What do you all think about revenue based pricing?

Interesting.

The gold standard for pricing is charging customers according to their ability to pay... and revenue is a good proxy for ability to pay. So that’s perfect.

Except... how do you know your customers’ revenue? If you’re Stripe, for example, your customers revenue passes through your platform, and you can charge a percentage of that, and, hey presto, you have revenue-based pricing.

But if you’re not Stripe, you probably don’t know your customers’ revenue, so it’s better to charge according to something you do know. For example, Slack knows how many people in your organization are using Slack, so they charge by number of users. Which also, incidentally, is a good proxy for ability to pay.

Bottom line: charge according to what’s easily determinable, as well as being a good proxy for ability to pay.

As @markjeffery mentioned...

The gold standard for pricing is charging customers according to their ability to pay... and revenue is a good proxy for ability to pay. So that’s perfect.

If that's the gold standard, I'd argue that it's best when coupled with the platinum standard: pricing most closely with the value your product provides to your customers. In general, charging for the value your customers receives from your product is more scalable and more fair than charging from just their revenue.

Chargebee has revenue-based pricing because they're in the payment processing and billing space. However, I'd argue that a better pricing plan for them would be to charge based on the number of transactions they generate, not their revenue. Note: I'm biased there.

My issue with charging based on revenue if you're not in the payment processing / billing space is that you might do something that significantly increases you're revenue, but it won't have anything to do with that tool that's charging you based on revenue. In other words, it's just a greedy, short-term pricing strategy.

I believe products should charge based on the value they produce for you, and that requires you to pinpoint a value metric, or some meterable component of your software that most closely aligns with the value your product produces for your customers.

For an email SaaS, that might be the number of emails you send or the number of subscribers you have. For a company like Twilio, that might be the number of phone calls or text messages you send. For a web hosting service, that might be the number of domains you have or gigabytes of storage you have. The list goes on--scroll down on this post to see more value metrics

As far as the pricing structure you mentioned, @sammkj, I think it's smart that you get rid of the revenue-based pricing as startups scale. When your customers are only making a $100's a month, a few dollars difference due to a percentage of revenue based pricing isn't that big of a deal. However, I'd just start with a pricing plan focused on a specific value metric from day one. After all, what about those businesses that are >$15,000 in revenue? I'm sure some of those customers might get way more value from your product than just $150/month. You should have a value-metric based pricing plan that reflects that, in my opinion.

Isn't Chargebee essentially value-based pricing?

As it's billing/invoices/subscription management software the best proxy to value received is either revenue or customers?

I use http://simplegoods.co/ for hosting/selling my low poly 3d asset pack ( https://household-poly.landen.co/ ) because it has revenue based pricing. It's hard for me to know how much I will sell and I dont mind paying a little higher percent to not have to worry about larger fees without revenue.

I say go for it!

It can be useful for clients who are just starting out because they have the peace of mind that they are not paying anything until they make money (for $0 plans with high percentage fee of revenue). Good for clients but could be bad for you as a business because you may end up supporting quite a few clients who may never make any revenue. So you have to consider that depending on your size.

If you don't have the capacity to support a large number of customers for free, then offering a $0 plan is probably not a good idea in my opinion even if it has a higher percentage of revenue sharing because a lot of clients may never make anything. I always prefer having a minimum fixed amount per month regardless of anything else.

Interesting. Thanks for introducing me to Chargebee. I rather like this model for starting out businesses. Not sure how i would down the line, but Chargebee seems to offer a good amount of useful things.