Putting Sense Into Pricing

0-499 users: $20 500-2,499 users: $30 2,500 – 4,999 users: $50

How many times have you seen this pricing system? As the amount of users increase cost per user decreases. These level-based pricing systems are common among web hosts, mailing list companies and a tonne of software as a service (SaaS) companies. It is undeniably common.

I certainly can not argue that decreasing the price per user with volume is a poor business model, it is not. My issue with this pricing system is what I will call the $20 customer (derived from the example). In this model the 500th & 2,500th user increases the cost by $20 and that is bad for business.

Yes, the average stabilizes when more users are gained but it is not always so simple. Take, for example, this pricing model applied to a project collaboration tool. I have 499 users in my project tool and happily pay my $20 per month. I hire a new contractor for a one-off project and want to add him into the project collaboration tool. My increased cost per-user is marginal but by adding one extra user my immediate cost is far higher. Even if I was adding 5 new contractors the cost is a huge leap.

Cheapos like me are far more likely to just not add the extra user (and the company loses some business). I’ve got friends who run e-mail newsletters and limit the amount of subscribers they have until large jumps in subscribers can be managed. Why? The same philosophy, a few users is not worth the $20 increase.

Now I look for companies with a little more flexibility. It’s great seeing some newer companies utilizing a price per user system. Now I’m far more likely to not limit my usage and allow lists to grow! It’s fair and flexible. The company loses no more money and are certainly no longer shooting themselves in the foot. I just wonder why the larger players are yet to wake up…..