payforunused

Payforunused is a pricing concept in which customers are charged for reserved resources that are not utilized during a defined period. The aim is to monetize fixed capacity, improve resource allocation, and reduce overprovisioning by ensuring revenue is earned even when demand is lower than expected.

The concept appears in several sectors. In cloud computing, customers may purchase reserved compute or storage capacity and incur charges for the reserved portion regardless of actual use. In energy markets and utilities, standby or capacity charges compensate providers for keeping generation capacity available, even if it remains idle. In telecommunications and networks, operators may reserve bandwidth or circuit capacity with charges applied for unused portions. In rental and event services, cancellation or no-show fees function as related mechanisms that transfer some risk from the provider to the customer.

Implementation typically relies on comparing reserved capacity to actual usage over a billing period, with rules for proration, refunds, or nonrefundable minimums. Some models offer partial refunds proportional to the unused portion, while others impose a fixed reservation fee regardless of utilization.

Rationale and critique: Proponents argue that payforunused better aligns prices with fixed costs, improves capacity discipline, and reduces waste. Critics contend it can deter customers from reserving, disproportionately affect businesses with unpredictable demand, and add administrative complexity or regulatory considerations.

See also: capacity payment, reservation pricing, no-show fee, pay-as-you-go, standby charge.