It’s me again. Here to give you some crazy good updates and goodies!

June was a whirlwind of a month at Togai ⚡

We built two major, game changing features from scratch and pushed it live to customers - all in just one month. Here’s a quick sneak peek:

1. Entitlements aka Feature limits: Allow or deny access to features based on their tiers and enable auto-upgrades. This is a way to implement your packaging without writing code.

2. Seat based subscriptions: Implement your seat based pricing model, no matter how complex, with just a few clicks

If you want a detailed walkthrough, we’re always just one click away

Get on a call

But read on for the low-down and some goodies.

June product updates:

1. Entitlements : These are your control switches. Entitlements in Togai let you define what your users can do inside your product - what features they can use and how much. Without any code. Set up feature gates or usage limits for features and build different flows for what happens when a user reaches these limits, with just a few clicks.

   

   For example, let’s take a whiteboarding software like Miro or Figjam. Say a customer is on their basic plan which allows for 3 whiteboards and 4 editors. What do you do when this customer goes over this limit? You can provide different options: purchase additional editors or whiteboards for a certain fee, or you may want to deny access while alerting your CS team about this so they can have an upsell conversation. With Togai you can implement all this and more!

2. Seat based pricing: If your pricing involves a “charge per user” component, you’ll love this! Togai now has advanced support for seat based subscriptions. Specify how many licenses are allowed for each plan and provide your users flows to add, edit or delete seats using Togai. We also support in-advance and in-arrears invoicing of licenses when there is a change in the number of licenses in the middle of the billing cycle. Want to only charge your customers for their licenses on a daily granularity? You can do that too, with Proration!

If these sound exciting, maybe give it a test drive yourself?

Try for free

Anyway, remember when I said I had some goodies?

Here’s the first one 🎁

A short primer on all things packaging.

We just saw how entitlements help you implement you packaging. But how do you go about packaging in the first place?

Is your packaging setting you up for success? What are some other packaging options you can consider? The next time engineering releases a feature, how do you determine which bundle it goes into?

Answers to all these questions are waiting for you ⬇️

Question 1: Is my packaging working well? OR should I take a second look?

If your answer to any of these questions is yes, then its worth re-considering your packaging:

1. Are you facing difficulty to upsell or cross sell?

2. Are your feature and product usage going up but your bill size remains the same?

3. Are you having to give increasingly large discounts to convert specific customer groups?

4. Are your win rates dwindling?

5. Have you just been giving away every new feature for free and not thinking if you should monetize it?

If your answer is yes, don’t worry - a good rule of thumb is to reconsider your pricing and packaging every month. Read on to see how exactly you can go about tweaking your packaging.

Question 2: Okay looks like I should change my packaging. Where do I start?

Start with your ICP.

In the initial stages, companies sell their products to anyone who is willing to buy. This lack of focus leads to 3 things:

• high CAC

• low win rate

• ineffective pricing

To build a compelling product proposition, you need to know who you're building it for. So you need to have well-defined ICPs to target profitable segments and adapt their products to fit these customers' needs through flexible offerings. It's important to understand the unique behaviours of each customer group. You can do this by analyzing data on feature usage or contract specifics. These variations form the basis for crafting different pricing and packaging strategies.

Question 3: Are there like, different packaging options? That I can consider and choose from?

Yep. There are 5! But most companies go for the Good/Better/Best model.

The first two are simple to implement. As you go to the right, it gets more difficult to set up and implement.

• A good example of Segment/role/use case structure is Gitlab. Gitlab has a buyer based pricing model - free was for individual developers, Premium for team leads and Ultimate for executives.

Whenever the product team built something new, we’d ask ourselves “who cares about this the most?” If it was the executive, it should go on the Ultimate tier. If it was the individual developer, it should go in the Free tier. Considering that the GitLab product org was shipping an average of 50 new enhancements or features each month, having this framework helped us make good packaging decisions at scale and across a large team.

-Scott Williamson, former CPO of Gitlab

• Good/Better/Best is a tiered model that provides

  • a basic/pared-down offering at a competitive price (Good) to attract a new customer,

  • essential/curated features to keep the existing customer satisfied (Better) and,

  • a feature-laden premium version to increase spending by customers who want more (Best), as highlighted in this HBR article.

• With the Modular structure, you need to beware. ‘Build-your-own’-models are most flexible but also very complex for prospects to understand. They can sometimes be seen as nickle-and-diming by the customer, can lengthen sales cycles, and put immense pressure on the sales team. Success hinges on customers and sales staff having a good understanding of the product to navigate its complexities, or on a customer base with very specific requirements. This model usually fits well to established firms in the enterprise segment, because the needs of enterprise customers differ greatly from one another. Two companies that did well with this packaging structure include Twilio and Medallia.

Question 4: How do I know which feature goes in which bundle? Or if it shouldn’t be in a bundle in the first place and become an add-on?

preached by Pricing consultancy Simon-Kucher & partners is to categorize features into “leaders”, “fillers” and “bundle killers” .

"Leaders" are the must-haves, like a hamburger in a McDonald’s, attracting customers and essential for all packages.

"Fillers" are the extras, akin to fries and coke, adding bonus value to a deal. Bundling these boosts customer uptake and increases the average revenue per user (ARPU) as they'd otherwise be cherry-picked a la carte.

The “bundle killers”, are the coffee of your value meal. Very few people want burger, fries, coke AND a coffee. Adding coffee to the value meal might even turn people off from buying entirely because they’d end up with more than they need. Sure, there will be a handful of caffeine-starved customers who do want the coffee. But they can be set up as add-ons that can be bought in addition to the main bundle.

Yep. That’s the end of the Primer.

Hope that was useful!

Moving on to Goodie No.2 🍪

This is for you if you are thinking about adding a usage based component in your pricing. Or wanting to completely move into usage based pricing model.

So last month we wrote a handbook - a strategic AND tactical guide on usage based pricing. It has everything you need to know to create and implement a usage based pricing motion for your products.

Here's a sneak peek of what you'll find inside:

⚡ Is usage based pricing the right fit for your product? What are the benefits? How do different categories and industries use usage based pricing for their products?

⚡The 3 step process to designing the right usage based pricing strategy for you - how to pick the right value metric, the pricing model and the pricing structure.

⚡Implementation checklist for GTM teams. What needs to change in your Sales, support and customer success teams when you're implementing a usage based component?

⚡Technical implementation - what does that look like? What are factors you need to consider before starting the implementation?

Give me the book!

Last but definitely not the least is Goodie No.3 🧁

We just introduced a FREE TIER in Togai!

If you’ve been having problems with the way your current billing system and processes work -

• maybe you’re having to constantly create workarounds and build internal tooling to make your billing system work for you,

• maybe everything is manual and you’re thinking “There must be a better way!”,

• maybe your current tool is way too big of a menace to work with and the support from your billing provider isn’t cutting it either.

  

Worry no more.

Togai is here for you.

Play around with the free tier yourself and if you ever need anything, we’re here to help!

Try Togai

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The year is 2050.
Human are on Mars and AI rules Earth.

Everything is different - the jobs, the economy, lifestyle, pricing…

Life as we know it has completely changed.

Wondering what this looks like?

Check out the comic book below for our fun take on how everything looks like in 2050.

Across the Spiderverse wasn't the only hit comic this week :)

Read Comic Book

2. How did Docker go from $54M to $135M ARR in just one year?

Despite being one of the most important companies in modern-day development, Docker was written off by many because they weren’t able to convert the value they were providing into revenue.

Competitors had come in and were chipping away at their market share. Their GTM strategy wasn’t working out and they were on a down trend.

But in 2019, everything changed.

They completely revamped their GTM direction and Pricing strategy.

The result? Their ARR jumped from $54M to $135M.

Thats a 150% increase in just a year!

Docker was back in the game stronger than ever and has only been growing since.

If you are wondering how Docker achieved this dramatic turnaround, here’s the scoop.

3. Togai updates

We are excited to announce that we raised our seed funding of $3.1M! 🎉

Read our Forbes feature here.

We are in a new era of software, powered by AI. Traditional billing systems from a previous bygone era are just not cut out to solve for the pricing & billing needs of an AI-first SaaS product. The vision for Togai is help the new age SaaS companies leverage pricing to power their growth, and to see billing as a strategic step in unlocking their revenue potential. By reducing the time to launch any pricing model from months to minutes, through our metering and billing platform, we enable companies to rethink pricing from the ground up and with negligible engineering effort.

We’ve also been busy rolling out some exciting features:

💵 Price plan versioning, scheduling, migration, overrides and archival: Togai now has extensive support for all the lifecycle stages of a price plan. Want to migrate customers across price plans? Maybe you want to edit your current price plan and move over a specific segment of customers today while scheduling the change to others? Do all this and more with just a few clicks.

🏖️Togai sandbox: Take a tour of Togai using our no-login public sandbox. The whole experience is tailored to your role and industry and can give you an idea about what you can achieve with Togai. Check it out!

💰Add custom charges: You can now add miscellaneous charges to an upcoming (one-off) or ongoing invoice.

Some really cool stuff like advanced seat based subscription management capabilities and entitlements are in the pipeline as well!

Want to watch it as a short video instead? Click on below!

When the pandemic disrupted our normal, it changed how we do business. However, Shopify experienced accelerated adoption (for obvious reasons). But when the pandemic slowed, the world was ready to return back to the old normal. That meant shoppers preferred to shop in stores, thus slowing the growth of digital retailers like Shopify. That’s when Shopify announced that they are hiking their prices for the first time in 12 years. Is it a genius move? Or one made out of desperation? I did a bit of digging around and here’s what I found about why they made such a pricing change and how it might impact them and their customers.

The first question that came to my mind “Why did they wait for 12 years to iterate with their pricing”. Followed up with “Should they have experimented with pricing and made small changes along the way?” 

Why did they make these changes now?

Here are my findings:

• Current changes in consumer behavior (After the pandemic, people preferred to go out rather than order online)

• When Covid disrupted everyone's normal, it positively impacted Shopify. They had to keep up the growth trajectory 

• Proactively prepare for the recession 

• Revenues need to keep up with the innovation brought to the table by the Shopify team.

The only way Shopify could keep this momentum is by activating a growth lever that makes an impact immediately. “Pricing” as a growth lever (4Ps of Marketing, remember?) has been untouched by Shopify. Not a single change in 12 years, remember? 

*Turns on*

Shopify's new pricing 

Monthly plan changes: 

• Basic plan -- increasing from $29 per month to $39 per month -- up 34%

• Shopify plan -- increasing from $79 per month to $105 per month -- up 33%

• Advanced plan -- increasing from $299 per month to $399 per month -- up 33%

Yearly plan changes:

• Basic plan -- increasing from $14.44 per month to $29 per month

• Shopify plan -- increasing from $39.44 per month to $79 per month

• Advanced plan -- increasing from $147.78 per month to $299 per month

Shopify+ plan remains unchanged at $2000 (Fun fact: Shopify Plus stores account for 3% of the top one million internet sites)

Inevitably, all hell broke loose after these changes were announced. 

Considering Shopify is a publicly traded company,  I looked into the balance sheet of Shopify for the last 6 years. This is what it looked like:

Also, I took a look into the annual report and found this! 

Only 26.6% of Shopify’s revenue comes from subscription services! 

and

73.4% of their revenue comes from Merchant Solutions! 

(Annual report of Shopify 22)

And Shopify is not making any changes to the pricing of its Merchant Solution services.

What can you learn from this pricing change? 

• Shopify cleverly nudges its current users to upgrade to a yearly plan (helping them save them a bunch of $). Thus, it increases retention and goodwill. 

• They didn’t make changes to Shopify+ as their biggest customers were there. 

• Clarity in communicating to their users via a blog post explaining the reason for the increase + emphasizing the fact that they have not made a change in the last 12 years. Read the blog here

Putting it into perspective

• The bottom 20% of the merchants use 80% of the support resources. If the prices were increased, they could churn. Or Shopify will now be able to allocate necessary resources for support. 

• It was no longer about how many companies used the platform. What mattered was the $ value processed via Shopify stores. 

• Shopify is way ahead of its competitors with the integrations, ease of use, free tools, and apps that they offer. With a $10 increase in their basic plan, they would still be one of the best tools out there at the said price. 

Why I think this price increase is justified

• They need to prepare for inflation

• They would need to keep the momentum up

• Big commerce is their biggest competition But Big-commerce is now more focused on mid-level to enterprise customers. They are not targeting small-size companies. Ultimately, there are no direct alternatives at the said price. 

While I empathize with small businesses who may feel the pinch, I believe Shopify needs to do what’s best for them. 

When you look at this from a value perspective—users will still be “willing to pay" to use Shopify. 

I predict churn will be minimal and so will new customer acquisitions. 

But who am I to make such predictions!? I will add to this article after the next quarter's results are out.

What do you think? How do YOU think they should have gone about this? 

Let me start with a stat - In Q1 of 2023, only a measly 2.3% B2B SaaS companies(with a public pricing page) made any change on their pricing. And I'm not talking about the monetary price changes alone. I'm talking marketing copy changes, changes in packages or bundling - just any tiny change in their pricing page at all.

Now, you might be wondering, "What's the big deal?"

Well, with the tech downturn and the freezing of buyers’ budgets, focussing only on acquisition, just won’t cut it anymore. Open up Linkedin and you'll see "do more with less" plastered everywhere(maybe not as much as ChatGPT, but it’s close for sure). Gone are the days where growth was mainly about cranking up that ad spend.Despite seeing your numerous ads, the reality is that your (very interested) buyer won't buy your product if they don't have the budget to buy more software.

Now, here's where it gets interesting. Did you know that your pricing growth lever is actually 7.5 times more powerful for driving growth compared to acquisition? And that's a big deal! The time is here for you to start paying closer attention to your pricing strategy.

But when should you focus on iterating your pricing?

And most importantly, how do you go about doing that?

In this edition of the newsletter, we go deep into these 2 questions. We’ll see how others have done it and provide you with a handy framework to apply to your own products.

Why aren't price changes as common as we might expect?

According to Ajit Ghuman(Head of Pricing at Twilio and author of Price To Scale), it's due to a variety of factors,

• A lack of understanding about how to approach pricing changes. It can be a daunting task, and many companies simply don't know where to begin.

• Nobody wants to rock the boat and risk driving away valuable customers by tweaking the prices. It's a delicate balancing act between maximizing revenue and maintaining customer loyalty.

• No dedicated pricing owner within organizations. Without someone taking charge and championing the cause, pricing tends to fall by the wayside, remaining stagnant and untouched.

• Pricing changes can be time-consuming and costly. “This is at least a year long project if you're overhauling your pricing” says Ajit. Natalie Louie from Zuora and Oracle echoes this sentiment, stating, "That's the hard thing with pricing. You can come up with all these great ideas, but it gets hard to actually build and implement them."

Now, here comes a shameless plug (we can't resist!)—this is precisely where Togai comes to the rescue. With Togai, you can make pricing changes and launch any pricing model without engineering effort, 10x faster.

Anyway, let’s get back to the article.

So When Should You Invest in Price Optimization?

This begs the question, “should I invest in optimizing my pricing now?”

John Kotowski(Founder of Buyerson Inc - a pricing consulting agency and PricingSaaS) has an excellent framework for how he looks at pricing iterations.

He says that every quarter, orgs should take a look at their product and see what they can do to improve revenue. “What's the one feature that will help us generate more MRR?" is the question one should be asking.

He recommends taking a look at your pricing and packaging to ensure you're not giving away valuable features for free, especially new ones. Consider segmenting your customers or bundling things differently to maximize your pricing potential.

Here's exactly what he told us:

Additionally, there are two other scenarios when companies should consider investing in price optimization and experimentation.

• The first is when external circumstances change, such as the economy turning and causing a significant decrease in revenue. You know, like now.

• The second is when customers hint at specific use cases directly or indirectly.

Now, onto another critical question!

How exactly do you go about implementing a price change?

Well, instead of bombarding you with a lengthy quote, I've got something even better for you—a concise 4-minute video. In this video, John outlines a step-by-step framework that provides clear guidance on how to optimize and increase your prices.

Well, that's the end of the guide. But before we end the newsletter, I would like to share some exciting news from our end.

Togai's integrations

In other news, I am PUMPED to announce that we're introducing integrations! We've spoken with 100+ companies and we've clearly seen that pricing (especially the internal workflows) looks different in every company. Most of these are manual, clunky and error prone processes leading to hours of manual effort, billing errors and angry customers.

This is why we decided to build integrations. We actually went one step ahead to build a marketplace which means that you'll be able to create automated workflows on your own but that's coming soon.

Today, we have tight two way native integrations with Zuora, Stripe, Zohobooks and Razorpay!

This means you can automate all your internal workflows and not just save time but also ensure that there are no more billing disputes.

I hope you found this guide was useful. Just remember that pricing is not a set and forget exercise. It’s a powerful lever that you can use to maximise not just revenue but also margins and profits.

OpenView reported that seven out of nine companies that went IPO with the best net dollar retention had a usage-based model. Nowadays, not only infrastructure companies but also API-based products and application software like Hubspot and Slack have adopted usage-based pricing. This model is particularly suitable for product-led growth companies as it focuses on delivering value to customers through its products, creating a sustainable revenue model.

In this article , we take a look at several successful companies that have implemented the consumption-based pricing model and how it happened.

Amazon Web Services (AWS) 

AWS (Amazon Web Services) is a cloud computing platform that provides a variety of services such as storage, computing power, and databases. Previously, AWS used a traditional pricing model where customers paid upfront for a certain amount of computing power. 

In 2006, AWS introduced usage-based pricing. Now, customers could pay only for the amount of computing resources they used and could scale up or down as needed. This made it more accessible and affordable for customers.

When it comes to pricing, Amazon has a Free Tier, which enables businesses to use a variety of services with certain restrictions for the first year. It also offers an Always Free tier with limited services. Although all Amazon services are priced on demand, discounts are available in several cases such as reserving services for 1 or 3 years, bidding on Amazon's Spot Instance market for spare computing capacity, or making a commitment to purchase a certain quantity of Amazon resources for the entire organization. 

UBP helped AWS significantly increase its market share and grow its customer base. It has made it easier for small businesses and startups to access AWS's services, which were previously out of reach due to high upfront costs. AWS has been able to reach traditionally cost-conscious SMB and middle-market with >1M customers to date. The flexibility of UBP also allows larger enterprises to better manage their computing resources and control costs.

Overall, AWS's transition to usage-based pricing was a game-changer in the cloud computing industry and helped establish AWS as a market leader.

Snowflake

It is a data warehousing platform that operates on cloud computing and provides storage, analysis, and data processing solutions. 

Before transitioning to usage-based pricing, Snowflake had a traditional pricing model forcing customers to estimate their storage needs in advance and pay upfront for a fixed amount of storage.

In 2018, Snowflake introduced usage-based pricing which is based on two consumption metrics: compute usage and data storage. The cost of computing is determined by the number of credits required to execute queries or perform a service. And the pricing rate for credits varies depending on the edition used: standard, enterprise, or business-critical. Likewise, the charge for storage is calculated based on the amount of data stored per month in bytes, along with the cost of transferring data between regions. The total compressed file size is utilized to calculate the storage bill for a given account.

It allowed them to differentiate itself from competitors and appeal to a wider range of customers, including smaller businesses and those with fluctuating data needs. By eliminating the need for upfront commitments and allowing customers to pay for only what they use, Snowflake was able to reduce barriers to adoption and increase customer satisfaction.

Also, as customers used more of the Snowflake platform, they would naturally pay more, creating a direct relationship between usage and revenue. This allowed Snowflake to capture more of the value it created for customers, leading to increased revenue and profitability. 

Algolia

A search-as-a-service platform that enables businesses to create fast, relevant, and personalized user search and discovery experiences. Algolia provides a suite of developer tools, including search APIs, search UI libraries, and analytics, that allow businesses to implement highly customizable search features on their websites, mobile apps, and other digital platforms.

Before transitioning to a usage-based pricing model, Algolia had a traditional pricing model based on the number of records indexed and the number of queries performed. This model was complex and often created friction with customers who found it difficult to predict their monthly costs.

With the UBP model, Algolia simplified its pricing by charging customers based on their usage of search features, such as indexing, query processing, and user analytics. This model allowed customers to pay only for what they use, eliminating the unpredictability and complexity of the previous pricing model.

UBP also helped Algolia grow and succeed by aligning its revenue with customer value. As customers used more search features and generated more value from the platform, Algolia's revenue increased accordingly. This incentivized Algolia to focus on delivering high-quality search experiences that drive customer success, leading to higher customer retention and revenue growth.

Algolia successfully transitioned to a usage-based pricing model by ensuring the following steps:

• They realized that pursuing growth without considering long-term implications could lead to poor decision-making. They shifted away from a sales-led growth model and embraced a product-led growth approach.

• The transition to the new pricing model took almost a year, during which they made significant changes such as modifying the service order, billing system, and pricing page, as well as training the support and sales teams. This investment of time was worthwhile.

• Nudged everyone to foster a PLG (product-led growth) mindset and adjust their approach to work. 

Datadog

Datadog is a cloud-based monitoring and analytics platform that provides businesses with real-time insights into their IT infrastructure and applications. They help customers monitor server and application performance, logs, and metrics, as well as provide infrastructure-as-code and security solutions.

Before transitioning to a usage-based pricing model, Datadog had a tiered pricing model based on the number of hosts or servers being monitored. It had limited flexibility and made it difficult for customers to adjust to changing needs.

Datadog's made the transition to a usage-based pricing model so they can increase the value they delivered to customers while also increasing their revenue. Here is an interesting fact: Datadog’s customers who spend $100k+ represent 72% of revenue, but only 6.7% of customers.

Further, by simplifying its pricing and offering more flexible payment options, Datadog was able to appeal to a wider range of customers.

Azure

Azure is a cloud computing platform offered by Microsoft. Previously, it had adopted a traditional pricing model based on a combination of upfront commitments and pay-as-you-go pricing. However, in 2012, Azure began offering a usage-based pricing model, similar to AWS and Google Cloud, where customers only pay for the resources they use.

Azure's services such as Azure Virtual Machines, Azure Backup, and Azure Logic Apps have shown remarkable growth due to their consumption-based pricing model. For Azure Virtual Machines, customers are charged for the time that the VM instance is in use, with the pay-as-you-go model being ideal for unpredictable workloads. Azure also offers reserved instances, where customers pay upfront for a fixed period of VM run time, and spot VMs, which provide deep discounts but customers lack control over when the VM runs. Their Azure Logic Apps uses a graduated tier pricing model, where the cost per unit decreases with increased consumption.

UBP allowed Azure to become a more customer-focused and agile company, and better compete with other cloud providers who were already offering usage-based pricing. Secondly, it enabled Azure to attract more customers who were looking for a more flexible and scalable pricing model. Further, it allowed customers to try Azure's services without having to make a large upfront commitment, which made it easier for smaller businesses to adopt Azure.

Stripe

Stripe is a payment infrastructure designed for businesses to accept payments and send payouts with ease. Their previous flat-rate pricing model was based on the transaction volume. However, in 2019, they introduced a new pricing model which allows their users to only pay for the services they use, based on the number of API requests made by their customers.The value proposition for customers lies in the per-transaction pricing, which remains constant irrespective of the transaction size, card type, or card-issuing network. Every customer is charged a fixed rate for each successful card charge, simplifying the payment process.

A consumption-based pricing strategy set them apart from the competition and helped them to attract more users, particularly startups and small businesses. It also helped them better monetize their platform by charging for additional services beyond payment processing. 

Twilio

It provides web service APIs that enable users to engage in communication functions such as making and receiving phone calls, and sending and receiving text messages. 

Twilio offered a more traditional pricing model based on per-user, per-month pricing, with different tiers for different levels of usage. Today, customers have the flexibility to choose from various pricing options, such as pay-as-you-go, volume discounts, committed use discounts, or a combination of these. Twilio's pricing model for its SMS product is based on a per-SMS basis, which effectively captures the value delivered to the customers.

Customers can experiment with Twilio's services without making a long-term commitment, and could easily scale their usage up or down depending on their needs. It improved the adoption and usage of Twilio's services, leading to significant revenue growth for the company.

Clearbit

Clearbit is an API-driven solution that enriches real-time data for businesses, providing enhanced market intelligence into prospects. The product integrates with various tools, such as Salesforce, G Suite, Outlook, HubSpot, Marketo, Zapier, Segment, and Tray. 

In 2018, Clearbit shifted to a usage-based pricing model from its traditional subscription-based pricing model. Instead of having to pay a fixed fee for access to the company's tools, customers can now only pay for what they use. The pricing model is based on the number of API requests made. This move enabled Clearbit to capture revenue from larger enterprise customers who were using the company's tools at scale and improve its customer retention rates. 

Zapier

Zapier is a productivity tool that streamlines repetitive tasks by automating workflows between different web applications. Previously,  Zapier offered tiered plans based on the number of zaps (automated workflows) and the features offered in each plan.

In 2020, Zapier announced a major shift in its pricing model, moving towards usage-based pricing where customers are charged based on the number of tasks performed instead of the number of zaps created or the features included in each plan. It provides a free version with certain limitations where customers can perform up to 100 tasks per month and have up to 5 Zaps active at a time. The free version also includes a 14-day trial of premium features.

For its professional and team-based plans (Zapier Pro, Team, Company, or higher), Zapier uses a usage-based pricing model. If customers exceed the task limit, they will be charged an overage rate per task. It is worth noting that Zapier recently achieved an Annual Recurring Revenue of $140 million.

This pricing model allows for greater transparency and predictability in customers’ billing. So it’s no wonder customers love it! 

Mailchimp

Mailchimp provides businesses with email marketing and automation software that facilitates customer communication and management. It also provides several audience engagement tools within its platform.

Earlier, it offered a tiered pricing model that charged customers based on the number of subscribers on their email list. The more subscribers a customer had, the higher their monthly fee would be, making it difficult for small businesses to afford the platform.

In 2019, Mailchimp introduced usage-based pricing for its email marketing service, allowing customers to pay based on the number of emails they send per month, rather than the size of their subscriber list. Users can opt for this pay-as-you-go model, which is ideal for infrequent senders. With this model, each email sent consumes one credit, and users can purchase credits as needed.Moreover, Mailchimp provides a free plan that permits up to 500 contacts and 2,500 monthly sends.

Slack

Many businesses today depend on Slack to effectively communicate and collaborate across teams. Before Slack transitioned to usage-based pricing in 2021, they had a tiered pricing model based on the number of features and amount of storage included. Customers were charged a fixed price per user per month, regardless of how much they used the platform.

Today, Slack charges customers based on the actual usage of the platform, measured in terms of the number of messages sent and calls made. Customers can choose from a range of pricing plans based on the number of active users and the expected usage levels.

The new pricing model allows customers to start small and only pay for what they use, while also providing flexibility to scale up as their usage increases. This has helped to drive adoption and usage of the platform, while also increasing customer satisfaction and retention.

Cypress

Cypress is a JavaScript end-to-end testing framework that is used for testing web applications. It allows developers to write automated tests that simulate user behavior, interact with web elements, and ensure that their applications are working as expected.

Before transitioning to usage-based pricing, Cypress had a traditional pricing model with a free plan and several paid plans with additional features. The paid plans ranged from $99/month to $299/month, depending on the number of parallel test runs and other features.

With the new consumption-based pricing model, Cypress offers four tiers tailored to different types of users: Free, Team, Business, and Enterprise. Each tier offers more features than the free open-source (Test Runner) product and caters to different sizes of teams and use cases. 

The new pricing model offers more affordable starting prices (the paid plan's price has been reduced from $100/month to $75/month). Customers can now pay for their exact usage starting at $6 per 1,000 test results. Cypress has also introduced two new plans, Business and Enterprise, that include access to features such as single sign-on, premium support, and complex integrations. The Enterprise plan comes with unlimited users, which is a first for the company and allows larger organizations to open up the product to their entire engineering team. The new pricing model has encouraged customers to proactively upgrade, and unlimited users have been a strong catalyst for expansion.

Even traditional subscription companies adopt hybrid pricing

In recent years, there has been a shift towards incorporating usage-based pricing models even by these traditional subscription-based companies like Salesforce, Zoom, and Box. Usage is a fence between their pricing packages.

Salesforce, a cloud-based customer relationship management (CRM) platform offers plans for a monthly fee, But it also offers usage-based pricing through add-ons such as Salesforce Inbox and Salesforce CPQ. These add-ons are priced per user per month. And usage is based on the number of actions taken within the add-on, such as the number of emails sent or quotes generated.

Similarly, Zoom, the popular video conferencing and web conferencing platform that grew popular during the pandemic, offers usage-based pricing through its Zoom Meetings platform. While Zoom Meetings is primarily sold as a subscription, customers can purchase add-ons such as Zoom Video Webinars and Zoom Rooms where usage is based on the number of attendees or the number of rooms, respectively.

Box, a cloud content management and file-sharing service offers both subscription and usage-based pricing through their Box Platform product. Box Platform allows developers to integrate Box's services into their applications, and pricing is based on the number of API requests made by the application. 

The incorporation of usage-based pricing by traditional subscription-based companies is a reflection of the changing landscape of SaaS pricing models. These examples stand by what we believe: Usage-based pricing is the future of pricing. 

Everyone in the developer fraternity would know of Docker! Docker is the most popular container platform. In fact, Docker has become synonymous with “containers.” 

Despite being one of the most important companies in modern-day development, the company was written off by many as they were unable to convert the value they were providing into $. 

Before Docker was Docker, it was DotCloud. It was 

• Founded in 2010

• Raised seed capital from Trinity; Series A ($12M) from Benchmark Capital

• Positioned as a PaaS (Platform as a service) company—basically could run programs in any programming language. 

Unfortunately, the market did not develop as anticipated, and the momentum was declining. Solemn, the founder, suggested outsourcing the container technology that they had created for DotCloud.

(Wait...what?) 

He believed that the developer community required the container technology developed for DotCloud. However, the board instructed Soloman to search for a merger or acquisition deal to sell the company. After consulting with several individuals, Soloman reaffirmed his intuition and decided to pursue the development of what we now know as Docker.

What does Docker do?

Docker is a tool that makes it easy to create and run small, isolated environments called containers, which can hold individual software applications and their dependencies. Think of it like a virtual box where your application can live and run without interfering with other applications on your computer. Docker provides a version of this tool, called Docker Desktop, for both Mac and Windows users, enabling them to use containers on their personal computers. Additionally, Docker offers a service that acts as a storage hub for these containers, similar to how Google Drive stores files. They also provide a security scanning feature to ensure that the containers are safe from potential security threats.

[Insert picture explaining what they do]

What was Docker’s Monetisation strategy?

Docker become viral among the developer fraternity! As of 2018, they had 37 billion containerized applications downloaded. With this, it should have been quite easy to monetize, right? 

Wrong! 

They went the Redhat way. 

Approach?Top-down sales

Who did they sell to? Operations

Who used their product? Developers

Who did they want to sell to? Enterprises 

How did they productize their product? They helped IT manage new container workloads. 

Unfortunately, this did not work. It hardly drove any revenue. 

Why didn’t their monetization strategy work?

• Docker's initial monetization strategy failed primarily due to the misalignment between its target audience and its sales approach. By opting for a top-down sales strategy and targeting operations and enterprises, they overlooked the developers who were their core users and most passionate advocates. This disconnect meant that they struggled to gain traction with their offerings, as the ones using the product were not the decision-makers in the buying process. 

• Additionally, they were late to the market in monetizing their product, which allowed competitors like Google, Amazon, Microsoft, and IBM to position their Kubernetes-based services as alternatives. 

This combination of misaligned audience targeting and strong competition from industry giants resulted in Docker's initial monetization strategy falling short of expectations.

However, were they too late?

The big guns in the technology world began to monetize!

Google open-sourced Kubernetes. 

Kubernetes is a tool that helps manage and organize multiple containers, like those created using Docker, across several computers or servers. Imagine it as a conductor in an orchestra, coordinating the performance of various musicians, ensuring they play in harmony. In this analogy, the musicians are the computers or servers, and the music they play represents the applications running inside the containers. Kubernetes makes sure that these containers work together seamlessly, automatically handling tasks like scaling the number of containers up or down based on demand, distributing the workload evenly, and recovering from failures. It ensures that your applications run smoothly and efficiently, even when spread across multiple machines.

The likes of Google Cloud, Amazon, Microsoft, and IBM positioned Kubernetes as a managed service. 

Docker was on the brink of failure!

• Despite raising over $200M, they didn’t have a substantial ARR 

• They sold its enterprise and swarm business to Mirantis. 

• They downsized their team from 420 to 60

Docker wanted to re-focus its efforts and build for developers (something they knew best)!

Have to say, Docker was written off at this point. 

But it wasn't the end.

2019—a turning point for Docker

The New Stack from May 2019 cited the following in an article: 

"Docker had a bit of a rough patch last year, but it seems that the container darling is getting back on track. The company is starting to make some important changes that could see it become a more viable business. In fact, some experts predict that 2019 could be a turning point for Docker."

Here are some changes they implemented: 

• raised another $35M in funding

• changed their GTM Strategy (since they wanted to build and sell to developers, similar to Github & MongoDB)

• made changes to its pricing and included Docker desktop in all its plans. At this juncture, the company had 5 million users in total. 

• introduced three paid subscription tiers: Personal, Pro, Team, and Business

• continued to provide “free plans for personal use” and “non-commercial open source projects," categorizing some users into the “personal” category, and some into the ‘pro’ category 

• introduced a commercial Docker license for ‘For-profit organizations with more than 250 employees and more than $10 million in annual revenue’ 

And the need for introducing the new pricing strategy: “reflect our need to scale our business sustainably and enable us to continue shipping new value in all Docker subscriptions”. 

You can read the pricing announcement change written by Scott Johnson here.

How did this change affect revenues? 

source:https://prismic-io.s3.amazonaws.com/sacra/89a8abd4-5a25-4ac7-90ad-92d6453bb0d6_Docker+rev+growth.jpg

• People were willing to pay—Docker has over 1 Million paid subscriptions (7-10% of Docker’s 15M users have upgraded to paid tiers)

• Revenues skyrocketed to around $135M (22)

• Over 70% of the Fortune 100 companies are its customers

• Added 2 Million users in one year (21-22)

• Raised $23M at a valuation of $2.1B

• Growing at around 170% YoY

• Currently, Revenue stands at around $135M

The pricing change worked for Docker because it addressed market needs, increased the value proposition, provided a clear and tiered pricing structure, captured existing demand, retained a free option, focused on sustainable growth, and strengthened Docker's market position.

As Tribe Capital put it, Docker’s story is definitely the Phoenix Saga. Also, the story lays out six things for me: 

• Importance of knowing when to pivot

• Doubling down on gut as opposed to consensus 

• Building a product loved by the end user

• Building a community early on 

• Having a well-laid-out monetization strategy (and knowing when to monetize). One single pricing change in 2021 - increased Dockers revenue from $54M to $135M in 1 year. 

This is the prime example of using pricing as a growth lever, don't you think?