Deep Dive: Usage-Based Billing

In today’s deep dive—we explore why usage-based billing (UBB) is emerging as one of the most impactful pricing models in modern software and services

Activant Capital

TL;DR:

Welcome to this edition of the Fintech Wrap Up Newsletter! In today’s deep dive—crafted with insights from Activant Capital—we explore why usage-based billing (UBB) is emerging as one of the most impactful pricing models in modern software and services.

UBB isn’t exactly new—it’s how we’ve long paid for utilities, rides, and phone bills. But in the era of SaaS, AI, and automation, it's making a powerful comeback. As software eats the world and machine-to-machine consumption surges, the traditional subscription model is losing ground. A recent report shows that 3 out of 5 SaaS companies already use some form of UBB, and that figure is expected to rise to 80% in the next few years. With SaaS growing at 7.3% CAGR and AI accelerating usage complexity, pricing is no longer a static lever—it’s a data challenge demanding flexibility and customer-centricity.

The advantages are compelling: better net revenue retention (up to 9% higher than subscription-only peers), reduced churn, expanded total addressable markets, and higher customer satisfaction. But UBB isn’t without pitfalls—monitoring usage metrics accurately, managing billing systems, and ensuring revenue predictability remain key hurdles. That’s why many companies are now embracing hybrid pricing models, combining UBB with subscriptions to align value with customer behavior throughout the user journey.

Underpinning this shift is a growing ecosystem of pricing infrastructure—from legacy ERP integrations to nimble UBB platforms like Metronome, M3ter, and Amberflo. Industry giants like Stripe and Zuora have jumped in through acquisitions, signaling confidence in UBB’s strategic value. And with pricing increasingly seen as a tech and data play, companies that nail dynamic, transparent, and usage-aware models will be the ones that thrive.

In short, usage-based billing is no longer optional—it’s a strategic imperative. And whether you’re a SaaS founder, pricing strategist, or investor, now is the time to pay attention to how usage is reshaping value.

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Usage-Based Billing

Usage-based billing (UBB) isn’t new, but it likely has never been more important. We are all used to paying for the products and services provided by utilities, mobile phone companies, doctors, dentists, and ride-hailing services like Uber based on what we consume, the service provided, or the distance traveled. In fact, UBB has been around since the beginning of commerce when a value was placed on a good or service and you “paid for what you used.”

Pricing is a powerful lever, and smart strategists shifted many pricing models to bundles or flat fees to maximize revenues and profits. This was particularly prevalent in the early days of software pricing and is still used by many companies today. Asana, Atlassian and Figma, for example, price almost exclusively on a subscription basis with rates tied to the number of user seats, company size, location and functionality included. Streaming companies like Netflix, Hulu and Spotify do the same with a single access fee and unlimited use of the platforms. SaaS companies, however, have begun to change the game and Openview1 reports that 3 out of 5 now have some form of UBB2 and this number is expected to increase to 80% or more in the next few years. The $660bn global software market is forecast to continue growing at a compound annual growth rate (CAGR) of at least 5.6% for the next five years, with the $228bn SaaS market growing even quicker at a CAGR of 7.3%. They believe that this market development, along with the explosive growth of AI, will fundamentally change the way software and services are priced and that UBB will become an essential component of pricing plans. In fact, given that pricing is increasingly becoming a data problem and that customer experience is paramount, the platforms that win will likely be data- and customer-centric hybrid pricing solutions!

Pricing is a Growth Lever

Many of us have been schooled in the notion that “price drops to the bottom line,” and this is true for most businesses. If products have positive unit economics and fixed costs can be leveraged, a large portion of price increases do indeed flow through to the bottom line. The reality of optimizing a business, particularly a growth business, is naturally a lot more difficult. Price impacts customer acquisition and, when considered with retention, the lifetime value (LTV) of an account. The ratio of LTV to the customer acquisition cost (CAC) is the math that your entire business is based upon, and investors obsess about it. Optimizing price is an imperative and a key lever for growth.