

What We Learned About Tiered Pricing vs Pay-As-You-Go - vu0tran
http://blog.framebase.io/post/49792280436/tiered-pricing-vs-pay-as-you-go

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dreeves
I have a proposal that's in one sense the best of both worlds: auto-canceling
subscriptions. Like where you automatically stop charging the user if they
stop using your service.

I take it that the cognitive overhead of perennially re-evaluating whether
you're getting your money's worth is a big reason developers like pay-as-you-
go. And the biggest reason you wouldn't be getting your money's worth is that
you're not using the service at all.

That's how my startup does our tiered pricing and I just wrote a blog post
trying to convince other startups to do the same:
<http://blog.beeminder.com/autocancel>

EDIT: I thought I'd try spinning off a separate discussion on auto-canceling
subscriptions if folks are interested:
<https://news.ycombinator.com/item?id=5664998>

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mijustin
Here are two good examples of successful SaaS apps that use both tiered
pricing _and_ pay-as-you-go:

1\. Mailchimp - <http://mailchimp.com/pricing/>

2\. Campaign Monitor - <http://www.campaignmonitor.com/pricing/>

I'm guessing that they do this to serve both markets: developers and B2B
customers.

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numbsafari
Why not offer both? In a manner similar to AWS, let me have the option to pay
for a fixed amount at a slightly lower cost and pay for additional "as I go"
at a slightly higher cost?

If I have no way to predict my baseline usage, I'll just stick to using the
no-guarantee price. But once I have an understanding of a baseline usage
amount, I'll commit to paying you in advance for a certain amount in exchange
for a slightly lower rate. If I don't meet my goal/quota, I lose it. If I go
over, I can buy more at the variable price.

Why does it have to be either/or?

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eropple
This is a pretty awesome article on the topic, and I tend to agree that it
pretty strongly depends on who you're targeting as a market. In my experience,
developers like pay-as-you-go, but management of most stripes seem to prefer
tiering, even if it isn't a company you'd necessarily call "enterprise".
Tiering might cost more money, but is less hassle--especially if you've got a
yearly subscription option.

~~~
brc
Speaking to prospective customers I have found that many want fixed pricing.
It's easier for them to get budget for $x than to get budget for $y and then
have to ask for $z because they used more data than expected.

So it really depends on the audience - if you have both audiences then you
need to have two plans - tiered and pay as you go.

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whyleyc
Can you comment on how you handle the fact that PAYG could be open to abuse
with customers running up large bills with API usage and then not paying them
?

I understand that if you're Amazon you can chase them down, but I'm assuming
most small startups wouldn't have the manpower to do this.

~~~
RobAley
Typically services set an internal "comfort" limit. When a client passes that
limit, it is flagged internally for review. You can then risk-assess: look at
who the customer is, what are they doing with it, do they have an incentive to
pay a large bill (i.e. would it kill their service if you cut them off for not
paying). You can then decide to let them continue, contact them for an interim
payment, or suspend their service if the risk is too high. While you're risk-
assessing them, they can continue to use the service (it's not automatically
suspended) so the customer need not know what is happening.

And of course, its usually wise to factor in a level of non/tardy payment into
your cash flow projections, as a realistic cost of doing business.

~~~
whyleyc
Thanks - this is a really nice approach as it doesn't interfere with customer
usage, plus you don't end up with runaway costs.

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philsnow
> Enterprise companies generally don’t like surprises. They plan their budget
> well in advance and having a service with a wide variable cost isn’t ideal
> when budgeting.

Possible solution: have pay-as-you-go pricing to begin with, and as soon as
your active marketing pings to enterprise customers go from "no, stop
bothering us" to "well, I'll bring it up to my boss", open up tiered pricing
for enterprises (branded clearly as such), but priced way higher than you need
to charge for each tier.

Argument: "enterprise" branding makes it clear to pay-as-you-go customers that
these are not the droids they're looking for. high-priced tiers let you plow
income back into R&D, but enterprises don't mind paying up (as much as pay-as-
you-go customers) because the person agreeing to pay is not paying with his
own money but the enterprise's [0]. Pricing the tiers high also gives you
wiggle room for when your own operational costs unexpectedly increase, so you
don't necessarily have to renegotiate a bunch of enterprise contracts right
away.

[0] I can't remember who made this observation or I would cite the blog link.
If somebody remembers and mentions it, I'll edit.

~~~
EdJiang
You're probably thinking about this:

[http://www.kalzumeus.com/2013/04/24/marketing-for-people-
who...](http://www.kalzumeus.com/2013/04/24/marketing-for-people-who-would-
rather-be-building-stuff/)

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dirktheman
Did you run A/B tests? I'd love read some more about the metrics! Also, wHy
not do both pay-as-you-go and tiered pricing?

~~~
tucaz
My thoughts exactly. Why not both?

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angersock
Minor nitpick:

So, I'm reading your article, digesting the information, and generally nodding
along with what's being said. About 2/3 the way through the page, a static top
navbar peeks its head down to remind me I'm on Framebase.

Now, the banner at the top of the page says, I'm on Framebase. The logo at the
top of the article says, I'm on Framebase. So, why is it necessary to have a
navbar pop out of nowhere to remind me that hey, angersock, you're on
Framebase?

You don't even have any links on it--it just comes out of nowhere unbidden. If
you insist on having it, why not just always have it at the beginning of the
page--why must it pop out and annoy me in the middle of your article?

~~~
epaga
Came here to say this. Also, as I tend to keep the point where I'm reading at
the top of the page while I'm scrolling, it covered over where I was reading.
Really annoyed.

~~~
malyk
Same issue for me. It kept blocking the line of text I was reading.

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danenania
It seems a little weird to me to approach pricing models from a "which does
the customer prefer?" angle. Tiers are just an arbitrary way for businesses to
set higher prices without being as obvious about it, so of course non-
enterprise customers are going to prefer usage-based pricing. Other things
being equal, customers want to pay less.

