By Brendan O’Brien, Co-Founder and CIO of Aria Systems. Aria Systems were shortlisted for the ‘Best AI-Powered SaaS Solution‘ category at The 2025 SaaS Awards.

For global enterprises of all sizes, Software-as-a-Service, or SaaS, remains a hugely popular means of acquiring the critical business support applications and services needed to operate effectively and efficiently.

Today, businesses use an average of 112 SaaS applications and spend up to $3,500 per employee on SaaS licenses each year. Even small startups utilize as many as 29 SaaS-based applications. The continued enthusiasm for SaaS, combined with the increased acceptance of cloud-based solutions and remote work trends, has been a boon for the global SaaS market, which is expected to reach values of $511 billion by 2033, up from $390 billion this year.

While these rosy projections and gaudy industry statistics may give the illusion that SaaS solution providers can simply sit back and watch the cash roll in, the reality is that many face tremendous pressures in what has become a dynamic marketplace where resting on one’s laurels is not an option for survival.

Rising operational costs, intensifying competition, increased user demands, changes in buyer behaviors, and emerging new technologies are just a few of the factors requiring SaaS companies to continue investing in new technology, developing new features, and innovating in order to stay current and dissuade existing subscribers from churning to the next shiny new object.

SaaS providers turn to AI

Naturally, leveraging AI is a key area of focus and investment for SaaS companies. From deploying AI-powered agents and bots to improve customer support, to leveraging AI to automate marketing and manual tasks. Or using generative AI to create compelling content, and predictive AI to analyze trends and forecasts using captured data. SaaS companies are feverishly integrating AI across their respective businesses to drive new efficiencies and uplevel just about all aspects of their operations.

Separate from these internal uses, SaaS businesses are also developing and bringing to market differentiated products and services that are, in and of themselves, powered by AI. As they do, these providers are quickly discovering that what AI potentially offers in the way of new revenue and growth opportunities can quickly be offset by exorbitant costs if the offerings are not managed and priced correctly.

AI-powered services consume far more resources than the traditional applications many SaaS providers brought to market at their inception. AI products and services require their own infrastructure with specialized hardware and an extensive manpower commitment. The need to collect, store, and analyze vast troves of data to continuously train large language models requires unprecedented levels of energy and computational power. The costs of supporting even a singular AI-powered service can escalate quickly and spiral out of control, no matter whether the provider is using their own AI or sourcing it from a third party.

Rethinking pricing models for AI products and services

SaaS businesses offering AI products and services using traditional pricing methods, such as fixed subscription models, will soon find their costs far outpacing the revenue earned. The flat-fee, pay-one-price monthly subscriptions that many SaaS providers relied on to support their earliest generations of services are likely to lead to large financial losses as usage exceeds revenue.

SaaS providers seeking to scale AI innovations and accelerate sustainable revenue growth from AI products and services must therefore adopt and deploy usage-based billing models to ensure that consumption is directly tied to costs.

A usage-based billing model offers a level of flexibility and agility that fixed subscription models do not. In usage-based scenarios, customers pay for what they use, enabling SaaS providers to monetize AI offerings effectively by maintaining a level of control over operational costs. Usage-based billing also reveals patterns and trends that providers can leverage to optimize pricing strategies, formulate and serve personalized offers, and engage customers with greater transparency, fostering trust and deepening loyalty.

While customers may once have loved the all-you-can-eat nature of flat-fee subscriptions, many are also warming to the usage concept, particularly in the B2B arena. Already faced with mounting technical debt, escalating software-related costs, and cost-cutting mandates from finance executives, enterprises today are more likely to invest in additional SaaS applications when they feel like they have more control over spend. They are more likely to remain customers when they believe they are receiving real value without the requirement to commit to a fixed and rigid contract arrangement.

This is perhaps why usage-based billing has already seen significant adoption as an alternative to flat rate pricing, with a 27% increase in the first quarter of 2024.

Key considerations when making the move to usage-based pricing

For SaaS providers, the decision to abandon flat fee pricing and introduce usage-based billing is not as simple as flipping a switch. In most cases, the billing and monetization platforms that had been supporting a SaaS provider’s flat-rate, basic subscription offerings will not be able to meter consumption and handle the complexity that usage or even hybrid billing models demand. Providers must therefore acquire the advanced billing capabilities that can track customer activity in real-time and produce accurate invoices that reflect consumption.

Beyond upgrading the billing infrastructure, however, SaaS enterprises also must redouble their efforts to ensure they are providing superior customer experiences that deliver as promised and compel users to engage with the product repeatedly. After all, revenue is now dependent on customers using the product on a regular basis.

Additionally, usage-based billing models will undoubtedly inspire an increase in incoming customer service inquiries. As users move away from the simplicity of a fixed monthly fee, they will have questions about their bill and historical activity. SaaS providers must be prepared to manage these inquiries with speed and efficiency, using AI where possible to resolve issues, preempt costly engagements with human customer agents, and suggest next best actions to keep customers satisfied, engaged, and retained.

There is no denying the transformative impacts AI has already had on the SaaS industry. From product development to customer experience and engagement, the continued emergence of AI-driven technologies is enabling SaaS providers to introduce new products with greater speed, unlock new revenue opportunities, and distinguish themselves in an increasingly competitive environment.

Usage-based pricing models ensure that SaaS companies can leverage the power and flexibility of AI to deliver the new innovations that customers demand, without drowning in operational costs.