Usage-based pricing, consumption-based pricing, and PAYG (Pay As You Go) are relatively new SaaS pricing models that enable you to drive top-of-line growth while also increasing net revenue retention over more traditional subscription pricing models such as license or seat-based pricing. With Pay As You Go, a customer only needs to pay for what they consume such as hours of a VM or number of messages sent. APIs naturally are transaction-based, which make them suitable for new consumption-based pricing. In fact, all three cloud providers (AWS, Google, and Azure) leverage consumption-based billing so their customers can optimize their infrastructure.
Prepaid vs. Postpaid Billing
First, you’ll want to decide whether you want prepaid or a postpaid billing. Prepaid billing requires the customer to purchase credits or pre-negotiated quota ahead of time creating a positive balance that is then “burned down.” If they are credits, a customer will need to periodically top off their account by purchasing additional credits before they run out. Some systems enable “automatic top off” once a balance falls below a defined threshold. This can improve your business cash flow since you’re able to leverage the spent capital even before any costs are incurred to deliver their service. Irrespective of Pay As You Go, most enterprise companies require enterprise contracts to be prepaid for the term as prepaid enables more payment options such as a bank wire or ACH. Customers also benefit since they can set hard budgets for your service and disable any “auto top off” functionality.