Kashif Saleem is the Founder and CEO of SubscriptionFlow, an AI-native billing engine built to optimize recurring revenue operations.
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Subscriptions have traditionally been associated with revenue predictability. Conventional subscriptions follow the fixed-rate billing model, charging the same amount to every user on the same plan. This gives businesses the financial stability they need through consistent income and stable growth forecasts.
However, subscription products are increasingly becoming more diverse and dynamic. SaaS businesses are finding out that their products don’t fit the traditional fixed-fee model. In this scenario, usage-based billing often seems like the better option, leading many founders to question whether they should stick with subscriptions or switch to usage-based billing entirely.
In light of this dilemma, more organizations are moving forward with usage-led subscriptions. Rather than needing two separate pricing models for subscription and usage-based billing, businesses are merging these models to create subscription experiences that are shaped by usage.
It's not uncommon for founders to think they need to choose between predictable income (subscriptions) and flexibility (usage-based billing). But customers care more about fair prices and good value as opposed to the pricing model being used.
If businesses force one pricing model over the other, they can risk overcharging their low-usage customers or undercharging the ones with high usage. Customers want both predictability and flexibility, not one or the other.
Assuming all customers use your product the same way may hold for physical goods, but it breaks down for SaaS and AI products, where usage varies widely over time. In these environments, a rigid pricing model can create misalignment, which is where a more flexible, usage-informed approach can be helpful.
A usage-led subscription is a hybrid billing model that combines fixed and usage-based charges. It has two components: the foundation and the growth layer. The foundation is the base subscription fee, and the growth layer is the usage-based charge.
Base subscription fees keep the business model subscription-based, as they are fixed and remain the same every cycle. These can be platform or core-feature fees reflecting minimum customer commitment. Base fees give customers a clear starting point, adding predictability to their charges.
Usage-based charges, on the other hand, are the flexible top layer. A customer’s usage determines how much they pay on top of the base fee. Usage-based charges also align with how much value the customers derive from the product. Value can be in terms of API calls, data usage, number of active users or transactions. That entirely depends on the nature of the product.
While the subscription model keeps income predictable to some extent, the usage-based model offers room for natural revenue growth.
There are three main reasons why more organizations are shifting toward usage-led subscriptions:
Customers pay in proportion to the value received. It makes subscription bills fair for both heavy and light users. Both customer types pay the minimum commitment fee, and then pay according to what they use. This helps to build trust and fairness.
Revenue expansion tends to emerge more organically in usage-based models. As customers deepen adoption—whether through increased activity, broader feature use or scaling operations—revenue grows alongside that usage, reducing the reliance on forced upgrades or pricing step-changes.
Pricing plans that are too high from the start can scare customers off, especially those who are unsure about their actual usage. A hybrid model makes it so they can pay the base fee at first and grow into higher spending if necessary.
Combining subscription and usage-based fees is a complex task that is difficult to get right. Founders can’t underestimate the difficulty of actually implementing this model.
To begin with, businesses need to define what counts as a billable event for their product and how usage will be measured. After setting up the usage metrics in place, they need a real-time usage tracker. Only once usage-tracking is accurate can they confidently convert usage into fees.
Another challenge is communicating pricing clearly to customers. Hybrid pricing can be confusing, and confusing charges can discourage customers from signing up. It needs to be made clear what will count as usage for them, and how much they will pay for that.
Third, if bills are unexpected, they can again become a churn driver. Billing surprises can happen when a customer’s usage deviates from their usual pattern, or if a user ends up consuming more than usual. These surprises must be prevented. Consider usage alerts for customers to make usage visible and set caps that make prevention possible.
Lastly, forecasting revenue remains a challenge. The base-fee billing layer provides predictability to some extent, but usage is still fluctuating.
To get usage-led subscriptions right, founders can follow these guidelines:
Pricing can easily get overcomplicated if there are too many usage metrics involved. Such pricing slows down sales by confusing customers, so keeping billing clear and transparent is important.
Charge only for what adds real value. Usage-based billing shouldn’t be attached to random metrics. For example, if you provide access to an LLM, charge for those queries that generate valuable responses, not for generic replies like "you’re welcome" or "how may I help you."
Pricing rarely remains static. As products evolve, so do value metrics and packaging. This makes it important to make sure your billing infrastructure can adapt over time.
As more companies consider usage-led subscriptions as a part of their strategy, following these guidelines can help ensure this approach becomes a successful part of a sustainable, customer-aligned growth model.
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