Usage-Based Pricing
Pricing where the customer pays for how much they use, with the unit being a token, a call or a transaction. According to Poyar (2024), most companies in the large language model and infrastructure layer charge per token, which stays close to the cost of compute.
AI and GrowthTerm 63 / 81
In practice
It looks logical for a product whose cost scales with usage, but revenue is exposed to swings. In 2024 Kyle Poyar reported that many people got spooked by that perceived uncertainty, and that during the past two years of SaaS slowdown, usage-based businesses saw revenue growth decelerate faster than traditional subscription businesses. The real tension sits at the application layer: in Poyar's May 2024 review of 40 application-layer AI startups, seven in ten have a subscription model and very few offer pure usage-based pricing; that is a small, selected sample, not a current measure of prevalence. It means cost can climb with usage while subscription revenue stays flat (our reading). Before tying revenue to usage, work out what the income statement looks like in a slow quarter.