Usage-based billing
Usage-based billing is a pricing model that charges customers based on their actual consumption of a product or service — such as API calls, tokens, or compute time — rather than a fixed subscription fee, so the invoice amount tracks metered usage directly.
How usage-based billing works
Under usage-based billing, a customer's invoice is computed by multiplying metered consumption for each billable metric by the rate defined on a rate card, then summing across metrics and any billing period. There is no fixed subscription floor unless the pricing model explicitly combines usage pricing with a base fee or minimum commitment (a hybrid model).
Why AI products lean on usage-based billing
AI features have highly variable, usage-linked cost — a customer running ten times the inference volume of another customer genuinely costs the vendor roughly ten times as much. A flat subscription price cannot track that variability, so it either overcharges light users or undercharges heavy users badly enough to erode gross margin. Usage-based billing keeps the price a customer pays roughly proportional to the cost that customer generates.
Usage-based billing vs. metered billing
Usage-based billing is the pricing model — the decision to charge by consumption; metered billing is the underlying measurement mechanism that makes usage-based billing possible. A usage-based billing model cannot exist without metering, but metering can also feed billing models that are not purely usage-based, such as overage billing layered on top of a flat subscription.