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Usage-based billing, also known as metered billing, charges customers based on how much they use a product or service.

Instead of a fixed monthly fee, customers pay only for their actual consumption. This model is popular for services like cloud storage, API calls, or data processing.

It offers flexibility and fairness, aligning costs directly with value received.

At the heart of usage-based billing are meters and events.

• Meter: This is the specific resource or action you track. Examples include "API calls," "GB stored," or "minutes used."
• Event: A single occurrence that increments your meter. Every time a user makes an API call, stores a file, or uses a minute, an "event" happens.

Your system needs to record and report these events.

When designing your usage-based system, first decide what to meter. What defines "usage" for your service?

• Example: For a cloud storage service, your meter could be "gigabytes stored."
• Granularity: How often do you report usage? Instantly? Hourly? Daily? Stripe typically aggregates usage over a billing cycle.

Clearly defining your meter ensures accurate billing.

Stripe supports usage-based billing through metered prices.

You define a product (e.g., "API Access") and then a price that specifies a cost "per unit" (e.g., $0.01 per API call). Instead of setting a fixed quantity for a subscription item, you report usage records to Stripe.

Stripe then aggregates these usage records over the billing period and charges the customer accordingly.

To set up usage-based billing in Stripe, you'd typically:

1. Create a Product: This represents the service itself (e.g., "Cloud Storage").
2. Create a Price: Link this price to your product. Crucially, set its recurring.usage_type to 'metered' and specify the unit_amount (cost per unit) or tiers for graduated pricing.

This tells Stripe that the price is based on reported usage.

Once your customer is subscribed to a metered price, you'll need to report their usage to Stripe using the API.

You'll send a Usage Record for a specific Subscription Item, indicating the quantity used. Stripe then adds this quantity to the customer's current billing cycle total.

This is usually done server-side from your application as usage events occur.

Here's a simplified Java example showing how you might report usage to Stripe. You'd replace placeholders with your actual keys and IDs.

This example reports '10' units of usage for a specific subscription item.

Stripe aggregates all usage records for a specific subscription item within a billing cycle.

When the billing cycle ends, Stripe calculates the total usage based on the configured aggregate_usage for that price. This total is then multiplied by the unit price (or applied to tiers) to determine the final charge for that period.

The invoice is then generated and finalized.

Stripe offers different ways to aggregate usage for a metered price:

• sum: (Default) Adds up all reported usage quantities over the billing period. Perfect for API calls or data transfer.
• max: Uses the highest reported usage quantity during the period. Useful for "peak usage" models, like concurrent users.
• last_ever: Uses the last reported usage quantity. Great for "snapshot" billing, like storage used at the end of the period.

Choose the type that best fits your service.

Which of the following scenarios is best suited for a 'last_ever' aggregation type in Stripe's usage-based billing?

You've learned how to design and implement usage-based billing with Stripe!

• We covered the core concepts of meters and events.
• Explored how Stripe uses metered prices and usage records.
• Saw a code example for reporting usage via the API.
• Understood different aggregation types like sum, max, and last_ever.

This model offers great flexibility for both you and your customers.