumption-based pricing models. This shift creates more opportunities for businesses to negotiate cost-effective and tailored agreements.

Cons of Consumption-Based Pricing SaaS

• Unpredictable costs. Budgeting for SaaS spending becomes more complex when costs fluctuate based on usage. Without careful monitoring, businesses may face unexpected spikes in expenses.
• Higher costs in peak usage periods. While usage-based pricing can reduce costs during low-demand times, it can also lead to significantly higher expenses when usage increases. Companies with seasonal or fluctuating workloads may find this volatility difficult to manage.
• More complex vendor comparisons. Subscription-based pricing made comparing vendors based on flat fees relatively easy. With consumption-based models, businesses must evaluate pricing tiers, per-unit costs, and bundled services, making it harder to determine which option offers the best value.
• Requires active cost monitoring. Organizations must have real-time visibility into software usage and costs to avoid budget overruns. Without proper tracking tools, expenses can easily exceed expectations.

Is Consumption-Based Pricing Right for Your Business?

As consumption-based pricing SaaS becomes more common, businesses must decide if its flexibility outweighs the risks of cost variability. Companies with strong SaaS Management strategies and real-time cost monitoring can benefit from the efficiency of usage-based pricing. However, those without visibility into their software spend may struggle with unpredictable costs and budget fluctuations.

Consumption-based Pricing Challenges and How to Overcome Them

Though consumption-based pricing models offer flexibility, they also bring about challenges for both vendors and buyers. Unpredictable costs, complicated billing, and lack of usage visibility can make a difference between adoption and satisfaction to wasted effort, and zero usage.

Common challenges include:

• Budget volatility
• Pricing complexity
• Internal misalignment
• Poor revenue forecasting
• Overconsumption

Budget Volatility

Budget volatility is one of the biggest issues. Costs can rise without much warning during periods of high usage. To prevent this, businesses need access to real-time data, automated alerts, and effective forecasting tools.

Pricing Complexity

Pricing complexity can also create unnecessary friction. When pricing is based on multiple metrics (such as API calls, storage, and processing time), buyers tend to struggle to estimate expenses. Vendors can improve adoption by offering transparent rate cards, usage calculators, and simplified billing summaries.

Internal Misalignment

Internal misalignment between finance, IT, and procurement teams is another setback to overcome. Implementing FinOps practices can improve collaboration and visibility, especially when it comes to SaaS cost tracking.

Poor Revenue Forecasting

On the vendor side, revenue forecasting can become far more difficult when income fluctuates with customer usage. Using historical consumption data and predictive analytics can help smooth out cash flow projections.

Overconsumption

Overconsumption by users can inflate costs. Usage caps, throttling mechanisms, and routine training help control spending. Addressing these obstacles as soon as possible can help ensure businesses realize the benefits of consumption-based pricing SaaS without exposing themselves to undue financial risk.

Examples of Consumption- and Value-Based Pricing

As the SaaS landscape evolves, many companies are adopting consumption-based and value-based pricing models to better align with customer usage and perceived value. Below are notable examples illustrating how these models are implemented across various platforms.

Consumption-Based Pricing Examples

1. OpenAI’s GPT API: OpenAI offers access to its language models through a pay-as-you-go model, charging users based on the number of tokens processed. This approach allows developers to scale costs directly with their application’s usage, making it cost-effective for varying demand levels.
2. Snowflake: Snowflake, a cloud-based data platform, uses a consumption-based pricing model where customers pay for the computation and storage resources they use. Instead of a flat subscription, costs are based on query execution time and data storage, allowing businesses to scale expenses according to their actual data processing needs.
3. Twilio: Twilio, a cloud communications platform, charges customers based on the number of messages sent, calls made, or other communication services utilized. This usage-based pricing ensures that businesses pay only for the services they consume, aligning costs with actual usage.

Value-Based Pricing Examples

1. Salesforce’s Performance Edition: Salesforce offers a Performance Edition that prices its services based on the comprehensive value delivered, including advanced features, increased storage, and premium support. This model aligns the pricing with the enhanced value provided to the customer.
2. HubSpot: HubSpot’s pricing varies based on the breadth of features and the scale of marketing contacts managed within the platform. By aligning pricing with the value derived from its tools, HubSpot ensures that customers pay in proportion to the benefits they receive.
3. Intercom’s Resolution Bot: Intercom has introduced a pricing model for its AI-powered Resolution Bot, charging customers based on the number of successful resolutions the bot handles. This outcome-based pricing ensures that clients pay in direct correlation to the value the AI tool provides in resolving customer inquiries.

These examples demonstrate how SaaS companies are innovating their pricing strategies to better reflect usage patterns and the value delivered to customers. As noted in the 2024 SaaS Benchmarks Report by High Alpha, nearly 70% of companies with AI products are monetizing or testing monetization strategies, with a significant number exploring subscription, usage-based, and hybrid pricing models.

Industry experts like Kyle Poyar have observed that while traditional subscription-based pricing remains prevalent, there’s a notable shift toward usage-based and outcome-driven models, especially among AI-native companies. This trend reflects a broader movement towards pricing strategies that closely align with the value delivered to customers.

“Customers are fed up with the legacy SaaS pricing of the past: buying seats they don’t need, getting locked into long-term commitments, and seeing SaaS become shelfware. Wasn’t SaaS supposed to solve our shelfware problem? The next generation of AI disruptors are rethinking monetization to (finally) connect price with the work delivered by AI and the outcomes this unlocks.”

— Kyle Poyar, Co-founder and Operating Partner at Tremont

By adopting these flexible pricing models, SaaS companies aim to provide more tailored solutions that meet the diverse needs of their customer base, fostering stronger relationships and promoting sustainable growth.

Why Consumption-Based Pricing Is Here to Stay

While traditional subscription models still dominate, more SaaS vendors are experimenting with consumption-based pricing, particularly for AI-driven services. As this shift gains traction, companies must refine their SaaS management strategies to control costs effectively.

Key Factors Driving the Shift

• AI-native applications require scalable pricing, because high infrastructure and processing demands make fixed pricing less viable. Some vendors test usage-based models, though most still rely on subscriptions.
• Adoption remains limited but is growing as costs can fluctuate with demand, making real-time tracking essential to avoid unexpected expenses.
• SaaS Management strategies must evolve to help organizations improve forecasting and cost control.

Why the Future of SaaS Is Consumption and Value-Based Pricing

As SaaS vendors refine their monetization strategies, we’ll see continued movement toward dynamic, real-time pricing models. Both consumption-based and value-based pricing for SaaS will start to become the industry standard. This transformation will require organizations to rethink how they manage and forecast software costs.

Why SaaS Vendors Are Moving Toward Usage-Based Pricing

SaaS vendors are increasingly aligning their pricing models with FinOps best practices, offering more flexible, scalable pricing structures that reflect actual consumption. This shift is being driven by several key factors:

1. AI and Cloud Computing Costs: AI-native applications and cloud services require massive computational resources. Fixed pricing models do not accurately reflect the costs associated with running these platforms. Usage-based pricing ensures vendors are compensated for real-time resource consumption.
2. Customer Demand for Flexibility: Enterprises are resisting rigid subscription models that force them to overpay for unused licenses. A survey by OpenView Partners found that 39% of SaaS companies have adopted some form of usage-based pricing, and this number is expected to grow.
3. Hybrid Pricing Models Gaining Popularity: The High Alpha 2024 SaaS Benchmarks Report found that 22% of companies are adopting hybrid pricing models, blending subscription fees with consumption-based elements to offer more predictable yet scalable costs.
4. Regulatory and Budgeting Pressures: Organizations are under increasing pressure to cut costs, improve efficiency, and justify software spending. CFOs and Procurement teams are demanding more granular pricing structures, making value-based pricing SaaS an attractive option for vendors who want to demonstrate ROI.

The Growing Adoption of Value-Based Pricing

In addition to consumption-based models, SaaS vendors are increasingly adopting value-based pricing for SaaS, which ties cost directly to business outcomes. Increasingly, SaaS companies that align pricing with customer-perceived value achieve higher revenue and lower churn rates. Examples of value-based pricing in action include:

• AI-driven customer support tools that charge per successfully resolved ticket rather than per agent seat
• Data analytics platforms that price based on insights generated rather than the number of users
• Cybersecurity services that bill based on the number of threats mitigated rather than a flat rate

This pricing approach ensures customers pay for results, not just access, making it increasingly attractive for companies seeking to optimize their software expenses.

Key Takeaways for SaaS Buyers

• SaaS costs will become more variable. Fixed pricing will decline in favor of flexible, usage-based models.
• FinOps will play a bigger role. Real-time cost monitoring and proactive optimization will be essential.
• Software spend management will require deeper insights. Companies will need better analytics and forecasting tools to navigate fluctuating costs.
• AI will drive further pricing innovation. As AI capabilities expand, expect even more granular and output-driven pricing strategies.

By preparing for these changes, organizations can stay ahead of the curve and avoid the cost pitfalls often accompanying consumption-based pricing SaaS.

Get More SaaS Insights

The shift toward consumption- and value-based pricing is reshaping how businesses manage SaaS costs. While these models offer greater flexibility and alignment with actual usage, they also introduce new challenges in cost predictability and financial planning. As AI-native applications continue to drive pricing innovation, companies must adapt by developing smarter SaaS Management strategies, leveraging real-time cost tracking, and ensuring they only pay for the value they receive.

Navigating this evolving SaaS pricing landscape requires data-driven insights and proactive cost management. Zylo’s platform gives you access to exclusive benchmarks, expert analysis, and real-world data to help you make informed decisions about your software investments.

Stay ahead of rising SaaS costs. Using the data in the 2025 SaaS Management Index, you can benchmark your SaaS spending, optimize your portfolio, and ensure your organization is prepared for the next wave of pricing changes. Get the full report today to gain deeper visibility, reduce costs, and take control of your SaaS environment.