Recently saw this article on Twitter and thought it might be interesting to dig a bit deeper on this, plus, I have noticed a lot more software startups/companies are starting to engage in a more fluid pricing structure:
https://blog.sentry.io/2017/01/05/a-new-pricing-model.html
“We’re discarding our old, arbitrarily-capped plans and moving to a single, usage-based plan. The base price is $12/month and includes every feature, unlimited projects, unlimited users, and email support. You start at 50,000 events/month and for more events, you can either pay per event or prepay for discounts of up to 70%. Finally, you can stay on budget by setting your own spending caps or per-minute rate limits. This new pricing is available now to all new customers and will be rolled out to existing customers over the next few months.”
It’s basically ladders the revenue – on a revenue/user basis, there will be a long flat line to to the left and each incremental step upward will have a steeper slope (assuming this is where the majority of the margin is at. Anything after 50,000 events/month will be charged at a per event basis or prepaid discount. I think there are two majority advantages to this pricing structure:
1) Customer Incentive: The structure incentivizes users to use at least 50,000 events/month in order to prepaid discount of up to 70% [which sounds a lot by all standards from the user POV but the incremental cost to complete the task is probably minimal given the nature of their product]. It sort of like a cheap way to get customer to use the product more often and hopefully, ultimately pay more, but at the end of the day, if the product has value add, customer will come back [conducting surveys with clients/vendors to get real live feedback would be nice].
2) Margin Upside/Downside: HERE is a Pricing Calculator for their product. I briefly played with it a little bit and noticed the incremental in $/month between the different stages on/below average point on the chart have a incremental of ~10-14% but the incremental $/month for anything slight above the average point have ~20% increase and kind of goes back down to 14% towards to very right of the spectrum. If we were to lay all the pricing at different stages out on a spectrum, the lower 50 Percentile has 10-14% sales increase stage-over-stage, 75 Percentile has 20%, and 95% are back to 10-14%. This presents an interesting story in that the real margin add is in 75% percentile range and not the 95 percentile (aka the enterprise level) for this company. This is assuming the incremental cost of adding a new service per event is relatively plateaued the further right we go down the spectrum.
3) Revenue Risk: t avoids fitting all potential customers out there into two different pricing categories. Let’s say we have two pricing structure, one for SMB and another for Enterprise [Indeed Prime], we are basically saying all potential customers out there either SMB or Enterprise but the flaw is (1) these are very broad generic categorization and (2) all potential customers within SMB/Enterprise category have different appetite for risks. But fitting customer into these two categories we might potentially foregone some customers who might fall not belong in these two categories. Plus, we don’t want to let the customers feel they are overpaying for the service (we definitely want to make them feel they are underpaying for the service; value-add mentality)
Overall, I think we will see a lot more “fluid pricing” structure for software products, given that it allows a good balance between value-add for customer and margin protection/potentially more sales/revenue for the company.
Intersection notepad 