Consumption-Based Pricing Model

What Does Consumption-Based Pricing Model Mean?

A consumption-based pricing model relies on the fundamental philosophy that customers pay according to the amounts of services that they use or consume. This is one of several prominent pricing models in cloud computing services and other types of IT vendor services.


Techopedia Explains Consumption-Based Pricing Model

The approach with a consumption-based pricing model is pretty basic. Vendor businesses will quantify the services that they provide, and charge customers according to their use. For example, a messaging service may charge per message. Services that are provided in real time may charge per minute or hour. This is similar to the types of setups that were common in primitive Internet cafés, where café owners charged per minute or hour for the use of broadband services through ISPs.

As a main pricing model, consumption-based pricing competes with something called subscription-based pricing. A subscription-based pricing model means that customers simply sign up for Web-delivered services on a daily, monthly or annual basis. Here, customers are not charged per use, but per unit of time as designated by their subscription to services. In other words, within the time frame of their subscription, customers enjoy infinite service use for a flat rate.


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Margaret Rouse

Margaret Rouse is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical, business audience. Over the past twenty years her explanations have appeared on TechTarget websites and she's been cited as an authority in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine and Discovery Magazine.Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages. If you have a suggestion for a new definition or how to improve a technical explanation, please email Margaret or contact her…