Unit economics for usage-based SaaS pricing: calculate per-unit costs and margins

Unit Economics for Usage-Based SaaS Pricing

The shift to usage-based pricing offers incredible flexibility for customers, but for founders, it can create a fog of financial uncertainty. When revenue fluctuates with consumption, a simple question becomes surprisingly hard to answer: are we actually making money on our biggest, most active users? Without a clear understanding of your underlying costs, forecasting your cash runway feels more like guesswork than strategy. The key to navigating this is mastering your unit economics.

Successfully scaling a consumption pricing model calculation depends entirely on knowing your numbers. This guide provides a practical framework for how to calculate unit economics for usage based SaaS. We will break down how to define your cost unit, calculate your true cost of goods sold (COGS), and use that data to build a more profitable and predictable business, even without a dedicated finance team.

Step 1: Define Your Core 'Unit'

Before you can calculate anything, you must answer the fundamental question: what are we even measuring? In a usage-based model, the 'unit' is the single, repeatable action or resource that drives your variable costs. Your billing metric is not always your cost driver. A customer might pay per seat, but your internal costs might scale with data storage or API calls. Identifying the true cost driver is the critical first step.

This unit is the foundation for all subsequent SaaS profitability analysis. It must be something you can count reliably for every customer. The nature of this unit will differ based on your business model.

Consider these common structures:

• Infrastructure-as-a-Service (IaaS): The unit is often a direct measure of resource consumption. Examples include gigabytes of data stored, CPU hours used, or network data transferred.
• API-as-a-Service: The unit is typically tied to transactions. This could be the number of API calls made, documents processed, or records enriched.
• Platform-as-a-Service (PaaS): The unit can be more abstract but should still correlate with resource use. Common examples include monthly active users, messages sent, or events tracked.

Almost every early-stage SaaS team reaches the point where they must distinguish between what they bill for and what costs them money. Choosing the right unit makes everything that follows simpler and more accurate.

Step 2: How to Calculate Your Per-Unit Cost (COGS)

Now that you have your unit, what does it actually cost you to deliver one? This is your Cost of Goods Sold (COGS). For a SaaS business, COGS includes only the variable costs directly tied to providing your service to customers. It is crucial to separate these from your fixed operating expenses (OpEx) like salaries for R&D, marketing, or rent. For US companies, this aligns with US GAAP, and for UK startups, it is a key part of reporting under FRS 102.

Common SaaS COGS components include:

• Cloud Hosting: Costs from providers like AWS, Google Cloud, or Azure that scale with usage.
• Third-Party APIs: Fees for services essential to your product, like payment processing from Stripe, mapping data, or messaging.
• Direct Support and Success: The portion of salaries for team members who are directly involved in delivering the service or onboarding customers. This does not include the entire salary, only the time spent on cost-of-revenue activities.

The reality for most early-stage startups is more pragmatic; you will not have perfect per-customer cost data. The goal is to move through a 'Good, Better, Best' framework for allocation as you grow.

The 'Good' Method: Blended Average

This approach is simple and actionable. You sum your total variable costs for a period (like a month) and divide by the total number of units consumed. Let’s walk through a simple example for an API SaaS company calculating its blended cost per API call.

1. Sum Monthly COGS:
   • AWS Hosting: $15,000
   • Third-Party Data API: $3,000
   • Payment Fees (Stripe): $2,000
   • Allocated Support Staff Costs: $5,000
   • Total Monthly COGS: $25,000
2. Count Total Units: The platform processed 2,000,000 API calls in the month.
3. Calculate Per-Unit Cost: $25,000 / 2,000,000 calls = $0.0125 per API call.

This is a directional, not a perfect, number. It gives you an essential baseline for your SaaS cost per user or transaction.

The 'Better' and 'Best' Methods: Granular Allocation

As you scale, you can graduate to more sophisticated methods. This often involves allocating costs based on specific customer feature usage or using specialized tools like AWS Cost Explorer or Vantage to get true per-customer cost breakdowns. But for now, starting with a blended average is perfectly acceptable and provides immediate value.

Step 3: Analyze Gross Margin for Measuring SaaS Margins

With your per-unit cost calculated, you can finally determine if you are making or losing money on each transaction. This is measured by your Gross Margin, which is the revenue left over after accounting for COGS. It is a core metric for measuring SaaS margins and overall business health.

First, calculate your Gross Margin per unit:

Gross Margin per Unit = Price per Unit - Cost per Unit (COGS)

Next, calculate your Gross Margin Percentage:

Gross Margin % = (Gross Margin per Unit / Price per Unit) * 100

Using our previous example:

• Cost per Unit: $0.0125
• Price per Unit: Let's say you charge $0.05 per API call.
• Gross Margin per Unit: $0.05 - $0.0125 = $0.0375
• Gross Margin %: ($0.0375 / $0.05) * 100 = 75%

This 75% figure is a healthy sign. As a benchmark, the target blended Gross Margin for a software-centric SaaS business should be above 75-80%. If your margin is strong, you have more capital to reinvest in growth. Conversely, a blended Gross Margin consistently below 60% signals a need to review pricing or cost structure, suggesting prices may be too low or infrastructure costs are too high.

Step 4: Apply Unit Economics to Your Pricing Strategy

How do you use these numbers to design better pricing tiers? Your unit cost is the foundation. It’s the difference between guessing and knowing your pricing is sustainable. A common mistake is to set prices based only on competitor analysis or perceived value without understanding the cost floor.

Your unit cost of $0.0125 is your absolute breakeven point. This is your cost floor. While your pricing should be set by the value you provide to the customer (the ceiling), it must never go below this floor. This insight is transformative for designing usage tiers and volume discounts that are both competitive and profitable.

For example, a large customer requests a significant volume discount. Without knowing your unit cost, you might agree to a price that makes them unprofitable. But with this data, you can model the impact. You know that even at a 40% discount (a price of $0.03 per call), your margin remains healthy at 58% (($0.03 - $0.0125) / $0.03). You can confidently negotiate a deal that is attractive to them while still contributing positively to your bottom line.

This removes the anxiety from pricing decisions. Use this to model profitability for each proposed tier in your consumption pricing model calculation, ensuring that even your entry-level plans are sustainable.

Step 5: Improve Forecasting with a Bottoms-Up Approach

For founders, one of the biggest challenges with usage-based models is forecasting revenue and cash runway. When customer consumption is unpredictable, traditional top-down forecasting (“we will grow revenue by 10% month-over-month”) often fails. Unit economics enables a more accurate, bottoms-up approach.

Instead of guessing at a revenue number, you forecast the underlying driver: unit consumption. This method transforms your recurring revenue tracking from a reactive report into a proactive planning tool. The methodology is straightforward:

1. Project Unit Consumption: Analyze historical customer usage data. Look at trends for existing customers and layer in your sales pipeline's projected usage for new customers. Account for any known seasonality in your business.
2. Forecast Revenue: Multiply the projected total units by your average selling price per unit. This gives you a much more grounded revenue forecast.
3. Forecast COGS: Multiply the same projected unit count by your average cost per unit. This directly links your expected costs to your expected revenue.
4. Forecast Gross Profit: Subtract your forecasted COGS from your forecasted revenue.

This bottoms-up forecast provides a clearer view of your future cash flow from operations. You can now see how a surge in usage impacts not just revenue but also your cloud and API costs, preventing surprise bills and helping you manage your runway with far greater confidence.

Practical Takeaways for Your Business

Analyzing your usage-based SaaS metrics does not require a full-time CFO or complex systems. It begins with a focused, pragmatic approach. What founders find actually works is starting simple. Do not let the pursuit of perfection stop you from getting started. Calculate a blended, average cost per unit using the data you have in your cloud provider dashboard and your accounting tool, whether that is QuickBooks or Xero.

Use your unit cost as the non-negotiable floor for your pricing strategy and let value-based principles guide you from there. As you scale, revisit and refine your cost allocations. Finally, leverage this data to shift from unreliable top-down forecasts to a more accurate, bottoms-up model built on projected consumption. This discipline provides the clarity needed to manage cash flow and build a sustainable, profitable SaaS business. See the Unit Economics & Metrics hub for related guides.