Pay-as-you-go SaaS pricing guide

This guide explores the pay-as-you-go (PAYG) pricing model in SaaS, covering its variations, benefits, and challenges, and showcases how to implement it seamlessly within the m3ter system.

In this guide

• What is the Pay-As-You-Go pricing model?
  • Types of pay-as-you-go pricing
• Implementing PAYG pricing with m3ter
• Advantages and disadvantages of pay-as-you-go models
  • Advantages of PAYG
  • Disadvantages of PAYG

Contributors

James Wood Head of Product, m3ter

Shafkat Ahnaf Presales Lead, North America

What is the Pay-As-You-Go pricing model?

The pay-as-you-go (PAYG) pricing model in SaaS charges customers based on their consumption of the service.

PAYG is often conflated with usage-based pricing (UBP), as there’s a big misconception that UBP must be PAYG. However, usage-based subscriptions are very common especially in sales-led B2B. PAYG is often best used when selling via self-service, to smaller companies, or for vendors who want customers to start small and scale as they grow their usage.

This is illustrated in research from OpenView Partners and Kyle Poyar. The largely usage-based or PAYG model – while less common than usage-based subscriptions or non-UBP models like per-seat pricing – is still popular and increases in traction as the target customer gets larger.

Types of pay-as-you-go pricing

Consumption-based PAYG (pay after)

With a consumption-based PAYG model, customers use a certain resource (e.g. storage, transactions, API calls, etc.) and are billed for that consumption after the fact. The more they use, the more they pay.

Credit-based PAYG (pay before)

In a credit-based PAYG model, customers still pay for consumption, but they prepay for a certain amount of usage by buying credits. These credits translate to a specified amount of the product or service. If the customer runs out of prepaid credits, there is usually a system in place to purchase additional credits for the time period.

Hybrid PAYG

Hybrid models, which combine elements of multiple pricing models, are becoming more common. With a hybrid PAYG model, companies offer some mix of the pre- and post-paid options above.

Implementing PAYG pricing with m3ter

Advantages and disadvantages of pay-as-you-go models

Advantages of PAYG

Whether you call it PAYG or usage-based pricing, there are many reasons why this pricing strategy is growing in popularity across SaaS and other industries:

1. Easier adoption
   Lower upfront costs and reduced barriers make it simpler for potential customers to try out and adopt a service.

2. Customer satisfaction
   Customers feel their costs are better aligned with the value they receive, as they pay based on actual usage.

3. Costless upsell
   Usage-based pricing supports efficient product-led growth (PLG), enabling revenue growth without extra Sales effort.

4. Margin control
   For SaaS companies with significant usage-driven costs, a PAYG model provides tighter margin control.

5. Decreased logo churn
   PAYG enables customers to reduce usage and spending as needed during tough times, helping retain customers.

6. Increased NRR
   PAYG models typically lead to higher Net Revenue Retention (NRR).

Disadvantages of PAYG

1) Predictability

PAYG can present predictability challenges for both customers and vendors.

2) Lack of clean data

PAYG models require businesses to incorporate data from both usage and commercial aspects.

3) Surviving a downturn

PAYG models are more vulnerable to shrinking accounts during economic downturns.

4) Sales compensation

The question of Sales comp when moving toward a PAYG model can be tricky.