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Consumption-Based Pricing Model

Definition - 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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