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PayPal’s Usage-based Billing helps you charge customers based on their actual usage of your products or services. This solution is ideal for businesses with variable, scalable, or on-demand offerings, and for merchants who want to align costs with customer usage and provide transparent billing. This solution works well for SaaS products where customer usage varies, including AI-focused software, cloud storage, analytics platforms, and communication services. The solution is especially useful for businesses that offer products or services whose usage is measured in tokens, API calls, or processing units.

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Key features

  • Usage-based charging: Boost revenue and retain customers by charging customers based on how much they use your product, instead of fixed fees.
  • Automatic billing: Predict cash flow with automatic billing cycles, real-time usage data, and flexible payment options.
  • Pay-as-you-use pricing: Attract customers by offering clear prices that remove cost barriers and build trust.
  • Automated operations: Scale operations with automatic invoice creation, batch data handling, and APIs that work with your current systems.
  • Flexible credit management: Improve customer satisfaction through promotional grants. Reduce payment friction and get paid in advance through prepaid credits.

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Use cases

  • SaaS platforms billing for API calls, storage, or compute time.
  • Marketplaces charging sellers based on transaction volume or listing activity.
  • Digital service providers offering pay-as-you-go features (such as streaming or cloud storage).
  • Telecom businesses, energy providers, and cloud service providers billing for actual usage.

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How it works

The following sections outline how the different stages of Usage-based Billing work.

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Setup

  1. Merchant:
    1. Activates Usage-based Billing for their PayPal Business account.
    2. Defines metrics that specify what to measure and how to aggregate the data.
    3. Creates features with privileges that define what customers can access and the specific limits within each feature.
    4. Creates pricing plans that combine metrics with pricing models, fixed recurring fees, minimum commitments, and trial periods.
    5. Offers the plans to customers.
    6. Optionally includes features in plans and sets entitlements with specific privilege values.
  2. Customer: Signs up for a plan and optionally purchases prepaid credits.
  3. Merchant:
    1. Registers the customer in the PayPal system.
    2. Securely saves their payment method.
    3. Creates a subscription linking them to a pricing plan.
    4. Optionally overrides plan entitlements for individual customers through subscription entitlements.
    5. Configures digital wallets for prepaid and promotional credits management when needed.

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Usage tracking and monitoring

  1. Customer: Uses the feature or service, performing actions that generate billable events.
  2. Merchant:
    • Records and sends usage data to PayPal as multiple single events or in batches.
    • Creates usage alerts with thresholds to monitor customer consumption.
    • Monitors customer usage charges through frequent API calls (polling) or through webhooks subscriptions.
    • Processes webhook notification payload and notifies customers.

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Billing and payment

  1. PayPal:
    1. Aggregates usage data based on metrics and calculates charges using the assigned pricing models and plan configurations.
    2. Generates invoices based on actual usage during the billing period.
    3. Captures payment.
  2. Merchant:
    1. Handles payment exceptions through payment retries.
    2. Reconciles billing and issues credit notes for refunds, billing adjustments, or dispute resolutions.

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Eligibility

Available country: Usage-based Billing is currently available for merchants in the United States. Account requirement: To use Usage-based Billing, you need a PayPal business account with approval for Expanded Checkout. When you sign up for a PayPal business account with PayPal Expanded Checkout as your product and complete all onboarding steps, PayPal reviews and approves your account.