Would you rather have 1% of the market with high ARR, or 20% with low ARR? Exactly.

AI moves fast. One week it’s a new model, the next it’s a new API, and suddenly your “cutting-edge” feature looks old. But while the technology reinvents itself constantly, pricing hasn’t caught up. Too many platforms are still clinging to flat fees or tiered “Bronze, Silver, Gold” plans—as if AI usage is stable and predictable. Spoiler: it isn’t.

That’s why usage-based billing—charging for what you actually consume—isn’t just a nice-to-have. It’s the only approach that aligns with how AI really works. Here’s what it means for clients and for the companies providing it.

Let’s start with the obvious: the pain points of sticking with flat or tiered pricing.

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Pay-As-You-Go > Paying for Ghost Usage

The Flat-Fee Trap

• Paying for unused capacity: Flat fees assume you’re running at peak all month. In reality, workloads spike and dip—meaning you end up paying for idle time.
  
  

• False simplicity: Bronze, Silver, Gold plans look easy, but they’re just educated guessing. Get it wrong and you either overpay or get hit with overage fees.
  
  

• Experimentation costs too much: Want to try a new model? Oh no, that’ll be a tier upgrade, sir. Suddenly curiosity costs an arm and a leg. So teams just… don’t experiment. Innovation dies in tier purgatory.

  
  

Which is exactly why usage-based billing feels like oxygen compared to this suffocating setup.

Why Usage Wins

• True pay-as-you-go: Bills reflect your actual consumption—API calls, GPU hours, storage—no more, no less.
  
  

• Scales with you: Costs rise during big launches, then shrink when things quiet down.
  
  

• Freedom to innovate: You can test new features without worrying about upgrading a plan you’ll never max out.

Want to try an AI avatar? That’s like… 10–20 cents for a minute. That’s cheaper than a bad coffee.

And the best part is that leading AI companies are already proving this model works.

Client Spotlight: OpenAI’s Transparent Billing

A great example comes from OpenAI, which gives customers granular visibility into usage. Clients can break down costs by feature, team, or project, and even set budget caps to automatically block requests once thresholds are hit. This means no surprise bills and the freedom to experiment with new features safely.

But while clients cheer, companies face a tougher reality: no more easy revenue cushions.

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No More ARR Cushions, Just Real Traction

The Trade-Offs (aka “Why Your Investors Are Nervous”)

• Revenue uncertainty: No more cozy ARR to flash on a pitch deck. Revenue now swings with client usage—high during launches, quiet during lulls. Investors hate it. Customers love it.
  
  

• Always having to lead: No contracts to lock people in. Clients stick around only if you keep delivering value. That means constant innovation.
  
  

• Operational complexity: Accurate, real-time metering is essential, and billing disputes must be easy to resolve.

  
  

So how do you thrive when predictability goes out the window?

How to Win in Usage Land

• Invest in accurate metering: If a client disputes a bill and you can’t explain it, you’re toast.
  
  

• Be transparent: Publish clear per-unit rates. Surprise fees are the fastest way to lose trust.
  
  

• Offer dashboards: Let customers see usage in real time. They’ll trust you more and bug support less.
  
  

• Keep shipping: In usage-based land, revenue = how valuable you are today, not last year. Innovation is your retention strategy.

Or as we like to put it: contracts don’t keep customers, value does. 

And if you need proof this isn’t theory, just look at Twilio.

Vendor Spotlight: Twilio’s Usage Playbook

Twilio is a textbook case. From the start, it billed customers per message and per call—never through fixed tiers. As CEO Jeff Lawson explained: “When you charge based on usage, your incentives align with your customers’.” That alignment fueled exponential growth: revenue rose from $277M in 2016 to over $2.8B in 2021, proving usage-based pricing can scale into a multi-billion-dollar business.

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Wrapping It Up

For clients, usage-based billing is fairness, flexibility, and freedom to experiment without waste.

For companies, it requires new habits: transparency, constant innovation, and comfort with revenue that fluctuates.

Investors may grumble about the lack of ARR, but clients will reward companies that align pricing with real-world usage. And in the long run, client traction beats investor spreadsheets.