Don’t Undersell your API!
Learn about the opportunity to upsell using an usage-based pricing model.
January 20, 2023
Getting customers is hard! From API-first startups to larger enterprise organizations, companies are launching and selling various API products to generate revenues for their businesses. The core of having a successful API comes in two parts. The first is the ability to build a product that people love and use often. The second is around efficiently pricing your product to ensure you are generating maximum value across your entire customer spectrum.
We will explore the various ways someone can bill for their API products and the benefit to adopt a sophisticated pricing strategy, including the ability to layer different pricing solutions.
For the purpose of this article, we're going to evaluate a business that is selling a financial data API that provides transcripts for public company quarterly results. This business is currently charging a single subscription fee. Their customers can access all transcripts for any quarter or company. They are charging an all-access subscription for their API product.
This all-access subscription is the most basic form of underselling your API product. You can imagine many different types of APIs allowing general access for a monthly price. This means that a user can access ALL of your API(s) and use as much as they want for a set price.
We will break down how someone using a tool like Archetype can extract more value and boost the customer experience for the end user.
Per seat pricing is one way to bill more accurately for your API. In addition to subscription access, billing via per seat (number of accounts) accessing your API can generate additional revenue. If you sell your API to a small organization, having a few accounts using your data might be okay. If you are now selling your API to Square, you might want to be conscious of the number of accounts accessing your data and charge a set fee per account on a monthly basis. You will also have the ability to sell seats at different prices. Retail investor seats can be priced separately from enterprise seats, which also might come in handy as some content might be restricted between the retail and enterprise groups for regulatory reasons or other.
Per seat pricing works best for generating revenue for larger organizations. Just as many SaaS companies will bill based on the number of accounts, API products can bill on the number of seats accessing your data/product. As you sign up larger enterprise organizations, you should be able to add extra revenue from this pricing model. Additionally, larger organizations are familiar with this pricing agreement and will most likely be comfortable paying on a per-seat basis.
Endpoint permissioning is another way to fragment your API based on the value of the content you are sharing with your users. Certain endpoints can be grouped or sorted by value, and charging a greater sum for more valuable endpoints is an easier way to generate revenues from your API than allowing general access. Here, we can imagine the same financial data API. With customer endpoint permissioning tools, you can price transcripts for higher trading volume public companies as more expensive, while less trafficked stocks - including micro-cap stocks with less demand - as less expensive. This remains true for other financial documents, such as 10Ks, 8Ks and more. All documents and forms can be sorted and grouped via different endpoints and price levels. People will pay for premium/more needed data.
Another way to bill around endpoints is by charging for endpoint groupings. You can group certain stocks into buckets and allow access to those transcripts as a single access point. Endpoint groupings might work well for a group of stocks such as FAANG (Facebook, Amazon, Apple, Google, Netflix), This would be structured as a single API endpoint while ESG stocks would be another API endpoint. In addition to stock groupings, forms/transcripts or other information can be grouped. Creating these endpoint groupings with tools such as Archetype has never been easier and should drive revenue for your business.
Endpoints can also be classified in other ways, such as by timestamp. Historical transcripts are of less value to users than those from the most recent quarter. You can think of this as people paying a premium for Bloomberg Terminals due to their known ability to provide data in real time with limited or no lag. Financial customers pay for real-time/ recent information and pricing endpoints around this model are no different.
Even in cases where you are looking to monetize your API products outside the financial field, endpoint permissioning and groupings can be a great way to extract this value. Usage Based Billing or metered billing allows for charging based on consumption. General access subscriptions are the least effective for extracting value for your power users.
If we assume you are selling your financial data API to a large hedge fund, they might be using all your transcript data many times a day across many team members. Switching their billing cycle over from a subscription plan and billing for their actual consumption (which is a lot), we can ensure we are extracting the most value here.
The spectrum of usage-based pricing models includes volume discounts, tiered pricing, and more. You can read about the differences and benefits on our blog here. Usage-based billing is best to allow your lesser users to pay less for their limited consumption while extracting maximum value from your power users. One-tier pricing models are common mistakes some API companies make around their self-serve options. This is similar in practice to a general use subscription model as you are allowing users to access all (or a majority of your tools) under a single pricing option.
Instead of self-serve products providing a single pricing plan to users, it is common for products to be split across a few pricing tiers (such as ‘Basic’ and ‘Premium’). Building out these various plans can intertwine the various billing options from above. For example, a ‘Basic’ plan might only allow x amount of usage across y number of accounts and less valuable endpoints, whereas the ‘Premium’ plan can offer unlimited numbers of seats and access to the most valuable API endpoints.
Only you know your users best and the best pricing strategy for each API company will differ. Many companies will choose to layer the various upselling tools across their product line across both self-serve and larger enterprise contract deals.
Good best practices are to layer various pricing tools that work best for your industry or customer base. This remains an iterative process and because of this uncertainty, Archetype enables users to easily launch new or edit existing pricing plans in just a few clicks to optimize revenues over time.
If you want to learn more about pricing tools and pricing strategies, reach out to firstname.lastname@example.org to learn more. We are happy to review your current billing systems, pricing plans, and revenues and find a way to boost income from your current customer base.