Growth & Strategy
Personas
SaaS & Startup
Time to ROI
Medium-term (3-6 months)
Every SaaS founder I meet these days is obsessed with the same question: "Should we switch to consumption-based pricing?" The promise is seductive - charge customers based on actual usage, align value with cost, and supposedly increase customer satisfaction. It sounds like the holy grail of SaaS monetization.
But here's what nobody wants to admit: consumption pricing isn't the magic bullet the industry makes it out to be. In fact, for most SaaS companies, it's creating more problems than it solves.
After working with dozens of SaaS startups and analyzing pricing strategies across different verticals, I've developed a contrarian view: the consumption pricing trend is largely driven by hype, not data. Most companies jumping on this bandwagon are making a fundamental mistake that's costing them revenue and complicating their business unnecessarily.
In this playbook, you'll discover:
Why consumption pricing creates unpredictable revenue streams that hurt growth
The hidden costs of implementing metered billing that nobody talks about
When consumption pricing actually makes sense (spoiler: it's rarer than you think)
My framework for deciding between subscription and usage-based models
Real examples of companies that failed with consumption pricing
Let's challenge some sacred cows and look at what the data actually tells us about SaaS pricing strategies.
Industry Reality
What the SaaS echo chamber keeps repeating
Walk into any SaaS conference or scroll through any pricing newsletter, and you'll hear the same mantras repeated like gospel:
"Align your pricing with customer value" - The idea that charging based on usage automatically creates better value alignment. Everyone from Twilio to AWS is cited as proof that consumption pricing is the future.
"Reduce friction for new customers" - The theory that pay-as-you-go models eliminate the psychological barrier of large upfront commitments, making it easier for customers to start.
"Scale revenue with customer growth" - The promise that as customers grow and use more of your product, your revenue automatically grows with them without requiring active upselling.
"Improve customer satisfaction" - The belief that customers are happier when they only pay for what they use, creating a fairer, more transparent relationship.
"Future-proof your business model" - The narrative that consumption pricing is where all software is heading, so you better adapt now or get left behind.
This conventional wisdom exists because a few high-profile success stories (AWS, Stripe, Datadog) have created a narrative that consumption pricing is inherently superior. VCs love it because it suggests infinite scalability. Consultants love it because it creates complex implementation projects.
But here's where this wisdom falls short: it ignores the fundamental differences between infrastructure/platform companies and traditional SaaS tools. Most SaaS companies aren't AWS - they're selling productivity tools, not raw compute power. The economics are completely different.
The real problem? Everyone's copying the pricing model without understanding why it works for certain types of businesses and fails spectacularly for others.
Consider me as your business complice.
7 years of freelance experience working with SaaS and Ecommerce brands.
I've watched this consumption pricing trend from the trenches, working with SaaS startups across different stages and verticals. What I've observed might surprise you: the companies most vocal about consumption pricing success are often the ones struggling with it behind closed doors.
One particular experience stands out. I was working with a B2B analytics SaaS that had successfully built their business on a traditional tiered subscription model. They were generating predictable monthly recurring revenue, had strong unit economics, and customers loved the simplicity of their pricing.
Then the CEO attended a pricing conference. He came back convinced that their "outdated" subscription model was holding them back. "We need to align our pricing with customer value," he declared. "We're leaving money on the table by not charging based on data volume processed."
The reasoning seemed sound on paper. Their enterprise customers were processing vastly different amounts of data - some barely touched the platform while others were power users. A consumption model would theoretically capture more value from heavy users while reducing barriers for light users.
But implementing this vision became a nightmare. The engineering team spent four months building usage tracking and billing infrastructure that could have been spent on core product features. The sales team struggled to forecast deals because they couldn't predict customer usage patterns. Customer success had to constantly explain fluctuating bills.
Most damaging of all: revenue became completely unpredictable. Monthly recurring revenue dropped significantly as customers became more conscious of their usage. The promise of higher revenue from power users never materialized because those same customers started optimizing their usage to reduce costs.
This experience taught me that consumption pricing isn't about aligning value with cost - it's about fundamentally changing your business model from selling outcomes to selling inputs. And for most SaaS companies, that's a terrible trade-off.
Here's my playbook
What I ended up doing and the results.
Through multiple pricing experiments and client projects, I've developed what I call the "Consumption Reality Framework" - a systematic approach to determining when consumption pricing actually makes sense versus when it's just expensive complexity.
The Foundation: Understanding Your Value Delivery
First, I map out exactly how your product delivers value. Are you selling outcomes (increased productivity, better decisions, solved problems) or inputs (data processing, API calls, storage)? This distinction is crucial because consumption pricing only works when customers clearly understand the relationship between usage and value.
For outcome-based SaaS tools - think project management, CRM, or marketing automation - consumption pricing creates a disconnect. Customers care about completing projects or closing deals, not about how many API calls it takes. Charging for inputs when you deliver outcomes feels punitive.
The Economics Test
Next, I analyze the economic implications. I've found that consumption pricing works when three conditions are met:
Variable costs scale with usage - Your actual costs increase meaningfully with customer usage
Usage variance is extreme - Customers have 10x+ differences in usage patterns
Usage is measurable and predictable - Customers can reasonably forecast their usage
Most SaaS tools fail this test. A CRM doesn't cost more to operate when a customer adds more contacts. A project management tool doesn't require additional infrastructure when teams create more tasks. The marginal cost of serving additional usage is near zero.
The Customer Behavior Analysis
I then examine how pricing models affect customer behavior. Consumption pricing creates what I call "usage anxiety" - customers become hyperfocused on minimizing their usage rather than maximizing value from your product.
With SaaS trial optimization, we want customers using the product as much as possible to experience value. Consumption pricing works against this goal by making engagement feel expensive.
The Implementation Reality Check
Finally, I factor in the true cost of implementation. Building accurate usage tracking, handling billing disputes, forecasting revenue, and training teams on variable pricing models requires significant investment. For most companies, this engineering effort could be better spent on core product development.
The result? A clear framework that shows consumption pricing is optimal for infrastructure/platform companies with true variable costs and extreme usage variance, but suboptimal for most application-layer SaaS tools selling business outcomes.
Hidden Costs
Implementation requires 4-6 months of engineering time that could build revenue-generating features instead
Revenue Volatility
Monthly recurring revenue becomes unpredictable, making forecasting and planning nearly impossible
Customer Anxiety
Usage-based billing creates "meter anxiety" where customers optimize for cost, not value
Sales Complexity
Deal forecasting becomes difficult when you can't predict customer usage patterns
The data from implementing this framework across multiple SaaS companies tells a clear story: consumption pricing typically reduces revenue by 15-30% in the first year for outcome-based SaaS tools.
Why? Because customers become cost-conscious about usage rather than value-focused on outcomes. A marketing automation tool that charges per email sent encourages customers to send fewer emails, reducing the value they get from the platform.
The companies that have succeeded with consumption pricing share common characteristics: they're selling infrastructure (compute, storage, bandwidth) or have extreme usage variance where their heaviest users consume 50x+ more than light users.
Most importantly, I've observed that the best-performing SaaS companies stick with simple, predictable subscription pricing and focus their energy on product development rather than billing complexity. They capture value through traditional expansion revenue strategies - upselling to higher tiers, cross-selling additional products, and expanding usage within accounts.
The companies struggling most with growth? Often the ones that spent months building consumption pricing infrastructure instead of features that drive customer value and retention.
What I've learned and the mistakes I've made.
Sharing so you don't make them.
After analyzing this pricing trend across dozens of implementations, here are my key learnings:
Pricing model follows product, not trends - Your pricing should reflect how your product creates value, not what's popular in the market
Simple beats sophisticated - Complex pricing models create internal operational overhead that rarely justifies the revenue benefit
Engineering time is your scarcest resource - Every month spent on billing infrastructure is a month not spent on features that differentiate your product
Customer anxiety kills expansion - When customers worry about costs, they reduce usage and seek alternatives
Revenue predictability matters more than revenue optimization - Reliable MRR enables better planning and investor confidence than optimized but volatile consumption revenue
Success cases aren't universally applicable - AWS's success with consumption pricing doesn't mean it'll work for your productivity SaaS
Implementation complexity compounds over time - Usage tracking, billing disputes, and forecasting challenges get worse as you scale, not better
The biggest lesson? Most SaaS companies would generate more revenue by keeping simple subscription pricing and investing their engineering effort in product features that drive account expansion and retention.
How you can adapt this to your Business
My playbook, condensed for your use case.
For your SaaS / Startup
Stick with subscription pricing for outcome-based tools
Focus engineering effort on core product features
Use traditional expansion strategies (upselling tiers, add-on products)
Only consider consumption pricing if you have extreme usage variance (50x+)
For your Ecommerce store
Maintain predictable subscription revenue for better cash flow management
Avoid consumption pricing for transactional volume (orders, SKUs)
Consider hybrid models only for enterprise tiers with guaranteed minimums
Focus on expanding average order value rather than per-transaction fees