Usage Based Pricing Vs Subscription Comparison in 2025

Businesses are changing the way they charge customers. In today’s subscription economy, customer satisfaction is king. It ultimately leads to customer retention, and higher revenue. That is why businesses are adopting billing models that appeal to their customers.

Usage based pricing is one such model. It offers increased fairness and flexibility in how customers are charged. Customers basically have to pay only for what they use. However, this model reduces revenue predictability.

On the other hand, traditional subscription models promise consistent revenue, but lower pricing flexibility. So which of these models matches your business better? Let’s find that out by exploring the comparison between usage based pricing vs subscription.

Features of Subscription Pricing

Subscription pricing refers to charging customers fixed amounts throughout their subscription lifecycle. Customers are billed on a recurring basis, and their charges are fixed. Subscription pricing is a key characteristic of traditional billing models, as it doesn’t allow flexible charging.

Subscription pricing follows multiple billing cycles, such as weekly, monthly, quarterly and yearly. Businesses can introduce custom billing cycles as well. Billing cycles basically refer to those intervals in which customers are supposed to pay, to renew their subscription.

To understand subscription pricing better, let’s take an example. Suppose a customer subscribes to a subscription box service that charges them $50 on a monthly basis. This is how their billing cycles would look like:

1^st January—31^st January: $50

1^st February—1^st March: $50

2^nd March—1^st April: $50

and so on, for as long as the customer keeps renewing subscription.

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However, prices can also undergo slight changes if businesses choose to update them. So for instance, the subscription box business in the given example might choose to update its per-box price to $60 per month.

Customers are always notified before price changes. They are then charged the updated price on a recurring basis.

Which businesses use subscription pricing: Subscription pricing is utilized by popular service-based businesses, such as streaming services, software tools, subscription boxes, etc. It is also preferred by businesses whose customers have more or less consistent usage patterns. So charging them fixed prices makes sense.

Features of Usage Based Pricing

Usage based pricing, also known as pay-as-you-go pricing, refers to charging customers for only what they utilize. Unlike subscription pricing, this model does not charge customers fixed amounts. Their charges vary each billing cycle, according to their usage.

Usage is measured according to various metrics. For instance, the number of API calls made, storage units consumed, usage time, user number, among others. Businesses rely on advanced billing systems to track these metrics accurately. Then, price is calculated according to the total metrics used, as each metric has its own predefined cost.

For example, a cloud-storage company charges $5 per 50 GB. If a customer consumes 200 GB in month, that’s how their charges go:

1^st 50 GB: $5

51-100 GB: $5

101-150 GB: $5

151-200 GB: $5

Total: 5+5+5+5 = $20

Hence, each customer pays a different price based on their usage. They are not charged a standard price which might be perceived as unfair.

Which businesses use usage based pricing: This pricing model is popular with businesses whose customers have highly fluctuating usage patterns. Examples include companies that offer AI language models and cloud storage. In such scenarios, charging each customer the same price regardless of their usage can lead to over-charging or under-charging. The former upsets customers, and the latter reduces profitability.

Usage Based Pricing Vs Subscription: Key Differences

Now that we understand how usage based pricing and subscription pricing work, let’s compare their characteristics. This comparison will help you decide which billing model is the best fit for your business.

Revenue Predictability

Subscription Pricing: Traditional subscription billing brings in more predictable revenue streams. That is because each subscriber following the same plan is charged the same amount at each subscription renewal. Charges don’t vary dramatically, and this helps build stable cash flows.

Businesses know exactly how much revenue they are going to generate from each billing cycle. This predictability facilitates financial planning for future. It allows companies to manage their expenses better.

Usage Based Pricing: This pricing, on the other hand, is far less predictable. Businesses can analyze their customers’ usage patterns to some extent, but that doesn’t guarantee consistency. Service usage can fluctuate dramatically, causing the total revenue to fluctuate as well.

Customer usage levels might drop unexpectedly during certain billing cycles, negatively impacting the total revenue. Moreover, such pricing can be unpredictable for customers too. They can only estimate how much they will pay at the end of each service period.

These estimates can be incorrect as well, leading to unexpected total costs. Costs can also vary greatly if businesses decide to update their per-unit prices for any service. The price adjustment might be small, but it can greatly impact the total accrued charges over time.

Bottom Line: Subscription pricing is more suitable for businesses looking for higher revenue predictability, and for customers who prefer predictable charges.

Customer Flexibility

Subscription Pricing: Lesser customer flexibility, as customers have to stick to fixed-priced plans. They don’t have any other option. No matter which plan they follow, monthly or yearly, they must pay certain amounts upfront.

Even if they end up using the services lesser than expected, or don’t use them at all, they still have to pay the standard prices. This aspect of subscription billing makes it unfavorable for customers who have inconsistent usage routines. If they subscribe, they might feel like they are overpaying.

Usage Based Pricing: Greater customer flexibility, as customers are not locked into standard plans. They can control their usage, and this means that they can control how much they pay too.

Thus, customers are more likely to perceive this pricing as fair. They don’t have to pay extra for what they don’t use. Since they can control their service costs to a great extent, they do not have to switch between different plans to find out which one suits their budget the most.

Bottom Line: Usage based pricing is the way to go for businesses with dynamic service demand.

Billing Complexity

Subscription Pricing: It is easier to bill because pricing calculations are straightforward. Using billing software, businesses can easily set up billing cycles for their customers. Then they can run these cycles on automation.

Billing software can automatically generate invoices on due dates, and send them to the right customers on time. It can also auto-fetch fixed payment amounts from customer accounts. This makes billing much simpler.

Usage Based Pricing: Billing can become highly complex, and requires a specialized software to be conducted accurately. For usage based pricing, the customers’ service consumption has to be measured and recorded in real-time.

Moreover, it also involves complicated calculations that differ according to varying billing rules, and usage metrics. All of this is only possible with advanced usage-based billing software that performs precise calculations, and ensures transparency.

This software generates dynamic invoices that accurately break down each customer’s charges and usage details.

Bottom line: Usage based pricing can only be effectively implemented if businesses have advanced billing software. Businesses seeking simpler billing can opt for subscription pricing.

Customer Retention

Subscription Pricing: It is easier for businesses to retain customers due to the recurring nature of subscription. Customers can remain committed to a business for long periods of time if they find its offerings valuable, and well-priced.

Moreover, subscription charges are foreseeable, so customers can efficiently budget for them beforehand. They don’t need to do tricky mental calculations each time their payment is due, as prices stay the same. They can also easily align the service price with its value.

All these factors contribute to better customer retention. If businesses offer longer-duration plans such as quarterly or yearly plans, they have even better chances of retaining their customers. This is because they technically get to form longer, and more stable relationships with them.

Usage Based Pricing: This billing model offers customers a lot of incentives to retain them. First of all, it saves them from paying huge upfront costs, that typical subscription models require. They are charged at the end of their service term, and only for what they use. This makes usage based pricing very appealing.

Secondly, businesses can flexibly apply discounts at certain usage levels, encouraging customers to increase their service usage. Thirdly, this model matches the needs of those users who don’t require a certain service often. When users only need to consume a service once in a while, they might not feel like paying a full-fledged cost for it.

However, while this pricing model has great customer retention potential, it can actually lead to unexpected churn as well. And interestingly, that can also be because customers are not committed via upfront costs. So nothing stops them from leaving when they want to.

Bottom Line: Subscription pricing offers more stable customer retention. Meanwhile, usage based pricing might lead to unpredictable churn despite its great retention potential.

Usage Based Pricing and Subscription: Putting Differences Aside for Impactful Collaboration

After exploring the differences between usage based pricing vs subscription, let us now discuss how they can collaborate to make billing more impactful. Today, businesses no longer have to view these pricing models as mutually exclusive. They don’t have to choose between the benefits of one over the other.

Instead, they can leverage the benefits of both approaches simultaneously. Hybrid billing models that combine subscription billing with usage based pricing are increasingly gaining popularity. They are also becoming a need for businesses that offer flexible services on subscription basis.

For instance, they are essential for the AI service industry that offers language models, image generators, and paraphrasers to name a few services.

In a hybrid model, businesses can charge both fixed service amounts, as well as usage-based charges. If they are offering monthly subscriptions, they can fix a small upfront fee for each subscription plan, and then calculate the rest of the fees according to usage.

This ensures fairness for both businesses and customers. Customers can still control the major part of their charges through usage, and businesses can still ensure some cash flow stability. Moreover, the small upfront fees can help drive customer commitment, and boost retention as well.

How SubscriptionFlow Helps

SubscriptionFlow is an advanced billing engine purpose-built for subscription businesses. We offer a range of billing models, such as:

Traditional subscription billing
Usage based pricing
Volume pricing
Tiered pricing
Hybrid billing

With SubscriptionFlow, you can seamlessly implement either subscription or usage based pricing. You can also choose to combine the power of these two models, and go for hybrid billing. We handle complicated billing scenarios efficiently.

Book a demo with SubscriptionFlow today to achieve the perfect balance between flexible pricing and predictable revenue.