The Rise of Usage Based Pricing in SaaS: What Every Finance Team Should Know

Why SaaS is shifting from subscriptions to usage-based models and how finance teams must adapt their forecasting and operations.

Five years ago, if you told a SaaS CFO that half their industry would abandon pure subscription pricing, they would have thought you were crazy. Subscription models were the gold standard. Predictable revenue, easy forecasting, and simple to explain to investors. But walk into a finance team meeting at any growing SaaS company today, and you’ll hear a very different conversation. Usage based pricing is no longer a niche experiment. It’s becoming the dominant model, and finance teams that don’t adapt are going to struggle.

The numbers tell a striking story. Back in 2018, only 27% of SaaS companies used any form of usage based pricing. By 2022, that number jumped to 46%. And it’s not slowing down. Industry research shows that 61% of companies are currently testing or planning to launch usage based pricing models. This isn’t a trend. It’s a fundamental restructuring of how software companies charge for value, and it’s being driven by forces that aren’t going away.

Why This Shift Is Happening Now

To understand where we’re going, we need to understand why traditional subscription pricing worked so well for so long. The appeal was simple and powerful. As a SaaS company, you could sign a customer for $10,000 per year, and you knew exactly what revenue to expect every month. Your customer knew what they were paying. Your investors could model out growth with confidence. Your finance team could sleep at night. Everyone loved the predictability.

But this model always had a fundamental problem that companies tried to ignore. The value customers got from your software varied wildly based on how much they actually used it. A customer paying $10,000 per year might use your product heavily and get tremendous value. Another customer paying the same amount might barely log in. The first customer felt like they were getting a steal. The second felt ripped off. Neither situation was ideal.

For years, companies tried to solve this with tier-based pricing. Small, Medium, Large, Enterprise. Each tier gave you more of something, whether that was users, features, or capacity. This worked reasonably well when software was relatively simple and usage patterns were predictable. But it created awkward situations where customers were constantly hitting limits, negotiating upgrades, or paying for capacity they didn’t need just to access features they wanted.

Then two big things changed the equation. First, cloud infrastructure made it possible to scale costs with actual usage. When you were running software in data centers, your costs were largely fixed regardless of how much customers used your product. But cloud providers charge you based on compute, storage, and bandwidth consumed. Your cost structure became variable, even if your revenue wasn’t.

The second change was even more important. AI fundamentally altered the economics of software. When your product uses AI to generate content, analyze data, or automate workflows, every single customer interaction has a direct, measurable cost. You’re paying OpenAI or Anthropic or whoever every time a customer uses your AI feature. You can’t ignore this cost variability anymore because it’s too large and too visible.

What Usage Based Pricing Actually Looks Like in Practice

Before we go further, let’s make sure we’re talking about the same thing. Usage based pricing doesn’t mean abandoning subscriptions entirely. Most companies are moving to hybrid models that combine a base subscription with usage charges. This gives customers predictability for their core needs while aligning costs for variable usage.

Think about how Snowflake does it. You don’t pay per query or per gigabyte in isolation. Instead, you purchase compute credits upfront, and then those credits get consumed based on your actual usage. This gives Snowflake predictable upfront revenue while ensuring that heavy users pay more than light users. It’s elegant because it balances the needs of both parties.

Or consider how Twilio approaches pricing. You pay based on the number of messages sent, the number of phone calls made, and the duration of those calls. The more you use their infrastructure, the more you pay. But they structure this in a way that’s easy to understand and predict. You can estimate your usage patterns and budget accordingly.

The key is that usage based pricing creates a direct connection between the value a customer receives and what they pay. When done right, this alignment makes everyone happy. Customers feel like they’re only paying for what they use. Companies capture more revenue from power users while remaining accessible to smaller customers. The fairness is intuitive in a way that arbitrary tier limits never were.

The Finance Team’s Perspective: New Challenges

If you’re in finance, you’re probably reading this with some anxiety. Usage based pricing solves problems for customers and product teams, but it creates enormous challenges for finance operations. Let me walk through what changes and why it matters.

The first and most obvious challenge is revenue predictability. With pure subscription models, you could look at your customer base on January 1st and have a pretty good idea what revenue would be in December. Sure, there would be churn and expansion, but month-to-month revenue was stable. With usage based pricing, revenue can swing wildly month to month even with the same customer base.

Consider a customer using an AI powered analytics platform. In a quiet month, they might generate $5,000 in usage charges. The next month, they launch a new product and their usage spikes to $50,000. The month after that, they optimize their queries and drop back to $8,000. All of this is the same customer with the same contract. But forecasting what they’ll actually pay became infinitely harder.

This volatility flows through to every financial process. Budgeting becomes part science, part guesswork. You can model based on historical usage patterns, but those patterns can change overnight when a customer launches a new feature or changes how they use your product. Quarterly guidance to investors requires building in wider ranges. Board presentations need to explain why revenue moved in ways that weren’t predicted.

The second major challenge is around cost of goods sold. With subscription pricing, COGS was relatively fixed and predictable. You had your infrastructure costs, your support costs, and some variable costs that grew slowly with scale. With usage based pricing, especially when AI is involved, COGS can spike just as dramatically as revenue.

Here’s where it gets tricky. If a customer’s usage doubles, your revenue from them might double. But your costs might more than double if they’re using expensive features. Or your costs might increase less than revenue if they’re using efficient features. The margin on each customer becomes highly variable, and you need much more granular tracking to understand profitability.

This leads to the third challenge, which is attribution and analysis. With subscription pricing, you could analyze customers at the account level. This customer pays X, costs Y to serve, therefore has Z margin. Simple math. With usage based pricing, you need to analyze at the feature level, the usage pattern level, sometimes even the individual transaction level.

Your finance team suddenly needs to answer questions they never had to before. Which features are most profitable? Which customer segments have the best unit economics? Are we making or losing money on this specific use case? Where should we be optimizing costs? These questions require data granularity and analytical capabilities that most finance teams weren’t built to handle.

The Strategic Implications Finance Leaders Need to Understand

Beyond the operational challenges, usage based pricing changes the strategic game in ways that finance leaders need to grasp. The relationship between growth and profitability becomes much more complex and interesting.

In traditional SaaS, the path to better margins was relatively straightforward. You grow revenue faster than costs, you improve gross margins through economies of scale, and you gradually expand operating margins as you mature. The playbook was well understood. Usage based pricing throws some curve balls into this progression.

When customers can consume more of your product without necessarily paying proportionally more, you can end up in situations where growth actually hurts margins. This happens when you’re subsidizing usage through flat fees or when your cost structure doesn’t align with your pricing structure. Finance teams need to watch for these dynamics and flag them before they become serious problems.

The flip side is that usage based pricing can dramatically accelerate growth when done right. By lowering barriers to entry and allowing customers to start small, you can acquire customers who would never have signed up for a traditional subscription. As they grow and use more, their payments grow automatically without any expansion sales effort. This can create efficient, capital-light growth that traditional SaaS companies would envy.

This dynamic changes how you should think about customer acquisition costs. In subscription models, you could calculate a simple CAC payback period. Spend X to acquire a customer, they pay Y per month, payback in Z months. With usage based pricing, that payback curve is much less predictable. Some customers might pay back your acquisition cost in weeks. Others might take years. You need more sophisticated cohort analysis and much better predictions of usage patterns.

The pricing strategy itself becomes a much more powerful lever. With subscriptions, pricing changes were major events that affected all customers simultaneously. With usage based models, you have many more knobs to turn. You can adjust the base fee, the per-unit price, volume discounts, included allocations, and overage rates. Each of these changes affects different customer segments in different ways. Finance needs to model these scenarios much more dynamically than before.

What Finance Teams Need to Do Differently

Let’s get practical about what needs to change in how finance teams operate. First and foremost, you need much better data infrastructure. Traditional finance systems were designed around contracts, invoices, and general ledger entries. Usage based pricing requires tracking millions of usage events, attributing them to customers and features, calculating costs and revenue at a granular level, and aggregating it all up for reporting.

This probably means investing in new systems or significantly upgrading what you have. You need a billing platform that can handle complex usage metering and rating. You need a data warehouse that can store and query usage data efficiently. You need business intelligence tools that can slice and dice this data in ways that answer your questions. And you need all of these systems to talk to each other reliably.

The skill set requirements for the finance team also change. You need people who are comfortable with data analysis, who understand database queries, and who can build and interpret complex models. The stereotypical accountant who’s great with spreadsheets but intimidated by SQL isn’t going to cut it anymore. You need finance people who think like data analysts and can work effectively with engineering teams.

Your forecasting models need to become much more sophisticated. Instead of simply extrapolating subscription trends, you need to model usage patterns by customer segment, understand the drivers of usage growth, and incorporate seasonality and market dynamics that affect consumption. This often means building multiple scenarios and thinking in ranges rather than point estimates.

You also need to completely rethink how you communicate with the rest of the company. Product teams need to understand the financial implications of features they’re building. Engineering teams need visibility into the costs their architecture decisions create. Sales teams need to understand which customers and use cases are most profitable so they can focus their efforts appropriately. Finance becomes more of a partner in decision making rather than just the scorekeepers.

Looking Ahead: Where This Goes Next

The shift to usage based pricing is still early. Most companies are figuring it out as they go, making mistakes, and learning hard lessons. But patterns are emerging about what works and what doesn’t, and finance teams that learn from these early movers will have a big advantage.

One clear pattern is that hybrid models work better than pure usage based pricing for most businesses. Customers want some predictability, and pure usage models create too much anxiety about costs. Combining a base subscription that covers core features with usage charges for variable consumption gives you the best of both worlds. Finance teams should be pushing for this hybrid approach rather than all-or-nothing usage models.

Another pattern is that simpler is better when it comes to the actual pricing structure. Companies that try to charge for ten different usage dimensions create confusion for customers and complexity for themselves. The most successful usage based models pick one or two key value metrics and charge based on those. Revenue per customer might be lower initially, but the clarity and ease of adoption more than make up for it.

The companies that handle this transition best are those that invest early in the systems and capabilities they need. Trying to cobble together usage based pricing on top of systems designed for subscriptions is painful and doesn’t scale. Making the hard decisions to upgrade infrastructure, retrain teams, and change processes upfront pays massive dividends later.

For finance teams specifically, the winners are going to be those who embrace this complexity rather than fight it. Usage based pricing isn’t going away. If anything, it’s accelerating as more software becomes AI powered and customers demand more flexible pricing. Finance leaders who see this as an opportunity to add more strategic value rather than just an operational headache will position their companies for success.

The rise of usage based pricing in SaaS represents one of the biggest shifts in software business models in decades. It’s driven by real economic forces including cloud computing, AI costs, and customer expectations for value-based pricing. For finance teams, it creates significant challenges around predictability, reporting, and operations. But it also creates opportunities for companies that execute well and build the capabilities needed to thrive in this new model. The question isn’t whether to adopt usage based pricing anymore. The question is how quickly you can adapt your finance function to handle it effectively.