How Pay-as-you-go Pricing strategy drives massive revenue for AWS, Stripe, and Mailchimp?

Navdeep Yadav

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5 min readNov 22, 2022

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What is the Pay-as-you-go Pricing Model?

Pay-as-you-go (PAYG) is a pricing model where users pay based on how much they consume.

Example of Pay-as-you-go Pricing Model

AT&T phone carrier bill amount is based on the minutes used.
AWS(a cloud storage service provider) could charge based on the amount of storage used
Stripe and Square charge a percentage fee for the payment

Why do we need Pay-as-you-go Pricing Model?

Some companies use more computational power and resources than others hence flat-rate pricing and Subscription won’t fit well in this business.

Example: Netflix host videos and hence need more computational resources than Medium which host Text and Images.

One can build their own on-premise infrastructure but hard to manage effective utilization rate and peak usage

The utilization rate of On-premises Vs AWS

So it is widely used by cloud computing companies like AWS, and GCP where you scale up and down based on your usage.

For example, Amazon Web Services (AWS) is a subsidiary of Amazon that offers over 200 cloud services, each of which has its own pay-as-you-go pricing system.

How does Amazon AWS use the Pay-as-you-go Pricing Model?

Run your app on the EC2 virtual server and pay for computing resources by the hour or second.
Store your asset in your AWS Storage S3 bucket and pay based on the size and duration of the objects like GDrive or Dropbox

API services provided by the AWS ecosystem

Types of Pay-As-You-Go Pricing model?

There are different types of Pay-As-You-Go pricing model

Consumption-Based — The more you use a certain resource, the more you pay
Example: Transactions(Stripe) , storage(S3) , bandwidth(Gumlet), minutes etc
Credit-based — You purchase credits that can be exchanged for a service. Example: Audible etc

Benefits of the Pay-as-you-go Pricing Model?

Lower Upfront Costs Attract Users
There is No commitment fixed amount like a subscription plan, just pay for what you will use.

Example: If a customer pay to send 5,000 emails one month and pays nothing the next month when they send none.

2. You Can Charge More for High Consumption
Unlike the flat-rate system, where everyone pays the same amount Pay-as-you-go is scalable in real-time. So if you have higher usage then charge more.

You don’t have to rework again on contracts and monthly rates.

3. Revenue Grows Faster with Pay-As-You-Go

Companies with usage-based pricing models have YOY revenue growth of 29.9% compared with the SaaS average of 21.7%.

Disadvantages of the Pay-As-You-Go Pricing Model?

The Pay-as-you-go business model is widely used by companies like AWS, DigitalOcean, Google cloud platform, and Mailchimp.

It’s Challenging To Retain Customers — Subscription plans are often sold yearly by offering some discount to customers. But PAYG customers can drop away quickly since they haven’t committed.
Revenue Is Unpredictable and volatile — Subscription gives you a predictable cashflow unlike Pay-as-you-go

3. Pay-as-you-go pricing can be Complex
Unlike Flat rate and subscription pricing. The Pay-as-yo-go pricing can be confusing and overwhelming.

Example: In the given Diagram you will be charged separately for the Transcoding, Hosting, and Delivery of your video asset.

Complex Pay-as-you-go pricing for video Computing platforms

Is Pay-As-You-Go Right for Your Business?

You have a diverse user base
If you can’t cover your users under 3–4-tiered pricing then there is a large variation in terms of usage and prices and should go with PAYG.
(Super users Vs frugal newbies )
You’re prepared for higher short-term costs
In the subscription plan, you can cap customer usage but in the PAYG system and a few of your customers might start using it ten times more than the previous usage.
Your customers frequently move between plans

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