Usage-Based Billing
Pricing models, hybrid contracts, credits, and the invoice
Usage-based billing is any pricing where the invoice amount depends on what the customer consumed. In LedgerUp, the contract defines the model, usage is metered by LedgerUp or brought from the meter you already run, the invoice is built from both the fixed and the variable terms, it is audited against the contract before it goes out, and the revenue is recognized from the same usage evidence. This page is the billing side; the metering pipeline itself is documented under usage metering.
What usage-based billing is
Usage-based billing prices a product on consumption: API calls, tokens, seats, messages, compute, transactions, or any unit the contract names. It is rarely pure. Most B2B contracts combine a fixed component (a platform fee, a subscription, a committed minimum, or a prepaid credit balance) with a variable one (overage above an allowance, tiered rates, or a drawdown against credits). The billing problem is therefore not counting usage; it is producing one correct invoice from a signed contract whose fixed and variable terms interact, on the right cadence, with the evidence to defend every line.
How usage becomes an invoice
From the signed contract to a sent, defensible invoice. Every model below runs through the same steps.
Model the contract, not the price list
Ari reads the executed agreement and its amendments and captures the billable terms: the unit, the rate card, tiers and whether they are graduated or volume-based, included allowances, the platform or subscription fee, committed minimums and true-up rules, prepaid credits and their expiry, overage rates and caps, billing frequency, and whether usage bills in arrears or in advance. Negotiated terms that never made it into the billing engine are the largest single source of usage revenue leakage.
Meter the usage, in LedgerUp or in your engine
LedgerUp meters usage itself, ingesting raw events through the API, a warehouse sync, or a native integration, with deduplication and late-arrival handling. Teams that already meter in Stripe, Orb, Metronome, or their own pipeline keep that meter and LedgerUp reads the aggregated quantities. Either way, the quantity that reaches the invoice is rated against the contract, not against a plan configuration.
Rate against the contract and apply the fixed terms
Quantities are priced on the contract's tiers and rates, allowances are consumed first, credits are drawn down, and minimums are compared to actual usage to decide whether a true-up line is due. The fixed fee and the variable lines land on the same invoice, on the schedule the contract sets for each.
Prorate mid-cycle changes
An upgrade, a downgrade, an added seat, or an amended rate that lands mid-period is prorated on the contract's rule: by day, by remaining fraction of the period, or as a new period starting on the effective date. The fixed fee, the allowance, and any minimum all prorate, which is where hand-built invoices usually go wrong.
Audit the invoice before it is sent
Every usage invoice is checked before sending: rated usage against the contract terms, this period against the prior period, invoiced usage against metered usage, and the credit or commit balance against the contract. Unbilled usage, a rate that does not match the agreement, a swing with no explanation, or an allowance applied twice is flagged while the invoice is still a draft.
Send, collect, and reconcile
The invoice goes out through the billing engine or directly, into an AP portal where the customer requires it, with the usage detail attached. Payments are matched back, and the four-way match between usage, contract, invoice, and cash stays visible for the customer, the auditor, and finance.
Recognize revenue from the same evidence
Usage revenue is recognized as the usage occurs, the fixed component ratably, prepaid credits as they are consumed, and variable consideration is estimated and constrained where minimums, tiers, and caps require it. The recognized figure links back to the metered events, so revenue traces to usage rather than to the invoice.
The pricing models and what each one needs
The six models that cover almost every B2B usage contract, and the term each one adds to the invoice.
Pure usage (pay as you go)
Quantity times rate, billed in arrears. Needs a reliable meter, a period boundary rule, and a decision on how late-arriving usage is billed.
Tiered usage
Rates that change with volume. Graduated tiers price each unit in the tier it falls in; volume tiers price all units at the tier reached. The contract must say which, because the two produce different totals from the same usage.
Platform fee plus usage
A fixed monthly or annual fee that usually includes an allowance, plus overage above it. The fee bills in advance, the overage in arrears, and both appear on one invoice or on a fixed schedule the contract defines.
Per-seat plus consumption
A seat count billed in advance plus a usage component billed in arrears, often with the allowance scaling with seats. Seat changes mid-period prorate; the usage allowance may or may not, and the contract decides.
Prepaid credits with drawdown
The customer buys a credit balance up front and usage draws it down at contract rates. Needs a balance ledger per customer, expiry and rollover rules, overage handling when the balance runs out, and low-balance notification. Common for AI products priced per token.
Committed spend with true-up
The customer commits to a minimum over a period. Actual usage is compared to the commit at the true-up date; shortfall is invoiced, and any excess is billed at overage or rolled forward according to the contract.
Overage rates and caps
The price of each unit above the allowance and any negotiated ceiling. Overage is where most negotiated exceptions live and where the billing engine most often disagrees with the signed contract.
Where LedgerUp sits next to Stripe, Orb, and Metronome
Those are metering and rating engines. LedgerUp can be the meter for teams that do not have one, or read from the engine for teams that do. Either way LedgerUp owns the contract terms, the pre-send audit, portal delivery, collections, cash application, and revenue recognition, which is the work an engine leaves to the finance team.
docs.ledgerup.ai
Open the usage billing configuration guide
Pricing model setup, credit balance rules, proration policies, pre-send audit thresholds, and engine connections are documented step by step on the docs site.
Go to docs.ledgerup.aiRelated reading
The pipeline from raw events to a rated, defensible quantity.
ASC 606 and IFRS 15 applied to usage, credits, and hybrid contracts.
The five pricing models and why usage billing leaks revenue.
Credit packs, drawdown, breakage, and the journal entries.
Where minimums and contract terms break Stripe meters, and what to do.
The four-way match between usage, contract, invoice, and cash.
Usage-Based Billing FAQ
What is the difference between metering and rating in billing?
Metering counts usage; rating prices it. Metering turns raw events into a quantity per customer, metric, and period. Rating applies the contract's rate card, tiers, allowances, credits, minimums, and caps to that quantity to produce a dollar amount. Most usage revenue leakage happens between the two: the count is correct, but it is rated against a plan configuration that does not match the signed contract. LedgerUp rates against the contract, whether it metered the usage itself or read the quantity from your engine.
How do I bill hybrid contracts with a platform fee plus usage?
Treat the two components as separate lines with separate schedules on one contract. The platform fee bills in advance for the period and usually includes an allowance. Usage above the allowance bills in arrears at the overage rate. On a monthly cadence, the invoice for month two carries the month-two platform fee and the month-one overage. On an annual platform fee with monthly overage, the annual fee bills once and a monthly usage invoice follows. The contract has to state the allowance, the overage rate, whether unused allowance rolls over, and whether the allowance prorates on mid-period changes.
How do I bill per-seat plus consumption on one invoice?
Bill seats in advance and consumption in arrears on the same invoice, with the seat line showing the count and unit price and the consumption line showing quantity, rate, and any allowance applied. If the allowance scales with seats (for example, 1,000 API calls per seat per month), the allowance line should show the calculation. Seat additions mid-period prorate the seat fee; whether they prorate the allowance is a contract term, and Ari applies whichever the agreement states.
What is the best way to handle prepaid usage credits and drawdowns?
Keep a per-customer credit ledger: purchases in, consumption out at the contract rate, with a running balance, an expiry date per purchase, and a rule for what happens at zero (bill overage, block usage, or auto-replenish). Invoice the credit purchase up front and recognize it as a contract liability, then recognize revenue as credits are consumed. Send low-balance notices before the balance runs out, because the worst outcome is silent overage the customer did not expect. LedgerUp maintains the balance ledger, drives the notices, and produces the drawdown journal entries.
How do I invoice customers for API usage overages?
Bill overage in arrears, on the same cadence as the plan, as its own invoice line showing the allowance, the actual quantity, the overage quantity, and the rate. Attach or link the usage detail so the customer can check it. The two things that generate disputes are an overage the customer did not see coming and an overage they cannot verify, so a usage alert when consumption passes a threshold of the allowance and usage detail on the invoice remove most of them. Ari sends both.
How do I prorate a mid-cycle upgrade on a usage contract?
Prorate each component on the contract's rule, usually by days remaining in the period. Take a monthly plan with a $2,000 platform fee and a 100,000-call allowance, upgraded on day 16 of a 30-day month to a $4,000 fee with 250,000 calls. The fee for the month is 15 days at the old rate plus 15 days at the new, or $1,000 plus $2,000. The allowance for the month is 50,000 plus 125,000 calls if the contract prorates allowances, or 250,000 if it grants the full new allowance from the upgrade date. Usage already consumed before the upgrade is rated against the old terms. Write the allowance rule into the contract, because it is the term most often argued about later.
How do I audit usage-based invoices before sending them?
Run four checks on every draft. Contract check: every rate, tier, allowance, and minimum on the invoice matches the signed agreement. Meter check: invoiced quantities equal metered quantities for the period, with late-arriving usage accounted for. Period check: this invoice against the prior one, with any swing above a threshold explained. Balance check: credit and commit balances on the invoice agree with the ledger. Ari runs all four on each draft and holds the invoice with the specific exception attached when one fails.
How do I catch unbilled usage before month-end close?
Compare metered usage to invoiced usage per customer and metric, continuously rather than at close. Unbilled usage comes from events that arrived after the invoice was cut, a contract whose usage terms were never set up in billing, a meter that was added to the product without a rate, or an allowance applied to usage that should have been overage. A daily unbilled usage report by customer, with a dollar value at contract rates, turns a close-week scramble into a routine exception queue.
How do I reconcile metered usage against invoices?
Do a four-way match: metered usage, contract terms, invoiced amount, and cash received, per customer per period. Metered against contract catches rating errors. Contract against invoice catches missing or wrong lines. Invoice against cash catches short pays and disputes tied to usage. Keep the raw events behind each invoice line so a customer challenge or an audit sample is answered from evidence rather than reconstructed.
What causes revenue leakage in usage-based billing?
In rough order of frequency: negotiated rates or overage terms in the contract that were never entered in the billing engine; usage metered but never rated because a metric had no price; allowances or credits applied more than once; minimums and true-ups never invoiced; late-arriving usage that missed the period and was never billed; proration done by hand on mid-period changes; and invoices that went out without usage detail and were disputed down. Every one of these is a mismatch between what the contract says and what the invoice did, which is why the fix is rating against the contract with a pre-send audit.
How should an AI company bill for token usage?
Most AI products land on prepaid credits with drawdown, sometimes with a platform fee, because it gives the customer spend control and the vendor cash up front. Define the unit precisely (input tokens, output tokens, or a blended credit unit), publish the conversion rate per model, meter at the request level with idempotent event IDs so retries are not double-billed, and keep a per-customer credit ledger with expiry and low-balance alerts. Enterprise contracts add committed spend with true-up and negotiated per-model rates, which is where the contract, not the price page, has to drive the invoice.
How do AI startups structure usage-based pricing and billing?
The common pattern is a free or low-cost tier, self-serve prepaid credits for small customers, and annual contracts with committed spend, a platform fee, and negotiated rates for larger ones. The billing consequence is two systems living side by side: card-based self-serve billing in Stripe or a similar engine, and contract-based invoicing with terms, portals, and collections for enterprise accounts. LedgerUp runs the contract side on top of whatever meters the usage, so the enterprise accounts do not become a spreadsheet.
Orb vs Metronome vs Stripe for usage billing: which should I use?
They are the same layer: metering and rating engines. Stripe Billing fits teams already collecting payments in Stripe with straightforward usage models. Orb and Metronome are built for high-volume event ingestion and complex pricing at larger scale. None of them reads a signed contract, submits invoices to AP portals, chases an AP department, applies cash from a wire, or produces the ASC 606 schedule. LedgerUp works with all three as the meter, or meters usage itself for teams that do not have one, and owns the contract-to-cash work around the engine.
What is the best usage-based billing software with built-in revenue recognition?
Decide which layer you need first. If you need a metering and rating engine, Stripe Billing, Orb, and Metronome are the usual choices, and Maxio and Chargebee add subscription management with revenue schedules. If you need the finance work done, from contract terms through invoice audit, portal delivery, collections, cash application, and ASC 606 or IFRS 15 schedules derived from the metered usage, that is LedgerUp. Many teams run an engine for metering and LedgerUp for everything the engine leaves to the finance team.