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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Feeling lost in the world of SaaS pricing models? You're not alone. Usage-based pricing has emerged as one of the most talked-about strategies in recent years, but many executives find themselves struggling to understand whether it's right for their business—and how to implement it effectively. This straightforward guide will walk you through creating your own simple battlecard for usage-based pricing strategy, helping you determine if this consumption model could be your ticket to improved revenue and customer satisfaction.
What Exactly Is Usage-Based Pricing?
Usage-based pricing (sometimes called consumption-based pricing) is a model where customers pay based on their actual consumption of your product or service, rather than a flat subscription fee. Think of how you pay for electricity or water—you only pay for what you use.
According to OpenView Partners' 2022 SaaS Benchmarks report, companies with usage-based pricing models grow faster than their counterparts, with a median growth rate of 29% compared to 19% for pure subscription companies.
Why Should You Care About Usage-Based Pricing?
Before diving into the battlecard, let's understand the appeal:
Aligns value with cost: Customers only pay for what they use, creating a direct correlation between value received and price paid
Lower barrier to entry: New customers can start small without committing to expensive plans
Revenue expansion opportunity: As customers use more, they pay more—without requiring intervention from your sales team
Competitive advantage: According to Deloitte, 80% of SaaS companies believe that consumption-based models give them an edge in the market
Your Simple Battlecard for Usage-Based Pricing
A battlecard is essentially a cheat sheet that helps you quickly evaluate and communicate a strategy. Here's your beginner-friendly battlecard for usage-based pricing:
When to Use Usage-Based Pricing:
✅ Your product has clearly measurable usage metrics (API calls, storage, users, etc.)
✅ Customer usage varies significantly between segments
✅ You want to reduce friction in the sales process
✅ Your industry shows a trend toward usage-based models
✅ You have visibility into usage patterns and can predict revenue
When to Avoid Usage-Based Pricing:
❌ Your value proposition is difficult to tie to specific usage metrics
❌ Your customers strongly prefer predictable billing
❌ You lack the technical infrastructure to accurately measure usage
❌ Your company relies heavily on predictable, recurring revenue forecasts
Key Metrics to Track:
Average Revenue Per User (ARPU): Does it increase over time?
Customer Acquisition Cost (CAC): Does lower entry pricing reduce acquisition costs?
Net Revenue Retention: Are customers naturally expanding their usage?
Churn Rate: Are customers more likely to stay when they only pay for what they use?
Implementing Your Consumption Model: A 5-Step Approach
If your battlecard evaluation suggests usage-based pricing could work for your business, here's a simple step-by-step implementation strategy:
1. Identify Your Value Metric
The foundation of any usage-based pricing strategy is choosing the right value metric—the unit of consumption you'll charge for.
"The ideal value metric scales with the value your customers receive," explains Patrick Campbell, founder of ProfitWell. "If customers get more value as they use more, that's what you should charge for."
Common examples include:
- Number of API calls
- Data processed/stored
- Seats or users
- Transactions processed
- Time spent in the application
2. Analyze Usage Patterns
Before setting prices, collect data on how your customers currently use your product:
- What's the average usage across customer segments?
- Are there significant differences between small and large customers?
- Are there natural usage tiers that emerge?
According to Kyle Poyar of OpenView Partners, "The most successful usage-based companies spend months analyzing usage data before setting their pricing."
3. Design Your Pricing Structure
Based on your analysis, determine your pricing approach:
- Pure usage-based: Customers pay only for what they use, with no minimums
- Hybrid model: A base subscription fee plus usage charges
- Tiered usage: Different rates based on volume consumed
Most beginners find that a hybrid model offers the best balance of predictability and alignment with value.
4. Build the Technical Infrastructure
You'll need systems to:
- Accurately measure usage in real-time
- Create transparent billing reports
- Allow customers to monitor their own usage
- Set up alerts for unusual consumption patterns
5. Communicate the Value
The final step is often overlooked but critical: clearly explain the pricing model to customers, emphasizing:
- How it aligns with the value they receive
- How it gives them more control
- Tools available to monitor and control costs
Real-World Success Stories
Twilio built its business entirely on a usage-based model, charging for API calls. Their transparent pricing helped them grow to over $2.8 billion in revenue.
Snowflake revolutionized data warehousing with a consumption-based model that separates storage and compute costs, allowing customers to scale each independently.
AWS became the dominant cloud provider partly by pioneering the "pay for what you use" model in infrastructure services.
Common Pitfalls for Beginners
As you implement your usage-based pricing strategy, watch out for these common mistakes:
Choosing the wrong value metric—if it doesn't scale with customer value, the model breaks down
Unpredictable revenue forecasting—usage-based models can make financial planning more challenging
Sticker shock—customers may be surprised by high bills if they don't understand or monitor their usage
Complexity in communication—if customers don't understand how pricing works, they'll resist it
Is Usage-Based Pricing Right for You?
The battlecard outlined in this article gives you a starting point, but the decision ultimately depends on your specific business context. According to a 2023 Forrester study, companies that successfully implement usage-based pricing see an average 38% improvement in customer lifetime value.
Consider starting small—perhaps with a hybrid model or by offering usage-based pricing as an option alongside traditional subscriptions. This allows you to test the waters while minimizing risk.
Remember that pricing strategy isn't static. The best approach evolves with your business, your customers, and market conditions. Your simple battlecard is meant to be revisited and refined as you gain more experience with consumption-based models.
What's your next step? Consider analyzing your current customer usage patterns as a starting point. Even if you decide usage-based pricing isn't right for you now, understanding how customers use your product will provide valuable insights for future pricing decisions.