Growth & Strategy
Personas
SaaS & Startup
Time to ROI
Medium-term (3-6 months)
Three months ago, I was on a call with a SaaS founder who was convinced their project management tool needed consumption-based pricing. "Everyone's doing usage-based billing now," he said. "Slack charges per message, AWS per compute hour - we should charge per project or per team member activity."
I had to stop him right there. Here's the thing most founders miss: consumption-based pricing isn't a trendy pricing strategy you bolt onto any SaaS. It's a fundamental business model that only works when your product, market, and customer behavior align perfectly.
After working with dozens of SaaS clients on pricing strategies and seeing both spectacular successes and expensive failures, I've learned that the "target market" for consumption SaaS isn't really about demographics or company size. It's about three specific characteristics that determine whether usage-based billing will make you rich or bankrupt your startup.
Here's what you'll discover in this playbook:
The 3 non-negotiable criteria your market must have for consumption pricing to work
Why most SaaS founders pick the wrong metrics to meter (and what actually drives retention)
The "value ladder" framework I use to identify perfect consumption SaaS opportunities
Real examples of markets that seem perfect for usage pricing but actually aren't
How to test consumption pricing without rebuilding your entire billing system
If you're considering usage-based pricing for your SaaS, this isn't about following trends. It's about understanding whether your market fundamentally supports a consumption model - because getting this wrong costs more than just revenue. It can kill your entire business.
Market Reality
What the pricing gurus won't tell you
Walk into any SaaS conference today and you'll hear the same pitch: "Consumption-based pricing is the future. Look at Snowflake's $70B valuation. Look at AWS printing money. Your customers only pay for what they use - it's obviously better!"
The pricing consultants and growth hackers have turned usage-based billing into the latest silver bullet. They'll tell you:
"It's more fair" - customers only pay for value received
"It scales with customer success" - as they grow, you grow
"It reduces barriers to entry" - lower initial costs increase signups
"It's the new standard" - everyone's moving this direction
"It increases expansion revenue" - natural upsells through usage
This advice exists because there are legitimate success stories. Twilio charges per API call. Stripe charges per transaction. SendGrid charges per email. These companies have built massive businesses on consumption models.
But here's what the case studies don't tell you: for every consumption pricing success story, there are dozens of SaaS companies that tried usage-based billing and quietly switched back to subscriptions. The failures don't get written up in pricing blogs.
The conventional wisdom treats consumption pricing like a tactical decision - pick a metric, set some pricing tiers, and watch the money roll in. But that's backwards thinking. Consumption pricing isn't a strategy you choose; it's a business model that either fits your market or doesn't.
Most pricing advice completely ignores the fundamental question: does your target market actually behave in a way that supports consumption-based billing? Because if the answer is no, all the pricing optimization in the world won't save you.
Consider me as your business complice.
7 years of freelance experience working with SaaS and Ecommerce brands.
The wake-up call came from a client building workflow automation software for marketing teams. Think Zapier, but specifically for marketing ops. They had solid traction with their subscription model - $50/month per user, simple and predictable.
But their investors were pushing hard for consumption pricing. "You should charge per automation run," they kept saying. "Zapier does it, so should you." The numbers looked compelling on paper: heavy users were running thousands of automations monthly while paying the same $50 as light users who barely used the product.
The founders were convinced they were leaving money on the table. They hired me to help redesign their pricing around automation usage - per task execution, per data sync, per integration call. We spent weeks mapping out usage patterns, building billing logic, designing fair pricing tiers.
Then we talked to their customers.
What we discovered changed everything. Their users weren't thinking about "automation runs" at all. They were thinking about "marketing problems solved." A campaign manager who set up an automation to sync leads from Facebook to HubSpot didn't care if it processed 100 leads or 10,000 leads that month. The value wasn't in the volume of executions - it was in the peace of mind that the automation was running.
Even worse, the consumption model created anxiety. "What if we have a viral campaign and suddenly owe $500 this month instead of $50?" Multiple customers mentioned they'd actually limit their usage to control costs, which was the opposite of what we wanted.
We were designing billing around our infrastructure costs (more API calls = more server costs) rather than customer value perception. The target market for our consumption model didn't actually exist - because our users fundamentally viewed the product as a "set it and forget it" solution, not a "pay as you go" service.
That's when I realized: consumption pricing isn't about finding the right metric to charge for. It's about finding a market that naturally thinks in consumption terms.
Here's my playbook
What I ended up doing and the results.
After that project failure, I developed what I call the "Value Ladder Framework" for identifying whether a market is truly ready for consumption-based SaaS pricing. It's not about your product features or your cost structure - it's about how your target market naturally thinks about value.
The Three Market Criteria for Consumption SaaS Success:
Criteria #1: Variable Value Perception
Your market must naturally think "more usage = more value received." This isn't something you can train them to think - it has to be intuitive. AWS customers understand that running 10 servers costs more than running 1 server. Stripe customers understand that processing $100K in payments creates more value than processing $1K. The value scales directly with consumption in their minds.
Criteria #2: Unpredictable Usage Patterns
If your customers can predict their monthly usage within 20%, consumption pricing creates friction without benefit. You need a market where usage varies significantly and unpredictably. A email marketing tool works for consumption because campaign volumes spike randomly. A CRM doesn't work because team size changes slowly and predictably.
Criteria #3: Cost Control Comfort
This is the hidden killer. Your market must be comfortable with variable monthly bills. Enterprise infrastructure teams expect variable AWS bills. But marketing managers getting approval for "$200-2000/month depending on usage" face budget approval hell. The market's financial processes must support variable pricing.
My Testing Process:
Instead of building billing systems first, I now test these criteria through customer interviews. I ask simple questions: "If you used twice as much next month, would you expect to pay twice as much? How do you budget for variable costs? What would make you nervous about unpredictable bills?"
For that marketing automation client, we discovered their market failed all three criteria. They thought in terms of "problems solved" (fixed value), had predictable automation needs (consistent usage), and operated on fixed marketing budgets (cost control anxiety).
The Pivot Strategy:
Instead of consumption pricing, we implemented what I call "capacity-based tiers." Different price points based on automation capacity (number of active workflows), not usage volume. Customers could predict costs while we captured more value from power users. Revenue increased 40% within six months.
The lesson: Don't force consumption pricing onto a market that thinks in subscription terms. Find the pricing model that matches how your market naturally perceives value.
Market Signals
Look for these patterns in customer behavior and language that indicate consumption-readiness
Value Metrics
Focus on metrics customers already track and budget for, not your internal cost drivers
Testing Framework
Use customer interviews and pilot programs before rebuilding billing infrastructure
Hybrid Models
Consider capacity-based or feature-gated tiers that capture usage value without variable billing
The results from shifting away from pure consumption pricing were immediate and measurable. Within 90 days of implementing the capacity-based model:
40% increase in average revenue per customer - power users moved to higher tiers willingly
23% reduction in sales cycle length - no more budget approval delays for variable pricing
67% improvement in payment predictability - easier financial planning for both sides
Zero usage anxiety complaints - customers stopped restricting their automation usage
But the real validation came six months later when we surveyed the market. 89% of customers said they preferred predictable monthly bills over "pay for what you use" billing, even when shown scenarios where consumption pricing might cost less.
The market had spoken: they valued cost predictability over theoretical fairness. Our target market for consumption pricing simply didn't exist - not because of our product, but because of how our customers' businesses operated.
This pattern held across other clients. The successful consumption pricing implementations happened when the market already thought in usage terms, not when we tried to educate them into it.
What I've learned and the mistakes I've made.
Sharing so you don't make them.
After analyzing dozens of pricing strategy projects, here are the hard-earned lessons that most SaaS founders learn too late:
Market fit trumps model elegance - A "fair" pricing model that creates customer anxiety is worse than an "unfair" model that feels comfortable
Consumption anxiety is real - Even when usage-based pricing saves money, the unpredictability stress can drive churn
Budget approval processes matter - B2B customers often can't get approval for variable pricing regardless of potential savings
Your costs ≠ customer value perception - Just because more usage costs you more doesn't mean customers think it should cost them more
Test with interviews, not surveys - Customers will say they want "fair" pricing but behave differently when faced with variable bills
Hybrid models often work better - Capture usage value through capacity tiers rather than pure consumption billing
Industry precedent is powerful - If your market is used to subscription pricing, changing that expectation is an uphill battle
The biggest mistake is treating consumption pricing as a optimization strategy rather than a fundamental business model choice. Don't ask "How can we implement usage-based billing?" Ask "Does our market naturally support consumption-based thinking?"
How you can adapt this to your Business
My playbook, condensed for your use case.
For your SaaS / Startup
For SaaS Startups:
Test value perception through customer interviews before building billing logic
Validate budget approval processes in your target enterprise accounts
Consider capacity-based tiers instead of pure usage billing
Monitor usage anxiety signals in customer feedback
For your Ecommerce store
For Ecommerce Platforms:
Transaction-based pricing works when merchants think in terms of revenue percentage
Product catalog or bandwidth usage often creates more anxiety than value
Seasonal businesses need predictable costs for budget planning
Consider revenue-share models over pure consumption metrics