Billing Models That Supercharge Tech Company Revenue Growth

Tech companies face a new reality: static pricing models no longer keep pace with the speed and complexity of modern software, especially in AI and SaaS. As OpenView reports, nearly 39% of SaaS companies now price primarily on usage, a sharp increase from a decade ago. This shift is driven by the need for flexible, scalable billing that matches real customer value and supports rapid revenue growth[1]. Companies that adapt their billing infrastructure to support advanced models—like usage-based, credit-based, and hybrid approaches—see faster time-to-cash, higher net revenue retention, and reduced billing errors.

Why Billing Models Matter for Revenue Growth

Aligning Pricing With Value Delivered

Traditional subscription models offer predictability, but they often fail to capture the full value delivered to customers, especially as usage patterns become more dynamic. Usage-based and consumption pricing models allow companies to directly link revenue to customer activity, creating a more transparent and scalable path to growth[2].

Example: An AI platform bills per million tokens processed, ensuring that high-usage customers contribute proportionally to revenue, while low-usage customers are not overcharged.

Key Outcomes of Modern Billing Models:

• Capture incremental revenue as customer usage grows, including overages and upsells.
• Improve customer satisfaction by aligning costs with actual value received, reducing churn.
• Enable rapid experimentation with pricing, supporting product-led growth and new market entry.

Usage-Based Billing: The Engine of Modern SaaS and AI

How Usage-Based Billing Works

Usage-based billing (UBB) charges customers based on actual consumption—API calls, compute hours, data processed, or other measurable events. This model is especially effective for AI, infrastructure, and API-first businesses, where usage can spike or drop unpredictably[3].

Benefits for Tech Companies

• Revenue Expansion: As customer needs fluctuate, UBB captures additional revenue through overages and tier upgrades.
• Customer Retention: Customers pay only for what they use, which builds trust and reduces friction during renewal cycles.
• Operational Efficiency: Automated metering and billing reduce manual intervention and errors, speeding up cash collection.

Technical Deep Dive: Real-Time Metering

A robust usage-based billing system must ingest and process thousands of events per second, apply complex pricing rules, and generate accurate invoices in real time. Lago, for example, processes up to 15,000 billing events per second, supporting everything from token-based AI pricing to seat-based SaaS models.

Common Usage-Based Pricing Examples

• Pay-per-use AI services (e.g., per token, per GPU-second)
• API platforms with free tiers and tiered overage pricing
• Infrastructure providers billing by compute hour or data transfer

“Usage-based billing helps companies capture more value as customers grow, while also improving customer satisfaction and retention.”

Credit-Based and Prepaid Billing: Flexibility for Complex Use Cases

What Is Credit-Based Pricing?

Credit-based pricing allows customers to purchase credits upfront, which they can redeem for various services or features. This model is popular in AI, cloud, and developer tools, where usage can be unpredictable but customers want budget control.

Advantages of Credit-Based Models

• Predictable Revenue: Upfront credit purchases improve cash flow and reduce payment risk.
• Customer Flexibility: Users can allocate credits across different services, adapting to changing needs.
• Automated Invoicing: Systems like Lago automate credit deduction, top-ups, and invoice generation, reducing manual work.

Example: A SaaS company offers prepaid credits for API calls, with automatic notifications when balances run low and seamless top-up options.

When to Use Credit-Based Billing

• When customers need budget predictability but variable usage
• For marketplaces or platforms with multiple service types
• To support global customers with different payment preferences

Hybrid and Progressive Billing: Adapting to Customer Growth

Hybrid Billing Models

Hybrid models combine recurring subscriptions with usage-based or credit-based components. For example, a customer pays a monthly base fee for access, plus variable charges for overages or premium features.

Progressive Billing Explained

Progressive billing refers to models where pricing changes as usage increases, such as tiered or volume-based pricing. This approach rewards high-usage customers with lower per-unit costs, encouraging growth and loyalty[4].

Key Features of Hybrid and Progressive Models

• Tiered Pricing: Different price points for different usage levels, with automatic upgrades as customers grow.
• Commitment “True-Ups”: Annual or quarterly reviews to reconcile actual usage against committed spend, ensuring fair billing.
• Add-Ons and Minimums: Customers can add features or commit to minimum spend, with automated enforcement and invoicing.

Example: An API provider offers 10,000 free calls per month, then charges per call above that threshold, with annual true-ups for committed customers.

Comparing Billing Automation Platforms: What Sets Lago Apart

CriteriaLago CloudTypical AlternativesEvent Ingestion SpeedUp to 15,000/sec1,000–5,000/secPricing Model SupportAll (usage, credits, hybrid, subscriptions)Often limited to subscriptions or basic usageInvoice AutomationMulti-currency, tax logic, dunning, refundsManual or limited automationDeveloper ExperienceAPI-first, JSON configs, no vendor lock-inScripting or professional services requiredGo-Live SpeedDays to weeksMonths to quartersPayment ProcessingBring your own PSP, no revenue shareOften bundled, with feesComplianceSOC 2 Type 2, GDPR, 99.9% SLAVaries

Why Technical Teams Choose Lago

• Developer Control: API-first design, JSON-based configuration, and open APIs allow engineering teams to own billing logic without vendor lock-in.
• Finance-Grade Governance: Built-in tax compliance, multi-entity support, and real-time analytics meet finance team requirements.
• Rapid Implementation: Companies can launch new billing models in days, not months, supporting fast go-to-market and pricing experiments.

Lago also offers a self-hosted, open-source edition for companies needing full data control, but most customers choose Lago Cloud for its enterprise-grade reliability and compliance.

Real-World Outcomes: Revenue Growth and Customer Retention

Industry Data and Trends

• OpenView research shows that usage-based pricing leads to superior customer acquisition cost (CAC) payback and higher net dollar retention rates for SaaS companies.
• Companies adopting consumption-based billing report improved customer satisfaction, reduced churn, and more predictable revenue growth[5].

Key Takeaways for Tech Companies

• Modern billing models—usage-based, credit-based, hybrid—unlock new revenue streams and align pricing with customer value.
• Automated, developer-friendly billing platforms like Lago reduce errors, speed up cash collection, and support rapid scaling.
• Flexible billing infrastructure is now a competitive advantage, especially for AI, SaaS, and API-first businesses.

“Effective billing strategies can significantly impact revenue growth, customer satisfaction, and overall business performance.”[6]

Conclusion: Building for Growth With the Right Billing Model

Tech companies that invest in flexible, automated billing systems are better positioned to capture revenue as customers grow, adapt to new pricing strategies, and reduce operational friction. Usage-based, credit-based, and hybrid billing models are now essential tools for scaling revenue and improving customer experience. Platforms like Lago provide the technical foundation to support these models, offering real-time metering, advanced pricing engines, and robust invoice automation—all designed for developer control and finance-grade compliance.

To see how flexible billing can accelerate your revenue growth, explore Lago’s free trial and discover how modern billing infrastructure supports your business goals.

Citations

[1] https://www.lek.com/insights/tmt/us/ar/billing-strategies-consumption-based-pricing-models

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