Usage-based pricing (UBP) is a model where customers are charged based on their consumption, making it transparent but potentially unpredictable, which can lead to usage anxiety and affect revenue timing. This model is particularly effective for infrastructure and AI products, where costs scale with usage, as seen with companies like Twilio, Stripe, and Snowflake. These products align their pricing with customer value, making UBP a strategic choice for managing high costs in compute, storage, and bandwidth. However, UBP is not suitable for all companies, especially where usage metrics can be gamed, pricing needs to be predictable, or where usage does not correlate directly with value. For many companies, a hybrid pricing model that combines fixed and variable elements, such as flat fees with metered usage or per-seat charges with additional usage costs, provides a balanced solution, offering smoother cash flow and better customer onboarding experiences. Ultimately, the choice of pricing model should consider the clarity of usage units, customers' ability to estimate costs, the correlation between usage and perceived value, and the impact on sales and cash flow.