Should you build or buy usage-based billing?

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When launching new products or experimenting with pricing models, AI, SaaS, and tech companies face a critical decision: should they build a usage-based billing system in-house or purchase an existing solution? This decision directly impacts time-to-cash, development resources, and scalability potential.

Usage-based pricing is one of those technical problems that has a very direct and tangible impact on revenues for a business [1], making the build vs. buy decision particularly crucial for companies implementing complex pricing models.

Why companies choose to buy usage-based billing systems

Accelerated implementation and reduced complexity

Companies implementing usage-based pricing typically require up to a year for transition, including changing service orders, billing systems, pricing pages, and training support and sales teams [2]. Purchased solutions compress this timeline dramatically.

Modern billing platforms enable implementation of usage-based billing systems in hours rather than months, making the process easy to build and maintain [3]. This acceleration directly impacts revenue recognition and customer onboarding capabilities.

Technical infrastructure advantages

Usage-based billing requires precise data collection in real-time, and integrating usage tracking with existing systems may require significant development effort where errors in data collection can result in inaccurate billing [4].

Implementing automated systems can be costly and time-consuming, especially for businesses experiencing rapid growth [4], while specialized platforms provide this infrastructure immediately.

Scalability and reliability

Legacy billing systems often lack capacity to handle increasing customer volumes or complexities of usage data, while manual processes are prone to errors and inefficiencies [4]. Professional billing platforms solve these scalability challenges from day one.

Managing complexities of usage-based billing requires specialized software with robust reporting features, flexible pricing configurations, and integrations with other business tools .

Challenges of buying usage-based billing systems

Companies face limited control over feature development timelines and must adapt to vendor capabilities. Data governance becomes complex when customer billing information flows through third-party systems. Dependencies on external support can create bottlenecks during critical billing periods.

Why companies build usage-based billing systems

Complete customization control

Building in-house provides unlimited flexibility for unique pricing models and business requirements. Engineering teams want to build usage-based pricing systems themselves because they don't want to be constrained by limits of particular SaaS products, and they could build something more fit for purpose for their company's existing tech stack and pricing models [1].

Long-term cost considerations

For companies with high transaction volumes, internal systems can potentially reduce per-transaction costs over time, though this requires significant upfront investment and ongoing maintenance.

Customer experience ownership

Direct control over billing systems allows companies to manage customer interactions without third-party dependencies, particularly important for enterprise customers with complex requirements.

Challenges of building usage-based billing systems

Development complexity and resource allocation

Custom billing software development costs range from $45,000 to $350,000 or more [5], representing substantial upfront investment without guaranteed timeline adherence.

Even after SaaS business development, it takes significant time and high cost to decide an appropriate billing model that aligns with clientele base demands [6].

Ongoing maintenance requirements

Implementing systems to accurately track and measure customer usage can be complex, requiring investment in metering technology and billing infrastructure, while ensuring data accuracy and transparency in usage calculations is vital to maintain customer trust [7].

Calculating usage-based billing manually tends to be extremely time-consuming and can lead to numerous errors [8].

Technical architecture challenges

Evaluating existing infrastructure is crucial to ensure it can handle real-time monitoring, tracking, and billing of usage, requiring review of current systems to identify gaps or limitations in handling usage data and mapping out current IT infrastructure focusing on systems involved in data collection, processing, and billing [9].

Technical requirements for usage-based billing systems

Core system components

Usage-based billing systems require metering to track and measure customer usage through software, sensors, or manual input; rating to translate usage into monetary value through predetermined rates; and invoicing to bill customers based on usage for predetermined billing periods with charges broken down by relevant time periods [8].

Infrastructure considerations

Accurate tracking and monitoring of customer usage poses primary difficulties, requiring precise data collection often in real-time or at regular intervals which can be challenging to achieve [4].

While implementing usage-based billing may seem technically complex, setting up accurate usage tracking requires the right systems but becomes manageable with proper platform selection.

Decision framework for build vs. buy

Business outcome assessment

• Revenue impact: Implementing usage-based billing leads to optimization in customer success and upsell opportunities, with many companies seeing significant revenue growth [10]
• Customer satisfaction: Flexible models align costs with actual product usage, leading to increased revenue potential for businesses and greater cost control for customers, fostering stronger customer relationships and encouraging product adoption
• Time-to-market: Implementation in hours versus months [3] directly impacts competitive positioning

Technical evaluation criteria

• Integration complexity: Integrating billing systems with software stacks enables accurate usage tracking, automated billing processes, and seamless customer experiences [11]
• Scalability requirements: Companies require usage-based billing software that monitors usage metrics and automates billing while handling complex billing scenarios and integrating with existing systems like CRM and accounting software [8]
• Customization needs: Evaluate whether standard platform capabilities meet specific business requirements

Implementation checklist

• Core competency: Buy if billing isn't central to your product's value proposition
• Resource constraints: As pricing gets more complex, businesses need new tools to support new models, with numerous software options available for metering, billing, automation, and pricing optimization [2]
• Timeline pressure: Buy for faster implementation when market timing is critical
• Scale requirements: Buy for high-volume event processing needs

Lago: The comprehensive usage-based billing solution

Lago addresses the build vs. buy challenge by providing an open-source billing platform that combines speed of implementation with unlimited customization potential. Lago's cloud solution delivers immediate value while maintaining the flexibility enterprises demand.

Rapid deployment capabilities

Lago enables implementation of usage-based billing systems in hours rather than months, making the process easy to build and maintain [3]. Lago can ingest events at scale while preventing duplicates [12], providing enterprise-grade reliability from day one.

Comprehensive pricing model support

Lago supports all pricing models, enabling creation of pay-as-you-go and hybrid plans through intuitive user interface or API [13]. The platform handles:

• Subscription billing: Automatic invoice generation for each customer according to plan models, with subscription fees billed at beginning or end of billing periods while usage-based charges are calculated at period end, including fees, taxes and customer information [12]
• Usage-based charges: Automatic calculation of customer charges and invoice generation depending on plan configuration [13]
• Hybrid models: Support for hybrid pricing including subscription fees and usage-based charges [3]

Advanced metering and analytics

Events provide information about customer consumption with highest granularity level, where any product feature requiring customer charges corresponds to specific events that can be triggered by actions or sent periodically, with aggregation processes converting events into billable metrics [12].

Enterprise integration capabilities

Lago API allows applications to push customer information and metrics from applications to billing systems, with integration possible through JSON HTTP API or Lago libraries depending on programming language or framework [14].

Key integration features include:

• API documentation for comprehensive development support
• OpenAPI specification for seamless integration
• Usage tracking guides for implementation best practices
• Pricing model templates for rapid deployment

Flexible deployment options

Users can utilize self-hosted versions to deploy Lago on existing infrastructure or request access to Lago Cloud to start using the solution immediately [12]. This flexibility addresses both speed-to-market and data sovereignty requirements.

Cost-effective architecture

Lago maintains transparency and won't nudge or lock users into specific tools in exchange for using the billing API [13], eliminating vendor lock-in concerns while providing professional-grade capabilities.

For companies requiring rapid implementation, proven scalability, and flexible pricing models, purchasing specialized usage-based billing platforms provides superior business outcomes compared to internal development. The technical complexity, compliance requirements, and revenue impact make Lago's comprehensive solution the strategic choice for companies seeking competitive advantage through pricing innovation.

Ready to implement usage-based billing without the development complexity? Explore Lago's capabilities to see how the platform can accelerate your billing implementation while maintaining the flexibility and control your business demands. Review the documentation to understand integration requirements, or examine pricing templates to see how leading companies structure their usage-based billing models.

Meta Description

Discover if you should build or buy a usage-based billing system for your SaaS or AI company, with pros, cons, decision frameworks, and why Lago is the ideal solution.

Citations

• [1] https://www.tinybird.co/blog-posts/usage-based-pricing-should-you-build-or-buy
• [2] https://docs.airbyte.com/integrations/sources/getlago
• [3] https://bizbot.com/blog/how-to-implement-usage-based-billing-step-by-step-guide/
• [4] https://www.subscriptionflow.com/2020/09/what-is-usage-based-billing/
• [5] https://appinventiv.com/blog/billing-software-development-cost/
• [6] https://tabs.inc/blog/usage-based-billing
• [7] https://openviewpartners.com/usage-based-pricing/
• [8] https://www.xyte.io/blog/implementing-usage-based-pricing-for-your-hardware-business
• [9] https://tridenstechnology.com/usage-based-billing/
• [10] https://apitracker.io/a/getlago
• [11] https://www.onebillsoftware.com/blog/implementing-a-usage-based-billing-model/
• [12] https://getlago.canny.io/developer-experience
• [13] https://github.com/getlago/lago-openapi
• [14] https://github.com/getlago/lago-api

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