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Usage-based pricing works great for core infrastructure type-stuff (think AWS, sendgrid, twilio), where the growth of your customers business inevitably means t

Usage-based pricing works great for core infrastructure type-stuff (think AWS, sendgrid, twilio), where the growth of your customers business inevitably means their spend with your business will also grow. Great incentive alignment for both parties. Subscription pricing works best for end-user tools that help a certain function do their job better (ongoing). Why? If your target customer has to ask their boss for more budget every time they want to use your product — your business is dead in the water.

cpncrunch 2y ago
Having different tiers for the subscription service works well. That way high usage users aren't sucking up all the resources without paying for them.
DANmode 2y ago
> Great incentive alignment for both parties. In many industries, the customer will feel punished for using the product - the opposite of what I'd want, as someone proud of the value their product provides. Therefore disagree, depending on the existing mentality in the niche.
hi-v-rocknroll 2y ago
As a corollary, one-time fees work well for utilities that accomplish a goal where there is unlikely to be an on-going customer relationship. Also, depending on the product or service, having a separate subscription or pay scale for individuals and businesses helps prevent sticker-shock for individuals and dismissal by corporations put-off by prices when they are too low.
- pembrook 2y ago
  Agreed. But also beware of customers who want to pay one-time fees for ongoing-need products, or to rephrase it; Ignore all pricing feedback you get from Hackernews. On HN you're mostly talking to a niche of people who are both a) consumers and b) spend all day in code, not end-user tools. Consumers, as a rule of thumb, mostly consume, and irrationally value their time at $0. They don't build things like companies do, so don't perceive any monetary value in doing something more efficiently via software like a company would. They'll waste hours of their life to save $5, because what would they be doing otherwise? Scrolling Instagram or watching YouTube, so who cares. Coders, as a rule of thumb, mostly code, and irrationally value the code of other people at $0. In the back of their mind they always believe they can "code up a better replacement in a weekend." Even though this is 99.99% of the time not true. So the intersection of these two groups could be the worst software market on earth.
  - paulddraper 2y ago
    100% true
  - hi-v-rocknroll 2y ago
    Every seller has to think critically themselves about how to structure pricing in a way that accounts for user benefit, market alignment, and OpEx. I recommend going through the BMG book process to be sure all of the big areas are considered. [0] > Coders, as a rule of thumb, mostly code, and irrationally value the code of other people at $0. In the back of their mind they always believe they can "code up a better replacement in a weekend." Even though this is 99.99% of the time not true. This comes across as reductive stereotyping lacking in nuance and denying individual abilities of real humans who may also happen to have other hustle skills like sales, advertising, and marketing. Please don't do this. 0. https://www.strategyzer.com/library/business-model-generation https://www.strategyzer.com/library/business-model-generatio...
    - SOLAR_FIELDS 2y ago
      I think it’s worth calling out how easy and common it is for software engineers to casually dismiss software they didn’t write themselves. If I had a nickel for every time I’ve seen someone casually hand wave away a mountain of complexity I would be a rich man.
thayne 2y ago
> Great incentive alignment for both parties. It can create unfortunate incentives though. For example, logging and metrics services that use usage pricing create an incentive to send less logs and metrics, which leads to reduced observability. OTOH, those are services where the cost for the provider scales somewhat linearly with the usage of the customer.

cpncrunch 2y ago

Having different tiers for the subscription service works well. That way high usage users aren't sucking up all the resources without paying for them.

DANmode 2y ago

> Great incentive alignment for both parties. In many industries, the customer will feel punished for using the product - the opposite of what I'd want, as someone proud of the value their product provides. Therefore disagree, depending on the existing mentality in the niche.

hi-v-rocknroll 2y ago

As a corollary, one-time fees work well for utilities that accomplish a goal where there is unlikely to be an on-going customer relationship. Also, depending on the product or service, having a separate subscription or pay scale for individuals and businesses helps prevent sticker-shock for individuals and dismissal by corporations put-off by prices when they are too low.

pembrook 2y ago
Agreed. But also beware of customers who want to pay one-time fees for ongoing-need products, or to rephrase it; Ignore all pricing feedback you get from Hackernews. On HN you're mostly talking to a niche of people who are both a) consumers and b) spend all day in code, not end-user tools. Consumers, as a rule of thumb, mostly consume, and irrationally value their time at $0. They don't build things like companies do, so don't perceive any monetary value in doing something more efficiently via software like a company would. They'll waste hours of their life to save $5, because what would they be doing otherwise? Scrolling Instagram or watching YouTube, so who cares. Coders, as a rule of thumb, mostly code, and irrationally value the code of other people at $0. In the back of their mind they always believe they can "code up a better replacement in a weekend." Even though this is 99.99% of the time not true. So the intersection of these two groups could be the worst software market on earth.
- paulddraper 2y ago
  100% true
- hi-v-rocknroll 2y ago
  Every seller has to think critically themselves about how to structure pricing in a way that accounts for user benefit, market alignment, and OpEx. I recommend going through the BMG book process to be sure all of the big areas are considered. [0] > Coders, as a rule of thumb, mostly code, and irrationally value the code of other people at $0. In the back of their mind they always believe they can "code up a better replacement in a weekend." Even though this is 99.99% of the time not true. This comes across as reductive stereotyping lacking in nuance and denying individual abilities of real humans who may also happen to have other hustle skills like sales, advertising, and marketing. Please don't do this. 0. https://www.strategyzer.com/library/business-model-generation https://www.strategyzer.com/library/business-model-generatio...
  - SOLAR_FIELDS 2y ago
    I think it’s worth calling out how easy and common it is for software engineers to casually dismiss software they didn’t write themselves. If I had a nickel for every time I’ve seen someone casually hand wave away a mountain of complexity I would be a rich man.

thayne 2y ago

> Great incentive alignment for both parties. It can create unfortunate incentives though. For example, logging and metrics services that use usage pricing create an incentive to send less logs and metrics, which leads to reduced observability. OTOH, those are services where the cost for the provider scales somewhat linearly with the usage of the customer.