In personal news, I’ve been brought on as the chief economist for Abio, a software as a service company specializing in enterprise software for Canadian construction firms. The company is technically decades old, but it’s in a process of transition that makes it feel much more like a startup.
The most fun thing I’ve done for the company so far is to develop a pricing model for their product. It’s not trivial, since they sell a multi-functional product to companies that vary widely in scale. Here’s a snippet of the post I wrote for their blog:
We want to encourage all of our clients to use more of our features so that rules out some common pricing SaaS models. Many SaaS companies divide their services into tiers, allowing users can buy additional functionality for additional money. Doing this would make Abio significantly less valuable to some clients, and we didn’t want to do that.
Charging everyone the same flat price is a total non-starter. Doing so would either mean pricing out smaller companies or losing money on bigger ones. So the clear answer is to charge by usage. Simple, right?
It’s not so simple.
Since Abio is a bundle of services, it’s not clear what kinds of usage clients should pay for. Charge for every kind of usage and we end up nickel-and-diming clients. This conflicts with our goals of making prices transparent and of encouraging clients to use all of our service’s functionality. On the other hand, if we just charge for one or two services, the system becomes gameable. Someone could strategically use all the free parts of the software and pay us next to nothing while eating up our resources.
The solution we came up with was to bundle the services together into packages and charge each client for the number of packages they use in a month. Effectively, this means you pay for the service you use the most. So one package can grant you A unique users, B workers on payroll, C paycheques, D quotes, etc. all for X dollars.
Yeah, get out your pencils. This blog post is a word problem now!
Read the whole thing at their website.