Essay · About 8 minute read

Usage-Based Pricing Is Popular, But Is It Right For You? Our Rule of Thumb

Tugce Erten and Mark Regan · Andreessen Horowitz (a16z) Free Intermediate

A16z boils the whole decision down to one honest rule of thumb: usage-based pricing tends to fit products whose main user is other software, while subscriptions tend to fit products with human users. It is short, opinionated, and gives you a lens to reason from instead of a list of pros and cons. Read it as a starting point for framing your own call, not a verdict.

  • The core heuristic: charge per use when your product is consumed by other software, charge a subscription when a human sits in front of it.
  • Humans dislike watching a meter, so usage pricing can add friction and unpredictable bills for people-facing tools.
  • Pricing is a spectrum, and many companies land on a hybrid of subscription plus usage depending on their cost structure.
Open on a16z.com ↗

It answers 2 questions

  1. Should I charge a subscription or charge per transaction for my product?
  2. When does usage-based pricing beat a flat monthly plan, and how do I keep customers from fearing a surprise bill?

Read with it

  1. Madhavan Ramanujam has helped architect pricing for dozens of well-known companies, and here he walks through how real teams... Lenny's Podcast Podcast · About 1 hour 20 minutes The art and science of pricing (Madhavan Ramanujam) Lenny Rachitsky with Madhavan Ramanujam
  2. Before you agonize over subscription versus per-transaction, this piece shows the common middle path so you do not force... Chargebee Article · About 7 minute read The Great Middling: Hybrid Pricing Model and its Growing SaaS Relevance Harikrishna
  3. If you decide usage pricing is right, this is real billing infrastructure that meters events in real time and lets you set... Metronome Tool · Product site, plus docs Metronome: Usage-Based Billing Platform Metronome (now part of Stripe)
  4. This tackles the exact fear you named: a buyer who wants your product but cannot predict the bill, and sometimes builds it... Andreessen Horowitz (a16z) Article · About 8 minute read Customers Want Predictability in Usage-based Pricing. Here's How to Help Them Get It. Tugce Erten and Mark Regan
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