I love pricing problems. So many of them are unlocked by focusing more on one of these two things:
- Customer pain and/or
I was speaking with Chris Jones, co-founder at Aquagenuity, a Startup Runway Finalist, recently about their scaling. One of their big opportunities is pricing their API for large enterprise technology companies. What’s the right price? Is there a right price?
Two Approaches to Pricing APIs
- The most popular API Pricing approach could be titled “snag the logo.” This strategy prices your API as low as possible so that you can count the client in your paying customers list. Unless it’s your first ever customer, it’s a terrible strategy.
- The best API Pricing approach however, is the second one— “loot the logo.” I’m slightly teasing with that name, but pricing the API at 4 or even 5 times what you believe the market will bear is a smart strategy. For one thing, you learn more—if your prospect tells you it is too much, you can always back down with “special terms” for them. But if you price high, you get big benefits—learning and earning.
If you lowball your API pricing and they say yes, you haven’t learned much and you’re earning even less. As your infrastructure scales, a low API price will lead you into bad decisions, uptime struggles, and a smaller staff.
Jones shared some of his background on API pricing with me and he did such a great job, I asked him if we could share some of the material he likes best:
More on API pricing:
- Value your model. If you are aggregating something no one else is, or doing permutations no one else can do, price that value in.
- Look for premiums. Is there something about your way of doing it that is unique in the market? Call it out and charge for that premium.
- Freemium it. Giving away a bit of your functionality for free can help you build customers faster. It works for plug-ins, and it can work for you. Get thoughtful about where the “tasting” should kick over into “ordering off the menu” and try to build that process in a seamless, self-service manner for your customer.
What else matters in pricing APIs?