Imagine you’re leading a fast-growing SaaS startup with rising users and market buzz.
Your product is growing, and new users are joining every day. But the big question is: How should you price it to achieve better growth?
Surprisingly, most SaaS companies spend just six hours deciding on pricing.
According to OpenView, 80% change their pricing at least once a year, not due to indecision, but because pricing evolves with the product, market, and customers.
Moreover, SaaS companies typically rely on two main pricing models: subscription-based and usage-based.
This decision is strategic; 98% of SaaS companies credit their success to the correct pricing.
Why Pricing Matters:
- Affects customer affordability and satisfaction
- Drives profitability and growth
- Must evolve with product and market changes
Let’s start the debate on usage based pricing vs subscription to be informed and make favoured business decisions.
This usage based pricing vs subscription comparison shows both models have strengths depending on your product and user behavior.
All About Usage Based Pricing
Before making a decision, it’s worth understanding both SaaS billing software pricing models.
Let’s start with; usage-based pricing.
What Is Usage-Based Pricing?
‘Usage-based pricing’ refers to the model where clients are charged depending on the amount of usage they provide. The cost changes based on how often you use it, so the system rewards fairness and improves performance.
Why It’s Gaining Popularity
Many SaaS companies are choosing to charge based on usage because it reflects the real value to the customer in the cost.
Customers like the options, and businesses see higher loyalty and extra money from them. Since it’s easier to access things that are tailored to you and less expensive, usage-based pricing works well.
Key Drivers of Its Growth:
- Rise of usage based billing software
- Customers want personalized experiences
- Demand for transparency
- Growth in automated billing solutions
Pros
- Customers pay for what they actually use
- Easier entry point with lower upfront cost
- Encourages product adoption and engagement
- Revenue grows alongside customer success
Cons
- Harder to predict monthly revenue
- Complex to implement and explain
- Risk of customer drop-off if usage declines
All About Subscription Pricing
Now, let’s move on to the detailed information on subscription pricing.
What Is Subscription Pricing?
With subscription pricing, customers pay a certain amount regularly to have access to what you provide. It’s widely used in SaaS because it fits businesses that provide ongoing worth to their customers.
Why It’s Gaining Popularity
It is easy and straightforward. Customers will also be aware of what they will have to pay on a monthly basis and the businesses will have a predictable and regular revenue. It also assists in creating customer relationships over a long term.
Key Drivers of Its Growth:
- Predictable income for your business
- Easy for customers to understand
- Great for building customer loyalty
Pros
- Steady and predictable revenue
- Simple pricing that customers understand
- Easier to forecast business growth
- Builds customer loyalty over time
Cons
- Less flexible for low-usage customers
- May lead to churn if the value isn’t clear
- Not ideal for products with highly variable usage
So, want to know which one is the right fit for your SaaS product or business? Let’s have a quick comparison of both saas billing software pricing models.
How Invoicera Supports Flexible SaaS Pricing Models
Which platform is most suitable for your SaaS product or business? Let’s analyze how both sales approaches compare in terms of price.
SaaS companies should invest in billing tools that can handle shifting prices. This is where Invoicera, a leading online invoicing software, steps in; it suits any business model you prefer.
Whether you’re using usage based pricing, subscription pricing model, or a mix, Invoicera helps you handle billing your way.
Here’s what Invoicera does:
Set Up Any Pricing Model
- Create recurring invoices for subscriptions
- Add usage-based charges
- Combine fixed and variable pricing
- Support multiple pricing tiers
Automate and Save Time
- Auto-generate and send invoices
- Schedule renewals and reminders
- Track usage and bill accurately
- Get real-time payment updates
Make Smarter Pricing Decisions
- Analyze revenue by plan or customer type
- Spot usage trends and top customers
- Export reports to improve pricing
Ready to Scale
- Manage clients, projects, and pricing in one place
- Supports global currencies and taxes
- Add users and roles as your team grows
In short: From online invoicing software to billing software for utilities, Invoicera adapts to your needs. It’s both Subscription Billing Software and Usage-Based Billing Software; depending on what works for you.
Hybrid Pricing Models: The Best of Both Worlds?
Here is everything you should know about hybrid pricing models and how you can avail the best of both world; ‘usage based pricing and subscription pricing’.
Combining Subscription and Usage
Hybrid pricing blends both models; customers pay a fixed fee plus extra if they exceed usage limits, giving steady income while charging heavy users more fairly.
Example:
Invoicera is primarily a subscription billing software.
Here’s how:
- Users pay a fixed monthly or yearly fee based on their chosen plan, which includes set features, clients, and invoices; no extra charges as long as they stay within limits.
However, it includes some elements of customization:
- For large or custom needs, Invoicera offers tailored plans with usage-based adjustments, but these are managed at the plan level; not through metered billing.
When and How to Implement a Hybrid Approach
A hybrid model works well when:
- Everyone uses the core features, but some require additional features.
- You want a steady income, plus more, from heavy users.
- Your users range from beginners to fast-growing teams.
How to Get Started
- Start with a base plan
Decide what’s included in your monthly fee. - Pick what to charge extra for
This could include storage, users, API calls, or any other aspect that adds value as usage increases. - Make pricing clear
Be upfront so customers know exactly what they’ll pay. - Watch how it performs
As you grow, you may need to adjust your usage limits or pricing to maintain fairness and profitability.
On the whole, hybrid pricing allows customers to be flexible and your business to achieve more growth. It is a good decision when the SaaS products have to serve a varied population.
Key Factors to Consider When Choosing a Pricing Model
In some scenarios the solution to usage based pricing vs subscription is not either one or the other, but both. Selecting a pricing model is not the point to choose a price only but how it suits your product and customers.
Understand Your Customers
Consider how your customers utilize your product.
- Do they use it regularly or only when needed?
- Are they price-sensitive or willing to pay more for added value?
- Knowing their behavior helps you pick a model that feels fair and makes sense to them.
Look at Your Product Usage
Does usage vary a lot between customers?
- If yes, a usage-based or hybrid model could work.
- If most users need similar features all the time, a subscription model may be better.
Revenue Goals
What kind of income stream do you want?
- Subscription models bring steady, predictable revenue.
- Usage-based models can grow rapidly with high-usage customers but may be more challenging to forecast.
Complexity and Transparency
Keep your pricing simple and easy to understand.
- Complicated pricing can confuse users and deter them from using the service.
- Choose a model that’s clear and easy to explain on your website or sales calls.
Scalability
Will the pricing model still work as your business grows?
- Consider how it will perform with increased user numbers, additional features, or new markets.
- A flexible model, such as hybrid pricing, may offer more room to scale.
Real-World SaaS Examples Using Each Model
Decision Tree: Which Pricing Model Is Right for You?
Closing Thoughts
When it comes to usage based pricing vs subscription, every SaaS business must choose a suitable saas billing software pricing model. Whether use-based pricing fits your goals or subscription based pricing model is more helpful, it all depends on your product, customers, and how you hope to grow.
Some companies modify or mix their models as they become larger to see which is most successful.
For example; Invoicera mainly uses subscription pricing with clear, easy-to-understand plans. It;
- Helps businesses budget without surprises.
- Offers custom plans for larger companies.
- Shows subscription pricing can be flexible.
Finally, not all the situations can be solved with a single approach. By knowing the needs of your customers you will be able to set the best pricing model to your SaaS platform.
FAQs
Ques: What is a subscription-based pricing model?
Ans: A customer contributes a definite amount, most usually, each month or a year, to preserve the subscription to the item or service, the features of which are determined in advance.
Ques: What is the difference between subscription and usage-based pricing?
Ans: When it comes to subscription pricing, the price is fixed and acts as a cost each time without a discount depending on usages. Among the benefits associated with the usage-based pricing is the fact that customers are charged only according to their consumption.
Ques: What is a usage-based pricing model?
Ans: It is a flexible payment system since users manage to pay only the resources they consume such as hours, amount of data they use or transaction numbers.
Ques: How to implement subscription-based pricing model?
Ans: Plan out features and rules which are definite, maintain a regular billing cycle, facilitate easy changes in a plan and describe what is contained in each plan.
Ques: What is the difference between consumption-based and usage-based pricing?
Ans: You are charged what you consume and usage-based implies anything that is measurable. Usage based pricing is also called consumption based pricing.
