Why AI adoption requires metering and usage-based billing for sustainable growth
As AI continues to revolutionize business processes across industries, many organizations are coming face-to-face with a harsh reality: AI is expensive! While AI promises substantial productivity boosts and personalization, the hidden costs of running AI—either third-party AI costs or your own computational power, data storage, and ongoing model training—can quickly spiral out of control without proper metering and restraint. For SaaS businesses looking to scale their AI-powered offerings, adopting a usage-based billing model is not only beneficial but essential for sustainable and profitable growth.
The high cost of AI without metering
AI technologies are inherently resource intensive. They process vast amounts of data, which requires continuous computation, and results in significant cloud infrastructure costs. Offering AI-driven services through simple, flat-rate subscription models (or worse – seat-based pricing) may appeal to customers due to the predictable costs. However, AI services consume far more resources than traditional software, so this approach can lead to financial losses for service providers if usage exceeds the revenue collected.
Without proper consumption metering, companies risk either undercharging for their AI services or limiting usage to a point where customers feel constrained, both of which are detrimental to long-term success. And on the other end of the spectrum, not-so-early adopters who struggle out of the gate to gain traction for AI use in their companies could find themselves accused of wasting money on subscription-based AI services that are under-utilized or unutilized. As businesses increasingly incorporate AI into their practices, usage patterns will vary widely based on individual needs, costs to serve will be variable and high, and AI services will be subject to the heightened scrutiny always applied to brand new tech. A usage-based pricing model is the only approach that allows an AI service provider to go to market while addressing all of these concerns.
Usage-based billing is a gamechanger
Enter the usage-based pricing and billing model—an approach that ties costs directly to consumption. This model allows businesses to pay only for what they use, offering a flexibility that flat-rate models simply cannot provide.
According to recent data, usage-based or hybrid billing models deliver growth at a significantly faster rate than traditional flat-rate pricing. In Q1 2024, usage-based models saw an average growth of 27%, compared with a declining growth rate for flat subscription pricing, which fell from 19% in Q4 2022 to 12% in Q1 2024. This is largely due to the flexibility that usage-based models offer customers, particularly in times of economic uncertainty, when they may be wary of committing to fixed contracts. Usage-based pricing enables customers to scale their AI usage according to their needs without being locked into rigid plans. This makes AI-driven services more accessible, while safeguarding the profitability of the provider.
Another benefit of usage-based models is the visibility into usage patterns that they provide. This transparency fosters trust and reduces customer inquiries, while also enabling providers to optimize their pricing strategies so that they avoid over- or undercharging for AI-driven services.
Usage-based billing encourages growth and flexibility
AI brings a requirement for dynamic and flexible pricing models that can adapt to evolving customer demands. A hybrid model combining subscription packaged quotas and usage-based pricing allows SaaS companies to offer predictable revenue streams while accommodating the increases in AI usage that result from customers discovering its value.
This hybrid model can also unlock additional upsell and cross-sell revenue opportunities, particularly when businesses are equipped with accurate data on customer usage patterns. Reduced customer acquisition costs and enhanced customer retention are the natural byproducts of this flexibility.
The future is metered
In the AI world, the ability to meter consumption and provide fair usage plans is not just a nice-to-have—it’s a necessity. SaaS businesses must embrace usage-based billing models if they are to manage the high operational costs associated with AI and provide the flexibility that today’s customers demand. With the right billing infrastructure, companies can monetize their AI offerings effectively, delivering sustainable growth while maintaining customer satisfaction. Learn more: Read our eBook on revolutionizing SaaS growth with advanced monetization strategies
To implement a successful usage-based model, businesses must have the right billing infrastructure in place. An advanced billing platform, such as Aria Billing Cloud, can track usage metrics in real-time, ensuring accurate and transparent billing that reflects the true costs incurred. These platforms enable businesses to scale their AI offerings without risking revenue leakage or underpricing their services.
