Usage-based pricing: paying for what you use

How it makes money

With a subscription, the seller is paid for the promise of access. With usage-based pricing, it is paid for the use itself, measured: compute seconds, gigabytes stored, queries run. The customer can start small and grow without a negotiation, and the seller's revenue rises with every new job the customer moves onto the platform.

In business model terms, the unit sold is consumption and the price is a rate. That makes the customer's own growth the seller's growth plan, and the customer's cutbacks the seller's problem the same month.

One company, read closely

Snowflake describes itself as running "a customer-centric, consumption-based business model" and spells out the difference: "Unlike a subscription-based business model, in which revenue is recognized ratably over the term of the subscription, we generally recognize revenue on consumption." Product revenue for the year to January 31, 2026 was $4,472 million, up 29% from $3,462 million.

The model rewards accounts that grow. Snowflake's net revenue retention rate, which compares what existing customers spend now with what they spent a year earlier, was 125% at January 31, 2026 and 126% at July 31, 2026. Customers spending more than $1 million over twelve months rose from 576 to 733 in a year.

Where AI comes in

AI runs on the same meter. In its last fiscal year Snowflake made Cortex Agents and Snowflake Intelligence generally available, and it says that "strategic partnerships with foundational model providers deliver state-of-the-art models natively within Snowflake Cortex AI." Each is new work to consume. The company also says its forecasts are harder to make because of a "large number of new product features, including those incorporating artificial intelligence."

How it fails

Usage-based pricing carries a risk a subscription does not: the bill falls when the work gets cheaper. Snowflake says so plainly. Software releases and hardware improvements "may make our platform more efficient, enabling customers to consume fewer compute, storage, and data transfer resources to accomplish the same workloads." And when budgets tighten, "lower than expected consumption" can limit its growth.

Questions

What is usage-based pricing?

A pricing model in which the bill follows what the customer consumes, such as compute, storage, transactions or API calls, instead of a fixed fee per seat or per term.

How is usage-based pricing different from a subscription?

A subscription charges a fixed fee for access over a term, and the seller recognizes the revenue evenly over that term. Usage-based pricing charges for consumption, and, as Snowflake explains in its annual report, the revenue is recognized as it is consumed.

What is net revenue retention?

A measure of how much a company's existing customers spend now compared with a year earlier, after those who left or cut back. Snowflake's was 125% at January 31, 2026.