USAGE-BASED BILLING GUIDE
The ultimate guide to usage-based billing
Understand, implement, and scale the usage-based billing that aligns your price with customer value. A complete breakdown for SaaS, API, and AI products.
Common models of usage-based pricing for your GTM strategies
Pay-as-you-go
This is the simplest model: a direct, fixed price for every unit you consume. (e.g., $0.001 per API call, $0.10 per GB of storage).
Best for
Infrastructure, APIs, services where value is easily measured per unit.
Tiered usage
With tiered pricing, the more you use, the less you pay per unit. (e.g., First 10K API calls are $0.002 each, the next 90K are $0.001 each).
Best for
Businesses looking to encourage higher volume usage.
Volume-based
Your total volume sets one low price for everything. (e.g., If you use 50K API calls, all 50K are billed at the lower $0.001 rate).
Best for
Simpler billing calculations than tiered models.
Overage model
This model combines a predictable monthly subscription with the flexibility of pay-as-you-go for any extra usage.
Best for
Subscription stability with pay-as-you-go flexibility.
Prepaid credits
Customers purchase credits upfront to spend on future usage. (e.g., Buy $100 in credits; 1 credit per API call).
Best for
Upfront cash, volume discounts, and predictable budgets.
Outcome-based
Price is based on the business value delivered, not resources consumed. (e.g., a percentage of revenue generated).
Best for
Services with a clear, measurable impact on a core business metric.
Hybrid model
This model lets you charge for a mix of things at once—like per user, per GB, per-seat fees, and per feature used.
Best for
Complex platforms with multiple value metrics.
Is usage-based billing right for you?
Advantages
Challenges
Getting started with usage-based billing
Identify your value metric
Your first and most critical step: find the single metric that best represents customer value (e.g., API calls, GBs processed).
Choose the right model
Select one of the usage-based models that best fits your product and customers.
Communicate clearly
Avoid surprising customers by providing a dashboard to monitor their real-time usage.
Invest in billing infrastructure
You'll need a system to accurately meter and invoice usage, which is a major engineering challenge.
How industry leaders use it
Amazon Web Services (AWS)
The pioneer of PAYG for cloud infrastructure. You pay for compute hours, data storage, and network traffic. It's the model that built the cloud.
Twilio
An API company that charges per API call, per text message sent, or per minute of voice call. Their success is directly tied to their customers' usage.
Snowflake
A data platform that bills based on "compute credits" (processing power) and data storage, perfectly aligning cost with data operations.
Zapier
Uses a hybrid model. Their subscription plans come with a set number of "Tasks" (automations). If you need more, you pay for overages or upgrade.
Your questions, answered
A Merchant of Record is the legal seller for the transaction. The MoR charges the customer, issues the invoice, collects required tax, and runs refunds and disputes as the seller on record.
A payment processor helps you accept payments. With MoR, Kelviq becomes the seller on record and holds the liability tied to the sale.
In a typical MoR flow, the MoR handles tax collection and remittance as the seller on record for those transactions. Details can vary by region and product.
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