Usage-based pricing vs seat-based: the model shift

Every January, gyms fill up. By March, they're empty again. The business model depends on this. A gym that had to serve every member who paid for a membership, every day, would collapse under its own economics. The model works precisely because most people don't show up.

Seat-based software pricing has operated on the same principle for years.

Companies buy fifty licences. Twenty-three people log in regularly. The other twenty-seven are ghosts in the system, their seats gathering digital dust while the invoice keeps arriving. Nobody on the vendor side mentions this. The customer's finance team occasionally does, usually right before renewal season. But the model persists because it's simple, predictable, and extremely profitable for the seller.

But that quiet arrangement is starting to break.

The seat tax

I saw this up close at Freshworks. We had enterprise customers paying for hundreds of seats. The dashboard told one story: X licences purchased. The usage data told a completely different one. Whole departments had access they never used. Some seats hadn't seen a login in six months. But we billed for them anyway, because that was the model.

The awkward part wasn't the billing. It was the customer meeting where someone from procurement pulled up their own usage reports and asked, calmly, why they were paying for seats that nobody occupied. I remember sitting in one of those calls thinking: we don't have a good answer for this. We had a contractual answer. We had a "that's how SaaS licensing works" answer. But we didn't have a good one.

I started calling it the seat tax. The price customers pay for access they don't use. And for a while, nobody questioned it because the alternative was messy. Usage-based pricing sounded elegant in theory. But in practice, it meant unpredictable revenue, harder forecasting, and a finance team that couldn't model next quarter with any confidence.

But here's the thing. The seat tax only works when the buyer doesn't notice. Or doesn't care. And buyers have started caring.

The alignment gap

The deeper problem with seat-based pricing isn't that it's unfair. It's that it's misaligned. The product delivers value when someone uses it. The pricing charges whether they use it or not. Those are two different conversations happening at the same time, and neither one acknowledges the other.

Pricing is the most honest conversation a product has with its users. When that conversation is dishonest, when you charge for presence rather than value, you create what I call the alignment gap. The distance between what the customer experiences and what the invoice claims they received.

At Grab, this gap was visible from a different angle entirely. The Southeast Asian market operates on patterns that make seat-based licensing feel almost absurd. You have teams where usage is deeply seasonal. You have operations spanning multiple countries with wildly different engagement levels. You have field teams who use the product intensely for three weeks and then not at all for two months. Trying to fit that reality into a per-seat annual contract was like selling a gym membership to someone who only needs a treadmill during monsoon season (which, in Southeast Asia, is roughly half the year).

The teams there didn't think about pricing as a finance problem. They thought about it as a product-fit problem. If the pricing model doesn't match how people actually use the thing, the product feels wrong even when the product works. The invoice becomes the user experience. And nobody in product was designing for it.

When the model breaks

The shift toward usage-based pricing isn't happening because it's trendy. It's happening because products are getting better at measuring what value actually looks like.

But the transition is genuinely hard. I've watched teams try to move from seat-based to usage-based and run into three walls immediately.

First, the revenue predictability wall. Finance teams built their entire forecasting apparatus around annual contracts with known seat counts. Usage-based revenue moves. It goes up and down with customer behaviour, seasonal cycles, and adoption curves. The CFO who signed off on a seat model can tell the board exactly what next quarter looks like. The CFO on a usage model has to explain probability distributions. That's a different meeting.

Second, the product design wall. When you charge per seat, the product can be a Swiss army knife. Users pay for access to everything, and if they only use the screwdriver, that's their business. But when you charge per usage, every feature interaction has a cost the customer can see. Suddenly, product teams need to think about which actions are worth billing for and which ones should be free. That's a design conversation that most product teams have never had, because the pricing model never required it.

Third, the customer psychology wall. Some customers genuinely prefer seats. A CFO who pays a flat rate per person sleeps well at night knowing the bill won't surprise them. Usage-based pricing introduces anxiety. What if the team uses more than expected? What if the bill spikes during a busy quarter? The simplicity of per-seat pricing isn't just a vendor convenience. For some buyers, it's a psychological comfort.

The honest middle

The reality forming right now isn't a clean victory for either model. The products making the smartest moves are the ones building hybrid approaches. A base platform fee (predictable, plannable, keeps the CFO calm) with usage-based components layered on top for the features where consumption actually varies.

But even the hybrid model only works if the product team understands something most pricing discussions skip entirely. The unit of value. Not the unit of measurement. Not the unit that's easiest to meter. The unit that the customer would point to and say: yes, that's what I'm paying for. That's what I got.

For some products, that unit is a resolved support ticket. For others, it's a report generated, a workflow completed, a prediction delivered. Getting that unit wrong is worse than staying on seats, because now you've built a usage model that charges for the wrong thing and the customer notices it every single month.

Most pricing conversations happen between finance and sales. The product team gets consulted, if they're lucky, about what can be metered. But the question of what should be metered is a product question. It requires understanding not just what the software does, but what the customer believes they're buying. And those two things are almost never the same.

The question underneath

The real shift isn't from seats to usage. It's from pricing as an administrative decision to pricing as a product decision. The model you choose shapes the features you build, the metrics you track, the customers you attract, and the ones you lose. It determines whether your product and your revenue grow in the same direction or slowly pull apart until someone in a quarterly review asks why the numbers don't match the story.

The gym figured this out decades ago. They know exactly who shows up and who doesn't. They built the entire business on the gap between access sold and access used. The question for every product team right now is simpler than it seems: do you want to be the gym, or do you want to be the class that's worth attending?