SaaS Pricing Models: Subscription, Usage-Based, and Hybrid

Pricing is architecture. A bad pricing model doesn't just leave revenue on the table — it attracts the wrong customers, creates billing friction, and makes your unit economics impossible to fix later without a painful migration. Yet most SaaS founders spend 10% of the time on pricing that they spend on code.

This post covers the three dominant SaaS pricing models in 2025 — subscription, usage-based, and hybrid — what makes each work, and how to pick one for your stage.

The Subscription Model

Subscription pricing charges a fixed recurring fee — monthly or annually — regardless of how much the customer uses the product. It's the oldest SaaS model and still the most common.

Variants:

• Flat-rate: One price for everyone. Rare today; only works for single-persona products.
• Tiered: Starter/Pro/Enterprise plans with different feature sets. The default for B2B SaaS.
• Per-seat: Price multiplies by the number of users. Works best when more users = more value (collaboration tools, CRMs).

When it works best: When your product delivers consistent value irrespective of usage volume — project management tools, design software, identity providers.

Revenue predictability: Excellent. ARR/MRR is clean to forecast.

Risk: Customers who use 10% of the product feel they're overpaying. High churn from low-engagement segments.

The Usage-Based Model

Usage-based pricing (UBP), also called consumption-based or pay-as-you-go, charges customers only for what they use. Stripe charges per transaction. Twilio charges per SMS/call. AWS charges per compute-hour.

Common usage metrics:

• API calls: Per request or per 1,000 requests.
• Messages sent / events processed: Communication and event-streaming platforms.
• Storage consumed: Cloud storage, database-as-a-service.
• Records processed: ETL, data enrichment, AI processing.
• Active users: Distinct from seat-based — only billed when they log in or take action.

When it works best: Infrastructure, API products, communication platforms, AI/ML tools, and any product where a single customer's usage can vary 100x month-over-month.

Risk: Sticker shock from unexpected bills causes support escalations and churn. Low-usage months generate almost no revenue from otherwise healthy customers.

The Hybrid Model

Hybrid pricing combines a fixed base subscription with variable usage charges on top. A $99/month base gives the customer access, then they pay per unit beyond a bundled allotment. This is increasingly the dominant model in 2025 — Snowflake, OpenAI, Datadog, and Vercel all use variants of it.

Structure patterns:

• Commit + overage: $500/month for 10,000 API calls; $0.05 per call above that.
• Seat + consumption: Per-seat fee for access; usage charges for AI features or compute.
• Platform fee + volume tiers: Fixed platform fee unlocks progressively cheaper per-unit rates at volume.

Comparison Table

Dimension	Subscription	Usage-Based	Hybrid
Revenue predictability	High	Low	Medium
Low-usage customer satisfaction	Low	High	Medium
High-usage customer satisfaction	High	Low	High
Sales complexity	Low	Medium	High
Billing infrastructure cost	Low	High	High
Best for	Tools/platforms	Infrastructure/APIs	Complex SaaS

Choosing the Right Model for Your Stage

Pre-product-market fit (0–$1M ARR): Use tiered subscription. You need revenue predictability to survive, and usage-based billing requires sophisticated billing infrastructure and usage instrumentation that distracts from finding PMF.

Post-PMF, pre-scale ($1M–$10M ARR): Evaluate whether your best customers are being under-billed. If your top 20% of customers use 10x more than your bottom 20% and pay the same price, it's time to evaluate hybrid pricing.

Scale ($10M+ ARR): Sophisticated buyers expect consumption alignment. Enterprise contracts often include usage minimums with rollover credits and annual commits with overage billing quarterly.

Implementing Pricing in Stripe

Stripe's billing primitives map cleanly to these models:

• Subscription: stripe.subscriptions.create() with a fixed recurring price ID.
• Usage-based: stripe.subscriptionItems.createUsageRecord() with metered billing and aggregation mode (sum or max).
• Hybrid: Combine a flat recurring price with a metered price on the same subscription.

For hybrid models, use Stripe Meters (GA in 2024) to track usage events in real time. This avoids the anti-pattern of self-reporting usage at the end of the billing month.

// Report usage to Stripe Meter
await stripe.billing.meters.createEvent({
  event_name: 'api_calls',
  payload: {
    stripe_customer_id: customer.stripeId,
    value: '1'
  }
});

Pricing Page Psychology

The pricing page is a product. Three principles that consistently lift conversion:

1. Anchor high.
   Lead with the highest plan — it makes the middle tier look reasonable by comparison.
2. Highlight the recommended plan.
   "Most popular" or "Best value" labels on the middle tier consistently increase selection of that tier over the cheapest option.
3. Show annual pricing by default.
   Annual pricing reduces churn and improves cash flow. Defaulting to annual makes it the path of least resistance.

For usage-based products, show a usage calculator on the pricing page. Letting customers estimate their own bill reduces sticker shock and increases conversion from high-volume prospects.

Related: Common SaaS Development Challenges and How to Solve Them

Five Pricing Mistakes to Avoid

1. Pricing by cost, not value.
   Your $5/month plan isn't cheap — it signals low value. Price based on the outcome you deliver, not your hosting bill.
2. Too many plan differences.
   If Starter and Pro differ by 15 features, customers get lost. One to three meaningful differentiators per plan boundary.
3. No annual incentive.
   Monthly-only pricing means 12 churn opportunities per year per customer. Offer 15–20% discount for annual commits.
4. Ignoring free tier COGS.
   Freemium works only if your cost-per-free-user is nearly zero. For compute-heavy AI products, free tiers are often margin destroyers.
5. Never updating pricing.
   SaaS pricing should evolve every 12–18 months as you learn your value metrics. Most companies under-price at launch by 40–60%.

FAQs

What is the most common SaaS pricing model in 2025?

Tiered subscription remains the most common model, but usage-based and hybrid models are growing fast — especially for AI, infrastructure, and API products where consumption varies significantly between customers.

When should a SaaS startup switch from subscription to usage-based pricing?

When your top cohort consistently hits plan limits and either upgrades or churns, that signals your pricing doesn't scale with delivered value. That's when to evaluate hybrid or usage-based pricing seriously.

How do you implement hybrid pricing in Stripe?

Create a subscription with two price objects — one flat recurring price and one metered price — on the same subscription. Use Stripe Meters to report consumption events in real time rather than batch-reporting at month end.

Does usage-based pricing reduce churn?

It can reduce churn from customers who feel they're overpaying on a subscription, but it can increase churn during low-usage periods when the product provides little value. Hybrid models with a base subscription protect against low-usage churn better than pure usage-based pricing.