Imagine you’re paying for a writing tool subscription, but you only use it to edit two to three documents each month. Over time, you start to feel like you’re overspending—paying the same fee as someone who’s churning out content daily or editing hundreds of files.
Wouldn’t it make more sense to just pay per document edited or per word processed? That way, you’re only paying for the value you’re actually getting. It feels fairer, right?
SaaS providers can offer this kind of flexibility by adapting their pricing to fit their customers’ actual product usage rather than forcing a flat fee. This is the essence of the pay-as-you-go (PAYG) pricing model. By aligning costs with real-time usage, PAYG eliminates waste and makes sure customers only pay for what they truly need. In this article, we’ll explore how PAYG works, its benefits, steps you can take to implement it, and examples of companies that have successfully adopted this pricing model.
What is PAYG pricing?
A typical SaaS subscription model charges customers a flat recurring fee and often requires long-term commitments or annual contracts. While this provides predictable revenue for businesses, it isn’t always a great fit for the customer. For instance, an early-stage, seed-funded company may be able to pay for software on an as-needed basis, but if it's still nailing down its product-market fit and trying to grow a user base, it probably can’t justify paying for a long-term contract.
In contrast, PAYG pricing, also known as a PAYG model, is a usage-based pricing model where customers pay based on their actual usage rather than a fixed recurring fee, eliminating waste and upfront costs. With these pay-as-you-go plans, companies can charge for their services on-demand as the customer uses them.
So let’s say you implement PAYG to appeal to these early-stage companies—great! The problem now is that you’re tasked with managing fluctuating revenues. This may not seem like a big deal at first, but it can quickly spiral out of control as you start to scale.
So, if you want to make PAYG more sustainable at scale, you could consider implementing tiered pricing within the usage model. For example, you might define your company’s usage tiers with corresponding price breaks: the first tier could charge a higher rate for lower usage, while higher tiers introduce volume-based discounts as customers reach specific thresholds.
Not only does this approach make your pricing more affordable for your smaller customers, but it provides your company with predictable revenue growth as your larger customers scale their usage.
How does PAYG pricing work for SaaS?
For SaaS businesses, the success of a PAYG pricing hinges on being able to track measurable metrics tied to customer usage. Common usage metrics include API calls or cloud storage consumed. For example, a SaaS company might charge $0.01 per API call or $5 for each additional gigabyte of data storage.
But in order to track and charge customers based on these usage metrics, you’ll need dedicated billing software. This is where Togai can help.
When you implement a dedicated PAYG billing software like Togai, you can automate the billing process. The software can calculate usage charges based on preset pricing rules and then generate invoices either immediately when a user crosses a certain threshold or at regular intervals, such as monthly billing. This real-time metering ensures your customers only pay for what they use while allowing you to scale revenue seamlessly alongside your customers’ product usage.
Benefits of PAYG pricing for SaaS businesses
PAYG pricing has several advantages for SaaS providers over traditional subscription models.
PAYG pricing allows for increased scalability
By lowering affordability barriers, it’s easier for your SaaS business to acquire customers down-market, especially cash-strapped startups willing to try products without big up-front investments or long-term commitments. Then, once you’ve onboarded these new customers, you’re also giving them the opportunity to scale alongside you. As they scale, they’ll be able to invest more of their budget into your SaaS and potentially opt into a dedicated enterprise subscription plan.
PAYG pricing improves customer satisfaction
Because it only charges based on actual usage, a PAYG model can improve customer satisfaction through fair and transparent pricing. With this model, customers are no longer forced to overpay for unused features or modules within a SaaS product, which is typically the case with many bloated enterprise platforms. Instead, PAYG ensures that customers only pay for the specific features or services they actively use
A perfect example of this is Slack’s "Fair Billing" policy, which was introduced in 2014:
Source: A notification from Slack demonstrating their “Fair Billing” policy
Under this policy, customers are charged solely for members who actively use Slack. If a user becomes inactive—defined as no activity for over 28 days—Slack automatically applies prorated credits to the account for the unused time. Seems pretty fair, right?
5 steps to implement a PAYG model
If you want to implement a PAYG pricing model, you’ll need a well-thought-out approach to align your customers’ usage directly to the core value your SaaS provides. While this can seem like a complicated process, it doesn’t have to be!
You can use our five steps to roll out PAYG at your business. And in our in-depth guide, we also highlight how you can use our very own billing platform, Togai, to simplify and support the process at every stage.
1. Identify measurable usage metrics
The foundation of any PAYG model is usage metrics that reflect the value customers receive from your SaaS, and these usage metrics should directly correspond to how customers use your product. For example, a typical SaaS company might measure API calls or data storage. However, a cloud infrastructure business might decide to charge users based on compute time, bandwidth usage, or data transfer volumes. Most importantly, these metrics must be simple to quantify, easy to track, and directly tied to customer outcomes.
The common challenge when choosing these metrics is that it’s near impossible to manually track and monitor usage events manually. Fortunately, with Togai, you can ingest and meter real-time usage data effortlessly and process high volumes of events as they occur.
Source: Togai
2. Set pricing logic
Once you’ve established your usage metrics as the foundation, the next step is to build the framework–a clear and adaptable pricing structure. In a PAYG model, unit pricing forms this framework. For example, a SaaS provider might charge customers based on measurable units like $0.02 per minute of video streaming or $3 per thousand email notifications sent.
However, if you want to encourage revenue growth, you might also want to incorporate flexible pricing. This could look like offering volume-based discounts that reward your customers for higher usage. For instance, your pricing could start at $0.10 per API call for the first 10,000 calls and then drop to $0.08 for usage beyond that threshold.
3. Choose a billing platform
Once you’ve established your usage metrics and pricing logic, it’s time to choose a billing platform. PAYG pricing model requires a billing infrastructure that’s capable of handling metering, invoicing, and real-time reporting. While there are several different usage-based billing platforms on the market, we ultimately recommend Togai for growing SaaS businesses.
Togai’s real-time metering, invoicing, and reporting capabilities are particularly valuable because they allow SaaS businesses to monitor customer usage continuously and make instant updates to pricing or billing logic whenever necessary. We even integrate with leading CRMs, payment systems, and other accounting tools so you can build and maintain a unified tech stack.
But choosing the right platform doesn’t just simplify managing payments. It also ensures accuracy, reduces billing errors, and saves time spent on manual adjustments. With the right platform, like Togai, managing payments becomes more efficient and error-free, and it frees up valuable time for your team to focus on growth and innovation.
Want to start offering pay-as-you-go to your customers? Sign up for free to get started.
4. Test and iterate your pricing model
Before fully launching the PAYG model, you’ll want to test your pricing strategy with a small segment of customers. This pilot phase will allow you to observe real-world customer behavior, analyze usage patterns, and then refine your pricing logic based on these insights. For instance, you might find that customers hit certain usage thresholds faster than expected, and you may need to adjust your unit rates or introduce volume discounts in response.
To track these usage patterns and behaviors, you can use Togai’s usage and revenue analytics. You can then use these insights to identify gaps in your current SaaS pricing model, test new approaches, and make informed decisions to optimize your pricing structure.
Source: Togai
5. Educate your customers and launch
Once you’ve finished configuring your pricing model, the final step is to communicate its value to your customer base and officially launch.
Customer education is critical here because your user base needs to understand how the PAYG model works and how it benefits them. Specifically, you’ll want to highlight the flexibility and cost-efficiency of paying only for what they use and explain how PAYG eliminates the need for expensive upfront commitments. While this may not be the most relevant value proposition for enterprise customers, it is certainly important to startup and scaleup companies that want greater control over their cash flow.
Examples of SaaS companies using PAYG models
According to OpenView, three out of five SaaS companies implemented some form of usage-based or PAYG pricing in 2023. The popularity of this model comes as no surprise when you consider its flexibility, scalability, and cost-efficiency for both customers and companies. But to really drive the point home, we’re going to take a look at a few notable SaaS companies using PAYG models and explain how it fits their specific use case and industry.
Amazon Web Services
Amazon Web Services (AWS) is one of the largest cloud service providers and is a prime example of the PAYG business model. The cloud computing branch of the popular e-commerce giant charges customers based on compute power, data transfer, and cloud storage usage, allowing businesses to scale their usage up or down as needed.
MongoDB
Another company that’s had great success with usage-based models is MongoDB.
A core part of their pricing model is to charge customers based on their database usage metrics, such as the volume of data stored or read. This kind of flexibility is what allows startups to experiment with MongoDB’s services at a more manageable cost than paying for a long-term sales-negotiated contract
But when these earlier-stage companies decide they’re ready for a more formal engagement, MongoDB also has a sales team at the ready to serve their enterprise customers.
Clarifai
Clarifai, a leading AI-powered visual recognition platform, also uses a pay-as-you-go pricing model to give businesses access to advanced computer vision tools. Under its pricing model, customers are charged based on the number of API calls made for image or video analysis. For example, analyzing 1,000 images or videos incurs a specific cost, and businesses are only billed for what they use. This pay-per-use pricing structure makes Clarifai an attractive option for companies that need computer vision solutions but want to avoid committing to fixed subscriptions or upfront costs.
Notion
On top of its freemium plan, the popular all-in-one workspace tool, Notion, also operates on a usage-based system for specific add-ons or expansions. Free-tier users can access core features but have limited options on file uploads and team collaboration. But paying customers can pay-per-use to access additional file storage or integrate premium features like API calls for automating specific workflows.
FAQs
What is the difference between pay per use model and pay-as-you-go?
The pay-per-use model charges customers only for each instance or transaction they utilize, like per API call or gigabyte of storage. Pay-as-you-go (PAYG) often includes pay-per-use, but it can also encompass broader usage-based pricing structures that allow for variable billing based on a customer’s cumulative usage over time, offering more flexibility and scalability.
What are the disadvantages of pay per use?
One disadvantage of pay-per-use is revenue unpredictability for businesses, as income fluctuates with customer usage patterns. For customers, costs can unexpectedly spike if usage increases, making it harder to budget expenses consistently compared to fixed subscription plans
