How do I budget for software that charges by usage instead of per user?

Q: How do I budget for software that charges by usage instead of per user?

Work out what each tool would cost in your quietest month and in your busiest month, budget for the busy one, and set a monthly spending limit wherever the seller lets you.

If a tool charges per user, your monthly bill is the price per seat multiplied by the number of people on it. It only changes when someone joins or leaves. If a tool charges by usage, the bill is the price per unit multiplied by however much the software did that month. So you budget for your busiest month, not your average one, and you set a limit.

The rest of this piece shows the sums, so you can apply them to your own software bills and to any AI tool you are thinking of buying.

What is the difference between per-seat and usage pricing?

Per-seat pricing charges for each named person who can log in, whether they use the tool every day or once a quarter. Most of the software a small business already pays for works this way. That includes email and office packages, accounts packages with a user limit, and rota or job-booking apps.

Usage pricing charges for what the software does. That could be each document it reads, each message it drafts, each minute of a call it transcribes or each pound of AI use.

Many tools now sit in between. You pay a fixed monthly fee that includes an allowance, then a charge per unit above it. Treat this mixed kind as a third type when you compare prices, because it behaves differently from the other two.

Why are more tools charging by usage?

AI tools cost the seller money every time they do something, whoever is logged in. One person can set off a thousand pieces of work in an afternoon, so a per-seat price stops matching the seller’s costs. That is why many AI tools price by the job or by the amount of AI used. For you, the bill now follows how busy your business is, and headcount matters less.

What does each kind cost a business like mine?

Per seat. Say you have twelve staff and pay £10 a seat a month for a scheduling tool. That is 12 × £10 = £120 a month, or £1,440 a year. Now say two people left in April and nobody took their seats off. By the end of September that is 2 × £10 × 6 months = £120 paid for two people who no longer work for you.

By usage. Say an AI agent that reads your supplier invoices and enters them into your accounts charges 5p an invoice. An AI agent is software that does one job for your business. In a normal month you receive 1,200 invoices, so the bill is 1,200 × 5p = £60. If your year ends in March and the quarter’s bills all land then, you might get 2,000 invoices that month. The bill becomes 2,000 × 5p = £100. Same tool, same staff, two thirds more on the bill.

Mixed. Say a rival tool is £40 a month with 1,000 invoices included and 6p for each one above that. In the normal month you pay £40 + (200 × 6p) = £40 + £12 = £52. In March you pay £40 + (1,000 × 6p) = £40 + £60 = £100.

In the busy month the two tools cost the same. In the normal month the mixed one is £8 cheaper. You would not see that from either price list on its own.

Where do the surprise costs come from?

Per-seat bills go wrong slowly. Seats for leavers carry on being charged, and freelancers keep logins they no longer need. One catch is easy to miss. On many annual plans you can add seats at any time but can only remove them at renewal. A seat you add in a busy autumn can be charged until next autumn.

Usage bills go wrong quickly, in five ways.

Usage is often charged after the month ends, so your busy March shows up on April’s card statement.
Many tools bill in US dollars (as most frontier AI models are US based). The pound figure moves with the exchange rate, and your bank may add a fee for paying in another currency. The same usage can cost a different amount in pounds each month.
An allowance that seemed generous in the sales demo may only cover a quiet month.
Some tools sell prepaid bundles that expire at the end of the month or year. Anything you have not used is lost.
Spending limits vary. On some tools the limit stops the work when it is reached. On others it only sends a warning email while the charges carry on. Check which one you have before you rely on it.

If you are weighing up an AI tool now, you will want to know which jobs in your business are worth pricing up at all. Our free report gives three jobs an AI agent could take off your team, with our estimate of the hours each takes and what that time costs a month at your own hourly figure. You can apply at couragehorizon.com/free-report, and everyone who applies hears from us within five working days. If you would rather see one first, there is a whole example for an invented plumbing and heating firm at couragehorizon.com/free-report/example.

How do I compare two tools that are priced differently?

Turn every option into a cost in pounds for two months: your quietest and your busiest. For volume, use your own records, such as invoice counts from your accounts package, job numbers from your booking system or call totals from your phone bill. Do not use the seller’s estimate of a typical customer.

Take the invoice example. Say your quietest month brings 800 invoices and your busiest brings 2,000.

The 5p-an-invoice tool costs 800 × 5p = £40, then 2,000 × 5p = £100.
The £40 tool with 1,000 included costs £40 (you stay under the allowance), then £100.
A per-seat tool at £20 a seat for the three people who handle invoices costs 3 × £20 = £60 in both months.

The per-seat tool looks dearer in the quiet month and cheaper in the busy one. Even so, your three staff still do the reading and typing themselves. So put one more line beside the price: whose time the tool takes, and how much of it.

How should I set the budget?

Budget each usage-priced tool at its busiest month, not its average. If the busy month never comes, the money stays in the bank. If you budget the average, the busy month becomes an overspend you have to explain to yourself or your bookkeeper.

Then do three things:

Set a monthly spending limit where the tool allows one, at or just above that busy-month figure.
Ask your bookkeeper to put usage-priced tools on their own line in the accounts, so a rising bill is easy to spot.
Look at that line once a month, at the same time you check unpaid invoices.

Courage Horizon sets up AI agents for UK small businesses: software that does one job, such as chasing unpaid invoices, and asks you before it sends anything. Get a free report on your own business.