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Estd 4.22.2023
Below is our answer based on the principles and examples outlined in Price to Scale:
• The “right” minimum charge isn’t a one-size-fits-all number—it must be derived from your own cost structure and the value your customers receive. Price to Scale teaches that any usage-based pricing model should at minimum cover the underlying costs associated with each unit of usage while also delivering the margin you need.
• In our saas pricing book Price to Scale, we emphasize that you first need to identify your cost per usage unit (whether it’s a message, interaction, or other measurable action) and then incorporate an additional margin. For instance, if your cost per transaction is low, you might set a minimum per-unit price (or a bundled baseline fee) that ensures even low-usage customers contribute enough to offset fixed and variable costs.
• Our book also walks through examples where we used a 3-part tariff model – with a baseline fee, a per-usage charge, and an overage fee. In those examples (see Page 153 in Price to Scale), the minimum per-interaction charge was set (e.g., 30 cents per interaction) to both cover the cost and drive the right pricing psychology, while overage pricing was set at a premium to nudge customers toward higher bundles when appropriate.
• The takeaway is to conduct a detailed cost-to-serve analysis (as discussed in our book) so that your minimum charge not only protects profitability but also lines up with what customers perceive as fair and valuable.
In summary, determine your minimum usage-based charge by ensuring it covers per-unit costs and delivers margin—even at the lowest levels of consumption—while staying consistent with your overall pricing strategy.