Usage based billing - any advice?
Hi Indie Hackers,
I'm currently working on a project which I think is a good candidate for usage based billing. I'm wondering if anyone has experience building a SaaS with this kind of pricing model.
I guess my main concern with it is that you're always billing in arrears not knowing if someone's payment is going to fail at the end of the month etc. I've also heard advice which says to 'avoid this model, you're not amazon' kinda thing.
I'm still debating usage based or monthly, but usage of the product will likely vary quite a lot month to month. There is also the combination of both, to consider. E.g pay monthly for X, if you use more we charge Y extra.
Any thoughts or advice on the topic would be great :)
As far as pricing strategy, Tomasz Tunguz wrote a great post on 3 part tariffs pricing, which is really just a pricing model with 1) a base fee which 2) includes X credits 3) and then $Y overage per credit.
Looking at your website, it's similar to your current pricing if you added overage fees.
http://tomtunguz.com/three-part-tariffs/
On another note, whatever pricing you decide, it can and should be an iterative process, just like product development. Too many companies treat pricing as "set it and forget it" which leaves a lot of money on the table. For Airdoc, I imagine you'll change and update the tiers, how much you charge per credit, overage charges, etc. And that's okay.
The best way to started with pricing strategy is to understand the usage data around your product. That said, you might want to check out Cheddar, a usage-based billing platform. It'll help you flexibly configure your pricing tiers later on, without having to touch code. Cheddar also handles all of the nitty-gritty you mentioned, like checking for expired cards, dunning credit cards, emailing customers receipts, etc.
Cheddar free until you start processing transactions, too.
https://gtchdr.com/2uRlojV
Full disclosure: I work at Cheddar, and I'll admit, the marketing website is outdated, but the product is solid. Until recently, the team had focused on improving the product for our current customers (Cheddar was developed internally at a venture studio ), not marketing it.
Determining the right pricing strategy for your business is imperative for the overall, long-term health of your business. This is the kind of detail that can heavily influence the level of profitability of your SaaS. So, deciding on the pricing method is really a matter of testing, as you you need to find the one that best suits your business. Here is a step-by-step guide on usage-based billing, I hope you will find it helpful!
What do you consider "usage" for your product? Just curious. Is it how many times a specific feature is used, or e.g. metered to-the-second server usage?
Yeah that kind of thing, but based on API usage. Here's the landing page which explains a little more - didn't have this up when I posted originally https://www.airdoc.io/
I hate monthly billing systems that charge me regardless of how much I consume. To this end I like usage based pricing models.
But you can avoid the risk of payment failure by selling credits instead. For instance, users could pay $100 to get 1000 credits that get consumed every time the user uses your product.
Yeah great idea, that's what I've actually ended up doing for now, thank you! (only just got the landing page up https://www.airdoc.io)
Can I ask what you plan to do for a billing system to keep track payments and usage?
You can, though I haven't got as far as building that yet. Off the top of my head I guess some sort of transaction-like 'balance' table, whenever someone buys credits I add a row with positive value, whenever credits are used (documents being generated) add a row with a negative value.
Balance would be the sum of all values in that table?
Hope that helps? Let me know d you have any thoughts on it :)
Depends on the product! Can you share more about what it does, the niche, typical customer profile etc? What's the average order value?
I actually really like usage based billing, as it is ready to sell it as a "fair" pricing model.
Hey, yeah I really like the idea of not making people commit to something with varying value. It seems to be the consensus that it can be a good way to go. See links to the site in my previous comments for more info.