Would it make sense to set a maximum charge per month (a cap) in a usage model to protect heavy users from runaway costs, or would that unnecessarily limit revenue from our most active users?

Based on the discussion in Price to Scale, setting a maximum charge per month (a cap) in a usage-based model is a trade-off that must be balanced with your overall pricing strategy.

Here are some points from our pricing strategy book to consider:

• In our discussion of consumption-based models (see our 3-part tariff model), we recommend offering a base bundle with overage pricing that is intentionally set higher than the average unit price of the bundle. This approach creates an upward incentive for customers who consistently exceed their bundle limits, rather than softening the revenue extraction by imposing a cap.

• A cap might protect heavy users from unexpectedly high bills, aiding customer satisfaction and reducing sticker shock. However, by limiting what you can charge on heavy usage—even if the customer is willing to pay more—it may inadvertently cap your revenue potential from your most profitable, high-volume users. The goal of our tiered pricing model is to capture incremental revenue by encouraging customers to move to a higher bundle when their usage increases.

• The recommended approach in Price to Scale is to design the pricing blocks carefully. Structured block pricing allows you to offer volume discounts where appropriate while still maintaining the ability to extract additional value from heavy usage. This avoids the blunt instrument of a cap and better aligns with value-based pricing across different consumption levels.

In summary, while a monthly cap can offer peace of mind for heavy users, it may limit the upsell potential inherent in a well-designed tiered pricing model. Our book advises using graduated blocks and overage incentives to both protect users from excessive charges and drive them to higher-value plans when their usage justifies it.