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Metered billing vs SaaS: Why I switched to metered billing


Metered billing

Updated on May 16, 2018

If you're running your own business you know one thing for sure: pricing is hard. It's hard because finding the balance between what's best for your business and what's best for your customers is an art and a science.

There's the science of looking at competitors, looking at your costs, and interviewing customers or running experiments to optimize conversion rates. Then there's the art of doing what feels right.

To be honest, Toofr's pricing never quite felt right. I didn't like having all those tiered plans, each with a different cost, different credit limit, and therefore a different cost per credit. It was confusing.

Here's how it looked before:

It's very standard. Very much like every other SaaS business out there. Three plans designed to drive adoption of the middle plan with some pretend feature differentiation that doesn't actually make a difference to my bottom line. It was just there as a game to play with my customers. I was doing it because everyone else was doing it and it didn't not work. Few people complained and my revenue grew, but I still didn't like it.

Then I started looking around and Sophie Bakalar's tweet caught my eye. She said, "9/10 subscription startups should not be subscription." It stuck with me.

It's so true. I was one of those 9 startups. I was adopting a revenue model that seemed to work well for me but was probably not the best experience for my customers who most of the time were leaving unused credits on the table. Although at some level that's the customer's responsibility and I could justify it in other ways too, the area that it was definitely not working for me was in high churn. At ~10% per month, my churn is wayyy too high. It is hard to grow a business with a bucket that leaks this much and leads me to believe that my customers are not actually clueless. They see that they're wasting credits and they quit.

If I can reduce churn, I will grow, even if it's a bit slower because of the lower revenue per customer. Retention, in the long run, is an enormous lever. A more honest, transparent, simple pricing model might improve it, and it's a bet I'm willing to take.

So I've introduced a new model: a single $29/mo membership and a single cost of a penny per email. That's it! The $29/mo includes 2,900 emails (yes, that's a penny each) and if you need more, you pay... you guessed it, a penny per email. It's not "overage" or any kind of penalty. It's just paying for what you consume, the way it should be.

Another thing: there's no more credits charged for converting company names to domains. Your cost will be a penny per email whether you use a company name or a domain to find it.

All of this is live now!

We'll see how it goes, but I don't think there's any going back to the old way. If I change anything, it will be in the price and number of credits (still at $0.01/ea) in the base plan. It's possible that I could go lower, but I don't think this market requires it. $29 is a low rate for B2B email marketing software. I think this price can hold.