What is usage-based billing?
Usage-based billing charges customers according to how much of a product or service they use in a period, such as API calls, transactions processed, data stored or hours worked, rather than a fixed fee alone. Usage is measured, rated against the customer's contracted prices, tiers and minimums, and invoiced at the end of each billing period.
Also calledmetered billingconsumption billingpay-as-you-go billing
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- Charges for
- Measured consumption
- Rated against
- Contract prices, tiers, minimums
- Revenue rules
- ASC 606 / IFRS 15
How usage-based billing works
Usage data comes from the product or a metering system as events or periodic totals per customer. A rating step applies the contract terms: unit prices, volume tiers, included allowances, committed minimums, prepaid credits and overage rates. The billing system then produces an invoice that shows usage detail, often combined with a fixed platform fee. The finance difficulties are data quality, because invoices are only as good as the usage feed, contracts with custom terms, and revenue recognition, where minimum commitments, prepaid credits and variable consideration need judgement under ASC 606 and IFRS 15. Forecasting revenue also becomes harder, as it depends on customer consumption. Tabs rates usage against each contract's terms, and Rillet and Campfire invoice usage and recognise the revenue in the same system.
Common questions
How is usage-based revenue recognised?+
Usually as the customer uses the service, under ASC 606 or IFRS 15. Minimum commitments, prepaid credits and tiered discounts can change the pattern and need careful assessment.
What is the difference between usage-based and subscription billing?+
Subscription billing charges a fixed amount each period; usage-based billing charges for what was consumed. Many B2B contracts combine a fixed fee with usage above an allowance.
What data does usage-based billing need?+
Accurate usage per customer for each period, the contract's pricing terms and any credits or commitments. Gaps or duplicates in the usage feed lead directly to billing errors.
Usage-based billing software
Part of Accountio’s accounting technology coverage · Glossary
