Stripe Usage-Based Billing: Fixed Allocations with Overage Charges

Overview of Stripe's Usage-Based Billing Features

Stripe's usage-based billing is a common pricing model for SaaS businesses that enables you to charge customers based on their usage of your product or service. With Stripe Billing, you can set up and integrate different types of usage-based pricing models with your SaaS product.

The platform provides comprehensive tools for tracking usage, managing billing cycles, and handling various pricing structures to align costs with actual consumption.

Fixed Allocations with Overage Charges: Yes, Stripe Supports This

Yes, Stripe fully supports plans with fixed resource allocations and overage charges. This is implemented through their "Fixed fee and overage" pricing model.

The fixed fee and overage model allows you to charge a flat rate per month for your service at the beginning of the period. The flat rate includes some usage entitlement, and any additional usage (overage) is charged at the end of the period.

Three Main Pricing Models Available

Stripe's usage-based pricing includes three primary models:

1. Fixed Fee and Overage

Charge a flat rate per month with included usage entitlement, plus additional charges for any overage at the end of the period.

2. Pay as You Go

Track usage incurred over a determined period, then charge the customer at the end of the period. This model is also called "in arrears billing."

3. Credit Burndown

Collect prepayment for usage-based products and services. Customers use billing credits to pay an initial amount, and then apply their billing credits as they use the product.

Implementation Details for Fixed Fee and Overage Model

To set up the fixed fee and overage model, you can use the Stripe Dashboard or API with two prices within the same product.

Dashboard Setup Process

Create the Product: On the Product catalog page, click "Create product" and enter your product name and description.
Set Up Base Price: Under "Choose your pricing model," select "Flat rate" and set your base amount (e.g., $200.00 USD).
Add Usage-Based Price: Click "Add another price" and select "Usage-based," "Per tier," and "Graduated."
Configure Pricing Tiers: Create graduated pricing tiers where the first tier (0 to your included limit) has a $0.00 per unit cost, and the second tier (above the limit) has your overage rate.
Set Up Metering: Create a new meter to record usage, which will track consumption for billing purposes.

Implementation Options

You can set up usage-based billing through two different patterns:

Products and Prices: Use Products and Prices to create a meter, set up pricing and billing, and send meter events to record customer usage.
Rate Cards (Private Preview): Use rate cards if you only offer usage-based pricing and don't offer discounts or trials.

Best Practices for Managing Overages

Transparency and Communication

Be transparent from the start: Make sure customers know from Day 1 that their plan has usage limits and exactly what it costs if they exceed them. Clearly outline the terms of service—including any overage fees—in contracts and on pricing pages.
Provide proactive usage alerts: Alert customers as they approach their limits. Send notifications when they've hit 80% of their usage limit and again at 100%. This gives customers a chance to make an informed choice to slow their usage, accept the fees, or upgrade.

Pricing and Upgrade Strategies

Keep fees reasonable: Set your overage pricing at a level that reflects the value the customer receives. If possible, keep the overage unit price in a similar range as the regular price per unit of the plan.
Offer flexible upgrades: Make it easy for customers who consistently hit their ceiling to move to a higher tier. Make the upgrade process self-service and instant, and consider allowing midcycle upgrades with proration.

Customer Experience Enhancements

Consider rollover or grace periods: Allow customers to carry over unused units into the next billing cycle, or waive the overage fee the first time a customer goes over.
Implement overage caps: Consider capping overage charges within a period to prevent runaway bills. For example, cap overages at 2x the base plan cost and then require an upgrade beyond that.
Make high-usage clients feel valued: Implement overage discounts for high usage, similar to high-volume discounts. When customers significantly exceed their usage limit, decrease overage fees per unit.

Value Connection and Monitoring

Connect charges to value: Structure your plans so that extra usage translates to added value. Communicate that additional fees are connected to business wins for the customer.
Monitor overages and assist: Notify your customer success or sales team when major customers start accumulating substantial overage fees, so they can reach out personally. The usage might be a mistake or an opportunity to upsell a bigger contract.

Conclusion

Stripe's usage-based billing platform fully supports the fixed allocation with overage charges model through their "Fixed fee and overage" pricing structure. This approach provides the predictability of a base subscription fee while allowing for flexible scaling based on actual usage. With proper implementation and adherence to best practices for overage management, businesses can create a fair and transparent billing model that aligns costs with value delivered to customers.

References

[Overview](https://docs.stripe.com/stripe-data "Analyze business trends using Stripe data")[Schema](https://docs.stripe.com/stripe-data/schema "Learn about the Stripe data model") Custom reports Data Pipeline Data management United States English (United States) [Home](https://docs.stripe.com/ "Home")[Revenue](https://docs.stripe.com/revenue "Revenue")Usage-based billing # Usage-based billing ## Charge customers based on how much they use your product or service. [SUBSCRIPTIONS](https://docs.stripe.com/subscriptions) Usage-based billing is a common pricing model for SaaS businesses that enables you to charge customers based on their usage of your product or service. With Stripe Billing, you can set up and integrate different types of usage-based pricing models with your SaaS product. [Get started](https://docs.stripe.com/billing/subscriptions/usage-based/implementation-guide)

Usage-based pricing enables you to charge based on a customer’s usage of your product or service. Usage-based pricing includes models such as fixed fee and overage, pay as you go, and credit burndown. ### Fixed fee and overage ![](https://b.stripecdn.com/docs-statics-srv/assets/fcc3a1c24df6fcffface6110ca4963de.svg) Use the fixed fee and overage model to charge a flat rate per month for your service at the beginning of the period. The flat rate has some included usage entitlement, and any additional usage (overage) charges at the end of the period. You can use the Stripe Dashboard or API to set this up with two prices within the same product. For example, Alpaca AI introduces an advanced model called Llama AI. Priced at 200 USD per month, this model includes 100,000 tokens. They charge any usage above the included tokens at an additional rate of 0.001 USD per token. Dashboard API

* Under **Price**, create two graduated pricing tiers: First unit Last unit Per unit Flat rate First tier 0 100,000 0.00 USD 0.00 USD Second tier 100,001 ∞ 0.001 USD 0.00 USD 6. Under **Meter**, create a new meter to record usage. For the Alpaca AI example, use the meter name “llama\_api\_tokens.” 7. Click **Next**. 8. Click **Add product**. When you create subscriptions, specify both prices. ### Pay as you go ![](https://b.stripecdn.com/docs-statics-srv/assets/fcc3a1c24df6fcffface6110ca4963de.svg) The pay as you go model (also called “in arrears billing”) lets you track usage incurred over a determined period, then charge the customer at the end of the period. #### Rate cards private preview

The credit burndown model lets you collect prepayment for usage-based products and services. Customers can use [billing credits](https://docs.stripe.com/billing/subscriptions/usage-based/billing-credits) to pay an initial amount, and then apply their billing credits as they use the product. #### Rate cards private preview You can use rate cards to set up the pay as you go model. Rate cards are currently in [private preview](https://docs.stripe.com/release-phases). Contact us to request access. For example, Alpaca AI wants to sell a large enterprise contract to an existing self-serve customer for their new Llama AI Model. The customer commits to pay 100,000 USD up front for Llama AI, so they can get 120,000 USD of billing credit usage to use within 1 year. Dashboard API #### Collect prepayment from a customer![](https://b.stripecdn.com/docs-statics-srv/assets/fcc3a1c24df6fcffface6110ca4963de.svg)

1. On the [Product catalog](https://dashboard.stripe.com/test/products) page, click **Create product**. 2. On the **Add a product** page, do the following: * For **Name**, enter the name of your product. For the Alpaca AI example, enter “Llama AI.” * (Optional) For **Description**, add a description that appears at checkout in the [customer portal](https://docs.stripe.com/customer-management) and in [quotes](https://docs.stripe.com/quotes). * Under **Billing period**, select **More pricing options**. 3. On the **Add price** page, do the following: * Under **Choose your pricing model**, select **Flat rate**. * Under **Price**, set the **Amount** to `200.00 USD`. * Click **Next** 4. To add a second recurring price to the product, click **Add another price** on the **Add a product** page. 5. On the **Add price** page,do the following: * Under **Choose your pricing model**, select **Usage-based**, **Per tier**, and **Graduated**.

## Choose your integration![](https://b.stripecdn.com/docs-statics-srv/assets/fcc3a1c24df6fcffface6110ca4963de.svg) You can set up usage-based billing with two different patterns: * [Products and prices](https://docs.stripe.com/billing/subscriptions/usage-based/implementation-guide): Use [Products](https://docs.stripe.com/api/products) and [Prices](https://docs.stripe.com/api/prices) to create a meter, set up pricing and billing, and send meter events to record customer usage. * [Rate cards](https://docs.stripe.com/billing/subscriptions/usage-based/rate-cards) Private preview: Use rate cards if you only offer usage-based pricing and don’t offer discounts or trials. Otherwise, use products and prices. Create a rate card, subscribe your customer, record usage, and monitor servicing events. #### Private preview

* **Be transparent from the start:** Make sure your customers know from Day 1 that their plan has usage limits and exactly what it costs if users exceed them. Clearly outline the terms of service—including any overage fees—in contracts and on pricing pages. Periodically remind customers of these terms in a friendly way (for instance, a polite note in their monthly reports). * **Keep fees reasonable:** Set your overage pricing at a level that reflects the value the customer receives. If possible, keep the overage unit price in a similar range as the regular price per unit of the plan.

* **Provide proactive usage alerts:** Alert your customers as they approach their limits. For example, you might send an email or in-app notification when they’ve hit 80% of their usage limit and again at 100%. This gives customers a chance to make an informed choice to slow their usage, accept the fees, or upgrade. Offer usage tracking tools (such as a dashboard that shows how much of the allotment has been used) to empower customers and be transparent.

* **Offer flexible upgrades:** If a customer is consistently hitting the ceiling of their plan, make it easy for them to move to a higher tier that better fits their needs. Make the process of upgrading [self-service](https://stripe.com/resources/more/self-serve-subscription-management-and-billing-portals) and instant, and consider allowing midcycle upgrades with proration. Some companies also offer an auto-upgrade toggle or make automatic upgrade suggestions (e.g., a message saying, “You’re paying $300 in overages. Our higher plan is $250 extra and would eliminate those fees—would you like to switch?”)

* **Consider rollover or grace periods:** With rollover, customers can carry over any unused units into the next billing cycle. This can help customers feel like they’re getting the full value of their subscription. With grace periods, you can waive the overage fee the first time a customer goes over. A grace period can turn an otherwise negative experience into a pleasant one, and it reinforces your reputation as a fair partner. * **Make high-usage clients feel valued:** Some companies do “overage discounts” for high usage, similar to high-volume discounts. If customers significantly go over their usage limit, overage fees per unit decrease, which can lessen the feeling of being penalized for being a big client and can encourage heavy use.

* **Implement overage caps:** Consider capping overage charges within a period to prevent runaway bills. For example, you might cap overages at 2x the base plan cost and then require an upgrade beyond that. A cap ensures no single customer accidentally generates a massive bill they can’t pay, and it acts as a safety net for the customer and your business relationship. You can also offer an opt-in cap (e.g., “never allow my bill to go over $X without my approval”) to make users feel more in control.

* **Connect charges to value:** Structure your plans so that extra usage translates to added value. For instance, if an ecommerce business goes over its plan’s order limit because it had a record-setting sales month, you can tie the overage fee to a win for the business. Similarly, if a [marketing](https://stripe.com/resources/more/marketing-tactics-for-startups) team sends 2,000 extra emails and the campaign is successful, you can communicate that the additional fee is part of that success.

* **Monitor overages and assist:** Make sure to notify your customer success or sales team when a major customer starts racking up substantial overage fees, so they can reach out personally. The usage might be a mistake (such as an integration error spamming your application programming interface, or [API](https://stripe.com/resources/more/financial-apis-explained-what-they-are-how-they-work-and-how-they-are-changing-fintech)), or it might be an opportunity to upsell a bigger contract. Online billing platforms can send internal alerts to these teams or trigger automated workflows—for example, by creating a task in your customer relationship management (CRM) system when an account exceeds 110% of its allotment.