# 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?](/content/guides/payg-pricing#what-is-the-pay-as-you-go-pricing-model/index.html)
  - [Types of pay-as-you-go pricing](/content/guides/payg-pricing#types-of-pay-as-you-go-pricing/index.html)
- [Implementing PAYG pricing with m3ter](/content/guides/payg-pricing#implementing-payg-pricing-with-m3ter/index.html)
- [Advantages and disadvantages of pay-as-you-go models](/content/guides/payg-pricing#advantages-and-disadvantages-of-pay-as-you-go-models/index.html)
  - [Advantages of PAYG](/content/guides/payg-pricing#advantages-of-payg/index.html)
  - [Disadvantages of PAYG](/content/guides/payg-pricing#disadvantages-of-payg/index.html)

## Contributors

[James Wood](/content/blog/author/james-wood/index.html) Head of Product, m3ter  
  
[Shafkat Ahnaf](/content/blog/author/shafkat-ahnaf/index.html) 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)](/content/guides/usage-based-pricing/index.html), 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](https://www.growthunhinged.com/p/the-state-of-usage-based-pricing) 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.