Choosing the right subscription model isn’t just a pricing decision—it shapes your entire business. Whether you’re just starting out or scaling, the subscription model you pick will directly impact how you grow, how you retain customers, and how much you earn over time.
1. 48% of SaaS companies offering freemium convert less than 5% of users to paid plans
Why conversion is the biggest freemium challenge
A freemium model feels tempting. You drop the barrier to entry, users roll in, and you hope they’ll upgrade. But here’s the cold reality: nearly half of companies using freemium see dismal conversion rates—under 5%.
Why this happens
The truth is, many users grab a free product because it’s free. They might not be serious. They might never need your premium features. Worse, if your free tier offers too much, users never feel the need to pay. You train them to stay free.
A huge user base means nothing if those users never pull out their credit cards.
How to fix it
First, audit your feature gating. Is your free plan giving away the core value? If so, that’s a problem. You want to show value, not give it all away.
Second, create clear upgrade paths. Prompt users with in-app nudges when they bump into limitations. Use behavioral triggers like hitting usage caps or needing premium-only integrations.
Third, limit the free tier’s scope. Keep it narrow. Target one specific type of user or one narrow use case, not everyone.
Lastly, follow up. Many freemium users forget they signed up. Drip email sequences that offer use cases, quick wins, or upgrade incentives can pull people back in.
2. Companies using usage-based pricing (UBP) report 29% higher net dollar retention than flat-rate models
What makes usage-based retention stronger
Usage-based pricing scales with the customer’s success. When they grow, their usage grows, and so does their bill. That makes your revenue more dynamic. With flat pricing, a high-value customer pays the same as a low-value one. There’s no upside.
The retention effect
Customers paying based on what they use are less likely to churn. Why? Because small users pay small amounts. They don’t feel overcharged. Big users feel like they’re paying for what they get. No resentment. No mismatch.
And if usage grows over time—which it often does—you earn more without needing to sell more.
What to consider
First, make sure you’re tracking real value metrics. Don’t charge for something users don’t care about. Charge for what drives success. For example, API calls, data storage, emails sent, or contacts managed.
Then, show your pricing transparently. Nobody likes a surprise bill. Let customers estimate their usage and preview costs. Consider adding budget caps or alerts.
And always couple UBP with onboarding support. When customers see how to increase usage safely, they’re more likely to scale up and stay.
3. Freemium models are 2.4x more likely to go viral compared to paid-only models
Why freemium fuels growth
People love free stuff. If it solves a real problem, they’ll talk about it. Freemium tools are easy to share and easy to try. That’s why they spread faster.
Your users become your marketers. They invite colleagues, team members, and sometimes even their whole company.
Building for virality
To make this work, your product needs built-in loops. Think collaboration, invites, shared documents, or even team dashboards. Every time someone invites another user, you grow.
Next, add incentives. Offer bonus features or storage when users invite others. But don’t overdo it. It should feel natural, not gamed.
Also, streamline the onboarding. The faster someone gets to an “aha” moment, the more likely they’ll stick around and share it.
Freemium’s viral edge is real—but only if your product is worth sharing. Make sure it delivers value in under 10 minutes. That’s your window.
4. Flat-rate pricing sees average churn rates of 9.6%, higher than UBP’s 6.2%
The churn risk in flat pricing
Flat-rate models feel simple. One price, one plan. But they can create churn if customers don’t feel like they’re getting their money’s worth.
When all users pay the same, some overpay and leave. Others underpay and drain resources. Neither is ideal.
What to do instead
First, revisit your customer segmentation. If you’re serving very different user types, a one-size-fits-all plan won’t work. Break it out. Offer tiers.
Second, explore hybrid pricing. You can start with a flat base fee and layer on usage charges. This gives you predictability and scalability.
Finally, check in on your onboarding. Flat pricing can work well if the perceived value is high right from the start. That takes education, support, and constant nudging toward value milestones.
Flat pricing isn’t bad. But if churn’s creeping up, it’s worth experimenting with alternatives.
5. 79% of high-growth SaaS companies have adopted usage-based pricing
Growth loves elasticity
Nearly 8 out of 10 fast-growing SaaS companies use UBP. That’s not a coincidence. It lets them land small and expand fast.
Customers can start tiny—no big commitment. As they grow, their bill grows. This reduces friction and makes the sales process smoother.
Why it works
It’s customer-aligned. No one’s forced to buy features they don’t use. Instead, they grow into the product.
It also fuels sales teams. It’s easier to close small deals. Then, those accounts become bigger deals over time without a heavy lift.
How to transition
If you’re considering moving to UBP, start with a pilot. Pick one product line or one customer segment. Test adoption. Track revenue patterns.
Communicate clearly. Pricing shifts scare people. Be upfront. Show value. Give calculators. Offer discounts during the switch.
And measure everything. UBP can get complex. You’ll need usage dashboards, billing automation, and strong support. But the payoff is worth it.
6. Freemium businesses tend to have 50–60% longer sales cycles for enterprise upsells
Why freemium slows down enterprise sales
When enterprise buyers come in through a freemium door, they start small. That seems good—but it stretches out the timeline. Instead of going through a defined sales process, they explore on their own. They might not even talk to your sales team for months.
They also test longer. They wait. They loop in more stakeholders. Before you know it, your sales cycle balloons by 50–60%.
What’s causing the delay
First, there’s no urgency. No contracts to sign. No trials to expire. The freemium model invites lingering.
Second, freemium attracts end-users, not decision-makers. If your champions don’t have buying power, they can’t accelerate the deal.
Lastly, enterprise buyers often require security reviews, compliance checks, and procurement processes—none of which are triggered until much later.
How to speed things up
Start by identifying power users inside large accounts. Track which companies have multiple sign-ups. When you see five or more users from one domain, reach out. Offer a custom walkthrough or premium trial.
Then, create a pathway for enterprise users. Don’t treat all freemium users the same. Give larger teams access to more onboarding, strategic sessions, and even a dedicated rep.
Also, build “enterprise-ready” into your free plan. Show compliance badges. Share documentation. Make it easy for someone to loop in procurement without needing to ask for it.
Freemium doesn’t have to mean slow—but you have to design it with speed in mind.
7. Flat-rate subscription ARPU tends to plateau after 12–18 months
The ceiling effect of flat pricing
Flat-rate pricing gives you predictable revenue. But there’s a catch. After about a year and a half, your revenue per user (ARPU) stops growing. Everyone’s already paying the max. There’s nowhere to go.
This isn’t a problem at first. But if your costs rise or churn creeps up, it gets tight. You’re stuck.
Why ARPU stalls
In a flat model, there are no incentives to grow. A 5-person team pays the same as a 50-person one. You’re missing out on upside.
Over time, your best customers—those using your product the most—become your least profitable. They need more support, more features, more infrastructure. But their price stays fixed.
That imbalance creates stress on your team and your margins.
How to unlock growth
If you’re hitting that ARPU wall, you need more levers.
One option is tiered flat pricing. Add higher tiers with advanced features, premium support, or more integrations. Make sure there’s a reason to move up.
Another is hybrid pricing. Keep a base plan flat, but charge extra for usage, seats, or add-ons.
You can also revisit packaging. Bundle features differently. Add value to higher tiers. Limit key features in lower ones.
Most of all, monitor usage closely. If customers grow, your revenue should grow too. If it doesn’t, your pricing is leaking.
8. Usage-based pricing correlates with 21% faster revenue growth year-over-year
How UBP accelerates top-line growth
When your revenue scales with usage, your growth engine runs faster. Every new user starts small. But as they succeed, their usage increases—and so does your revenue.
That’s why companies using UBP grow faster. 21% faster, on average.
What drives this acceleration
First, usage-based models have lower friction. Users don’t need to commit to a big contract upfront. They can start cheap or even free. That makes acquisition easier.
Second, UBP has a natural upsell engine. As users do more, they pay more. No negotiation. No sales pitch. It just happens.
Third, it removes artificial caps. Customers aren’t limited by tiers. They can scale at their own pace.
And finally, investors love it. Predictable growth from existing users means stronger retention and lifetime value (LTV). That unlocks more funding, faster hiring, and more aggressive scaling.
How to set it up for growth
First, define the right usage metric. Don’t guess. Look for what correlates most with customer success. It might be messages sent, reports generated, or records processed.
Then, communicate clearly. UBP is only effective when users understand how they’re being charged. Use dashboards, alerts, and billing simulations to keep it transparent.
Finally, monitor for abuse. Some users may overuse without paying proportionally. Put guardrails in place. Cap free usage or throttle heavy users who aren’t on appropriate plans.
UBP isn’t just about pricing—it’s a growth strategy. Use it intentionally.
9. Only 12% of freemium users ever engage with premium features
Engagement is your early warning system
Most freemium users never even try premium features. They stay in the shallow end. That’s a problem. Because if they don’t explore, they don’t convert.
Only 12% dipping their toe into premium means the majority will never consider upgrading. They’re passive users. Not prospects.
Why they don’t engage
Sometimes, your premium features are hidden. Or they don’t feel relevant. Or the user doesn’t realize they’re missing out.
Other times, the user simply doesn’t need them. Your freemium tier might be “too good,” covering all their needs.
And often, it’s onboarding. If you don’t walk users toward value, they wander off before they get there.
How to drive engagement
First, surface premium features early. Don’t wait for users to discover them. Show previews. Use tooltips. Offer time-limited access.
Second, personalize nudges. If a user uploads files, show the advanced analytics feature. If they invite teammates, prompt them to try the collaboration dashboard.
Third, test friction. Sometimes just asking for a credit card blocks exploration. Consider gated trials instead of hard paywalls.
Lastly, talk to your users. Set up calls. Ask what problems they’re solving. Then recommend the right features directly.
Freemium without engagement is a leaky funnel. Fix the flow.
10. UBP models show 36% lower customer acquisition costs (CAC) than flat-fee models
Why usage-based pricing reduces CAC
When pricing aligns with usage, your product becomes easier to try. There’s no big upfront commitment. No scary contracts. That makes it easier to convert prospects.
And when prospects convert more easily, your cost to acquire them drops—by 36% on average.
What changes in the funnel
UBP attracts more leads. It removes friction. Prospects feel safer signing up, even if they’re unsure about the full product.
It also shifts the sales burden. Your product does the heavy lifting. Instead of selling value, you’re letting users experience it.
Marketing also gets more efficient. You don’t need to convince people to buy. You just need to get them to try. That’s a simpler pitch.
And churned leads aren’t wasted. Many come back when they’re ready—because they remember they can start small.
How to lower CAC with UBP
First, tighten your trial funnel. Guide users toward early wins. Show how value scales with usage.
Second, reduce onboarding friction. Remove credit card requirements if possible. Or offer usage credits.
Third, focus your content. Don’t sell the full product—sell the first use case. Get users in. Then grow them from there.
Finally, use product-led sales. Let data guide outreach. If someone’s using more features, your team can step in and offer help or custom pricing.
Lower CAC means faster growth. UBP makes it possible.
11. Companies with UBP are 3x more likely to reach $100M ARR
Why UBP scales better at the top
Reaching $100M in annual recurring revenue (ARR) is rare. But companies using usage-based pricing are 3x more likely to get there. That’s not just coincidence—it’s a direct result of their pricing model.
UBP doesn’t cap your upside. Your revenue scales automatically as your customers grow. Flat-rate models lock you in. UBP lets you ride the wave.
How UBP helps you scale
When you sell flat-rate, you need new customers to grow. That means hiring more sales reps, spending more on ads, and fighting churn constantly.
But with UBP, your existing customers become your growth engine. Their bills grow without extra sales calls. That compounding revenue lets you scale efficiently.
It also opens doors to bigger customers. Enterprises prefer paying for what they use, not being boxed into rigid pricing. They see UBP as flexible, scalable, and aligned.
What to focus on if $100M is your goal
First, build your pricing around a true usage metric. Don’t just pick what’s easy to track—pick what reflects real value.
Second, support customer growth. Give tools, playbooks, and templates that help them succeed. The more they use, the more you earn.
Third, invest in billing infrastructure early. As usage grows, billing can get messy. Set up scalable systems now to avoid chaos later.
Finally, watch expansion revenue. Your best path to $100M isn’t more customers—it’s deeper accounts. UBP makes that possible.
12. Freemium models result in 2.5x higher support load per dollar earned
The hidden cost of “free”
Freemium can be a growth driver—but it’s also a support sinkhole. You’ll get 2.5 times more support requests per dollar you earn compared to paid models.
Why? Because free users still expect answers. They ask questions, open tickets, and need help. But they don’t generate much (or any) revenue. That’s a drain.
Why it happens
Free users often need more help. They’re less experienced, more skeptical, and often unfamiliar with the product.
And because they’re not paying, they’re not motivated to figure things out on their own. They’ll ask instead.
The result: your support team gets overwhelmed. Your paying customers wait longer. Your NPS drops.
How to fix it
Start by creating a self-serve support system. Build a robust help center. Add video tutorials, onboarding flows, and in-product guidance.
Use chatbots and auto-replies to triage simple questions. Let your team focus on complex issues or high-value users.
Consider segmenting support. Offer community support for free users and premium support for paid ones. Be transparent about the difference.
Track ticket volume per segment. If free users eat up too many resources, it’s time to rethink your free plan or add usage caps.
Freemium isn’t truly free—it costs time and people. Build systems that scale.
13. Flat-rate pricing drives the highest LTV in low-usage SaaS segments
Where flat pricing shines
Flat-rate pricing isn’t dead. In fact, for SaaS tools where usage stays low or steady, it delivers the highest lifetime value (LTV).
These are products that don’t scale linearly with team size or workload—think note-taking apps, time trackers, or static website tools. Usage is predictable. Support costs stay flat. And flat pricing makes things simple for everyone.
Why it boosts LTV
Low-usage customers are often sticky. They don’t cause billing swings. They don’t churn due to usage spikes. They pay the same month after month.
Flat pricing also locks in value. If a user isn’t pushing the limits, they won’t look for cheaper alternatives. And if you’ve priced well, your margins stay strong.
How to optimize it
First, find your average usage curve. If most users don’t vary much, flat pricing might be perfect.
Then, pick your price strategically. Don’t race to the bottom. Anchor your price to value, not cost.
Consider offering a single plan with clear value. Avoid confusing tiers if your audience is similar.
Finally, support upgrades when usage does increase. If someone needs more seats or storage, have an easy way for them to pay more.
Flat pricing isn’t exciting—but in the right space, it’s powerful and profitable.
14. UBP aligns pricing with customer value in 89% of enterprise accounts
Enterprise wants pricing that makes sense
Big companies want to feel like pricing is fair. They don’t want to overpay. They don’t want to underpay either—they want alignment. That’s why usage-based pricing performs so well: it mirrors their growth and complexity.
In 89% of enterprise accounts, UBP directly matches value delivered. That means fewer negotiations, better satisfaction, and longer retention.
What “value alignment” looks like
Let’s say you sell a tool that processes data. If a customer sends 10x more data than another, they should expect to pay more.
With flat-rate pricing, that customer might feel like they’re subsidizing others. Or worse, they’ll think you’re charging too much for too little.
But with UBP, the cost is tied to reality. They see what they’re using. They understand the bill. It feels fair.
How to build that alignment
Start by talking to your customers. Ask what metrics they use to track success. Then, charge based on those.
Create dashboards that show real-time usage and projected bills. That builds trust.
Offer volume discounts or usage bands for larger customers. They’ll appreciate the flexibility.
And train your sales team to frame pricing as value alignment. Don’t sell on features—sell on outcomes.
When customers see a direct link between usage and results, they stop pushing back on price.
15. Freemium-to-paid conversions improve by 64% with time-limited trials attached
Urgency drives action
Freemium is great for signups—but often bad for urgency. Users get in, look around, and stall. They think, “I’ll upgrade later.” And later never comes.
But when you attach a time-limited trial to your freemium plan, conversions jump—by 64% on average.
Why? Because urgency motivates action. Deadlines push people to explore features and make a decision.
How trials help freemium work better
A free user who tries your premium plan understands the value faster. They experience the benefits, not just read about them.
Time limits also give you permission to nudge. You can send reminders, tips, and upgrade prompts without being pushy.
And trials create a natural fork in the road: upgrade, downgrade, or churn. That clarity helps you segment users and personalize follow-ups.
How to do it right
Offer the trial automatically when someone signs up. Don’t make them request it. That adds friction.
Set clear expectations. Tell them exactly when the trial ends and what features will disappear.
During the trial, focus on activation. Help them reach value quickly. Use email nudges, in-app tips, and success checklists.
When the trial ends, offer a soft downgrade. Let them keep basic access while prompting upgrades.
Freemium doesn’t need to be passive. Add urgency, and you’ll see results.
16. Flat-rate customers are 41% more sensitive to price increases than UBP users
Why flat-rate hikes feel personal
When you increase the price of a flat-rate plan, every customer notices. And they notice immediately. No matter how much or how little they use your product, their bill goes up by the same amount.
That’s why flat-rate users tend to push back harder on price changes. They feel like they’re paying more for the same value—because, well, they are.
In contrast, usage-based pricing changes gradually. Customers expect their bills to vary. When usage increases, so does the price—and that feels more natural.
Why sensitivity matters
Raising prices is one of the fastest ways to grow revenue. But if your customers churn when you do it, the gain disappears.
Flat-rate users are 41% more likely to complain, cancel, or look for alternatives after a price hike. That forces you to be cautious—or creative.
How to reduce pushback
First, communicate clearly. Don’t just say “prices are going up.” Explain why. Tie it to added features, support, or performance improvements.
Second, give notice. At least 30 days. Ideally more. Let customers prepare.
Third, grandfather long-time customers or offer them extended pricing if they upgrade now. This rewards loyalty while moving them into a more sustainable plan.
Finally, consider hybrid pricing. With a usage component, increases feel fairer. Users see they’re paying for what they use—not just a flat hike.
Pricing is emotional. Make the logic behind it visible.
17. UBP adoption is highest in developer tools (72%) and infrastructure SaaS (66%)
Why technical products love usage-based pricing
Developer tools and infrastructure platforms are built on scale. One developer might push a few commits a day. Another team might deploy across hundreds of servers per hour.
That variability makes usage-based pricing a perfect fit. No flat fee can cover that range fairly.
That’s why 72% of dev tools and 66% of infrastructure SaaS use UBP today. It matches their customers’ needs and usage patterns.
What drives adoption in these sectors
Technical users appreciate transparency. They want to know exactly what they’re paying for—and they don’t want to subsidize others.
They also scale fast. One project today could be a thousand-node cluster next quarter. A usage-based model lets them grow without switching vendors or renegotiating contracts.
And finally, technical teams want automation. UBP fits easily into that. You can plug billing into your CI/CD pipeline or cloud platform. Set limits. Monitor spend.
How to follow their lead
Even if you’re not in dev tools, learn from them. Start by mapping usage to value. Track how product interaction changes with growth. Charge accordingly.
Offer metered billing that plugs into analytics. Let users track usage and cost in real-time.
Be transparent with pricing. Publish your tiers. Share calculators. Trust builds adoption.
The technical world has already embraced UBP. It’s not a trend—it’s the new standard.
18. Retention past month 6 is 15% higher in usage-based models
The power of sticky pricing
The longer a customer stays, the more valuable they become. That’s why month 6 is a major milestone. Customers who reach it are more likely to stay long-term.
In usage-based models, retention past month 6 is 15% higher than flat-rate ones. That’s a big deal.
It means customers don’t just stick around—they grow with you.
Why usage drives retention
UBP adapts to customer needs. When usage is light, bills are low. When usage grows, so does the price. That flexibility creates less friction—and fewer reasons to cancel.
It also makes switching harder. If your product is deeply tied into workflows, data, or infrastructure, customers won’t jump ship easily.
And usage shows engagement. If someone’s using your product regularly, they’re getting value. That keeps them loyal.
How to improve your retention curve
First, track usage trends. Look for drop-offs around month 3 or 4. That’s your chance to intervene before churn hits.
Offer milestones or usage-based rewards. Celebrate activity streaks. Encourage deeper product adoption.
Invest in customer success early. Don’t wait until usage drops. Proactive support helps customers grow—and stay.
And always link value to usage. If customers see the connection, they’re less likely to leave.
Retention isn’t just a product metric—it’s a pricing signal.
19. Only 7% of freemium companies sustain profitably without a premium conversion engine
Why “free” needs a path to “paid”
Freemium might drive growth. It might get you users. But it almost never gets you profit—unless you turn free users into paying customers.
Only 7% of freemium companies operate profitably without a conversion engine. That’s a clear warning: free alone doesn’t work.
What a “conversion engine” looks like
It’s a system that turns free into paid.
It starts with onboarding. New users are guided toward high-value actions. They experience key features. They feel the pain of limits.
Then comes the upgrade prompt. Timed, contextual, and personal. “You’ve hit the limit. Want to unlock more?”
After that, follow-ups. Email drips. In-app nudges. Social proof. Case studies.
It’s not spammy—it’s strategic. And it works.
How to build your engine
First, track what your best paid users did during their free period. That’s your blueprint.
Then, guide new users to those actions. Shorten the path to value.
Limit your free plan smartly. Don’t give away everything. Create pressure—but not frustration.
And test your upsell copy constantly. The right message at the right time makes the difference.
Freemium isn’t free for you. Make it pay off.
20. Usage-based pricing leads to 18% higher upsell potential per account
The compounding effect of usage
Flat-rate pricing caps your revenue. Once someone’s paying $49/month, there’s no natural way for them to pay $149/month—unless you create new tiers or pitch them manually.
But with usage-based pricing, customers upsell themselves. As they grow, their usage increases. So does their bill.
That’s why UBP drives 18% more upsell revenue per account. It’s a growth engine you don’t have to force.
How upsells happen naturally
Let’s say your product charges per API call, seat, or gigabyte. A growing team uses more. A growing company adds features. That usage leads to bigger invoices.
There’s no friction. No sales push. No upgrade button. It just happens.
This type of organic expansion makes revenue more predictable and less reliant on constant new customer acquisition.
How to maximize upsell
First, make your usage metric visible. Customers should always know where they stand and what’s next.
Second, give them control. Offer usage caps, alerts, and flexible plans. This builds trust and reduces bill shock.
Third, provide growth tools. Help customers expand. Offer onboarding, integrations, and success guides that lead to more usage.
Finally, track expansion trends. If certain actions lead to upsell, drive more users to those actions.
The best upsells don’t feel like sales—they feel like progress.
21. Freemium is best suited for products with network effects, which only 9% of SaaS companies claim
Why freemium only works when sharing drives value
Freemium works best when the product gets better as more people use it. That’s a network effect. Think Slack, Zoom, Dropbox—each new user makes the product more useful to others.
But only 9% of SaaS companies truly benefit from network effects. That means most freemium models are fighting an uphill battle.
Why network effects matter
When users invite others, you grow without spending on ads. When value increases with each new signup, retention goes up. When people collaborate inside your product, churn goes down.
If your product thrives on team usage, shared files, or internal workflows, freemium makes sense. One happy user can lead to a company-wide rollout.
But if your product is used solo or rarely shared, freemium’s viral loop never spins. You’ll collect users, not revenue.
How to check for network effects
Start by asking: does one user benefit more when another joins? Do you have referral patterns? Are teams onboarding together? Are accounts expanding organically?
Look at your sign-up domains. If one person joins and no one else follows, your product likely lacks network pull.
If you do see signs of a network effect, build around it. Make sharing seamless. Reward referrals. Create team-ready onboarding.
But if not, rethink freemium. Try free trials or usage-based pricing instead.
Freemium without a network effect is a vanity metric machine.
22. Flat-rate churn spikes 22% after annual renewal cycles
The annual contract churn trap
Annual plans seem great. Lock in revenue. Fewer billing headaches. But when that renewal hits, things get bumpy.
Churn jumps 22% around annual renewals for flat-rate customers. Why? Because they stop and reevaluate. “Did we actually use this? Is it still worth it?”
That moment of reflection leads to cancellations—especially if usage was light or inconsistent.
Why this happens
Flat pricing doesn’t reflect engagement. Someone might be paying, but not using. When the annual invoice lands, it feels heavy. There’s no perceived value to match the price.
And because annual plans are “set and forget,” many teams lose track of what they’re paying for. Until they don’t want to pay anymore.
How to reduce renewal churn
First, engage before the invoice hits. Start outreach 30–60 days before renewal. Share usage reports. Show value. Offer check-ins.
Second, offer usage summaries. If someone’s underusing your tool, highlight features they haven’t tried. Nudge them back in.
Third, provide downgrade options. Let teams move to monthly or smaller plans. Saving a customer—even at a lower price—is better than losing them.
And finally, rethink annual incentives. If you’re forcing long-term commitments for small gains, it might backfire.
Retention isn’t just about locking people in. It’s about proving value every month—especially before the big ask.
23. UBP correlates with 2x higher product engagement rates
Usage and engagement are two sides of the same coin
When customers are billed based on usage, they pay more attention to how they use the product. That awareness leads to smarter behavior—and deeper engagement.
Usage-based pricing correlates with double the engagement of flat-rate models. People login more. They explore more. They use features more intentionally.
That’s good news for long-term growth.
Why pricing shapes behavior
When something costs more the more you use it, people become conscious of their actions. They seek value. They explore all they can get. That journey leads to better onboarding and stickier usage.
Flat-rate customers often drift. They already paid—whether they use the tool or not. There’s no urgency.
But UBP encourages proactive exploration. It turns passive users into active ones.
How to support high engagement
First, give users visibility. Show them how they’re using the product. Let them track activity and outcomes in real-time.
Second, educate constantly. Add tips, case studies, and walkthroughs to help users get more from the product—without fear of hidden charges.
Third, reward milestones. Celebrate engagement streaks, feature completions, or volume achievements.
Finally, balance billing transparency. If customers understand what they’re being charged for, they won’t hold back out of fear. That means higher usage—and better results.
Your pricing isn’t just a number. It’s a behavior driver.
24. Freemium users who receive onboarding emails are 3.2x more likely to convert
Onboarding is your hidden conversion lever
Most freemium users sign up and forget. They never get to the “aha” moment. That’s where onboarding emails change the game.
Freemium users who receive a smart onboarding sequence are over three times more likely to convert to paid plans. Not because of pressure—but because they’re shown the way to value.
Why emails matter
Freemium users don’t have an account manager. They don’t talk to sales. The only conversation you have is through product and email.
Well-timed, helpful emails create a feeling of progress. They make users feel guided, not abandoned.
Even better, they remind users to come back, try features, and unlock results.
How to build your sequence
Start with a welcome email. Personalize it. Show them where to start.
Then, send 4–5 value-driven follow-ups over the next two weeks. Each one should highlight a feature or success story.
Include clear CTAs: “Try this now,” “Unlock this insight,” or “See what you can build.”
Track opens and clicks. If someone’s engaged, follow up with a free trial offer or discount.
And never just blast feature lists. Teach. Inspire. Guide.
You don’t need a sales team for freemium. You need a great email strategy.
25. Flat-rate subscription models are still used by 54% of legacy SaaS companies
Why flat pricing lingers—and where it fits
Despite the rise of UBP, over half of older SaaS companies still stick with flat pricing. Why? Because it’s simple. Predictable. Easy to explain.
And for many legacy companies, their customers are used to it. Change feels risky.
But that doesn’t mean flat-rate is best. It just means it’s familiar.
Where flat pricing makes sense
If your product has low variability in usage, flat pricing might work. If your customer base is resistant to change, it can prevent churn.
Flat pricing also simplifies billing. That’s helpful when infrastructure or finance systems are outdated.
And for non-technical audiences, flat pricing feels safe. “One price, no surprises.”
But watch the risks
Flat models don’t scale well. They limit upsell. They don’t reflect growing usage.
They also mask churn risk. Customers may underuse the product for months without canceling—until they suddenly do.
If you’re a legacy company using flat pricing, consider hybrid approaches. Add usage-based add-ons. Offer premium tiers. Introduce “pro” plans with metered elements.
Start slowly. Test with a new product or user segment.
The world is changing. Your pricing should, too.
26. Only 18% of freemium users are active after the first 30 days
The post-signup drop-off
Freemium can bring in waves of users—but keeping them? That’s where the real challenge begins.
Only 18% of freemium users remain active after the first month. That means more than 80% either never find value or quickly lose interest.
This isn’t just a usage problem—it’s a conversion problem. If users aren’t active, they’re never going to upgrade. You’re building a leaky funnel.
Why users vanish
Freemium attracts curious users—not committed ones. Many sign up on impulse. They explore for a few minutes, get distracted, and never return.
If onboarding is clunky, if value isn’t obvious, or if the product feels overwhelming, they drop off even faster.
Also, if your free tier doesn’t create tension—meaning they never hit a limit—they won’t feel a reason to go deeper.
How to keep them engaged
First, make the first session count. Your product should deliver value in five minutes or less. Cut friction. Highlight wins.
Second, follow up. Use behavior-triggered emails to re-engage. Send tips, invite feedback, or offer a quick demo.
Third, add triggers inside your product. If someone is inactive for 3 days, show them a different starting point or a short success story when they return.
And last, create urgency. Add time-limited trials or usage caps that encourage action.
Freemium isn’t about collecting users—it’s about activating them. Focus there.
27. Usage-based pricing works best when unit economics are clearly communicated—boosting conversions by 27%
Clarity builds trust
Usage-based pricing only works when customers know what they’re getting into. If they’re confused or nervous, they won’t convert.
When unit economics—like cost per API call, per GB stored, or per user action—are clearly communicated, conversion rates jump by 27%.
It’s not about being cheap. It’s about being understood.
Why customers hesitate
Unclear pricing leads to anxiety. “Will I get charged more than I expect? Is this cost predictable? Am I being overcharged?”
Even if your pricing is fair, confusion kills conversions.
People need to see exactly how their usage turns into cost. They need to feel like they’re in control.
How to make things clear
First, use examples. Show what a typical invoice might look like for different usage levels.
Second, add a calculator. Let people input their own usage and see projected costs.
Third, avoid vague terms. Don’t say “starting from $0.01/action” without context. Explain what an “action” is. Define your units.
Fourth, show usage in-app. Give real-time insights so customers can track spending as they go.
And finally, educate through onboarding. Your support docs and walkthroughs should include billing examples.
Transparency builds confidence—and confidence leads to conversion.
28. Companies with hybrid flat + usage pricing see 2.1x LTV compared to flat-only
The best of both worlds
A hybrid pricing model—flat base fee plus usage-based add-ons—offers flexibility without losing predictability.
And it works. Companies that use this approach see over 2x higher lifetime value (LTV) per customer compared to flat-only models.
It’s scalable, fair, and customer-aligned.
Why hybrid models win
The flat base gives customers a sense of stability. They know what they’re paying each month. The usage component lets your revenue grow with their needs.
It also allows better segmentation. Small users pay less. Heavy users pay more. Everyone feels fairly treated.
And for you? It’s a steady stream of core revenue, plus an expansion engine that doesn’t rely on manual upsells.
How to build a smart hybrid model
Start with a base fee that includes core features and light usage. Think of it as your “platform fee.”
Then, add clear usage tiers. For example: “First 10,000 API calls included, then $0.01 per call.”
Keep billing transparent. Combine usage and flat fees in one invoice. Show how each piece adds up.
And make sure upgrades feel seamless. If someone hits their usage cap, alert them—but don’t cut them off. Let them continue while you guide them to a higher tier.
Hybrid pricing isn’t complicated—it’s complete. Build it with care, and you’ll unlock more value from every account.
29. Freemium models lead to a 31% increase in signups but only 4% increase in revenue
Traffic isn’t traction
Freemium drives signups. You’ll see more people landing on your site, registering, and poking around. On average, a 31% jump in new user count.
But here’s the kicker: that only leads to a 4% revenue lift.
That gap means you’re attracting the wrong kind of user—or not moving them down the funnel.
Why the numbers don’t match
Freemium opens the floodgates. But it invites everyone—casual browsers, tire kickers, and price-sensitive hobbyists.
If your onboarding is weak or your upgrade path unclear, most will stay free or disappear.
Even if they’re engaged, they may never feel the need to pay—especially if the free plan is too generous.
How to close the gap
First, qualify signups. Use segmentation tools to identify users who resemble your best-paying customers. Prioritize them in onboarding and support.
Second, reduce noise. Don’t chase vanity metrics. Focus on active users who reach value milestones.
Third, restructure your free tier. Limit features that offer long-term value. Tease premium capabilities instead of giving them away.
Fourth, test upgrade flows. Try different messages, triggers, and pricing tiers. One small change can make a big difference.
And finally, accept the tradeoff. Freemium can build awareness. But for revenue, it needs structure and strategy.
Don’t just count signups—measure steps to conversion.
30. UBP models reduce the barrier to entry and increase international adoption rates by 22%
Global growth through flexibility
Usage-based pricing removes friction. No big contracts. No giant upfront fees. Just a small cost tied to actual use.
That simplicity has a global impact. International adoption rates are 22% higher for UBP models compared to flat-rate ones.
Why? Because emerging markets, startups, and small teams can all get started without fear.
Why flat pricing blocks global growth
A flat $99/month might be fine in New York or London. But in Nairobi, Jakarta, or Bogotá, that’s a serious expense.
UBP lets people start small, prove value, and scale gradually. That creates access—and loyalty.
It also fits varied usage patterns. International teams often have different workflows. A flexible model fits better than a rigid plan.
How to go global with UBP
First, localize your pricing page. Use currency conversion. Highlight the flexibility. Share examples from other countries.
Second, offer low-entry bundles. Even small usage should feel worth it. Make every dollar spent deliver visible value.
Third, reduce billing friction. Accept local payment methods. Offer invoices in local languages. Build trust.
Fourth, highlight use cases for international audiences. Share customer stories from across regions.
Global adoption isn’t about translation—it’s about access. UBP unlocks that.
Conclusion
There’s no perfect subscription model—but there is a best one for your business stage, customer type, and growth goals.
Freemium can drive signups—but only if you’re built for virality and activation. Flat-rate can be simple—but often leaves money on the table. Usage-based pricing offers the most flexibility and scalability—but requires clarity and billing maturity.
