If you asked companies if they'd rather pay a random amount between 100$ and 500$, or always pay 500$, 9 out of 10 would opt for the latter. And if you don't understand why, then you've never spent any amount of time pondering a business's cash flow.
Why so ? You are perhaps referring to a business's ability to project/forecast cashflows which is critical but even then, if the number is always going to be less than or equal to 500, I would rather choose the first option.
That's also a big argument in favor of formulating seat-based pricing models as blocks as opposed to per seat. It reduces the update frequency.
In that case, totally agree with you. If, however, it was his own money, I am sure it would be a different story.
Oops, there goes thousands of dollars.
FWIW when I was recently involved in pricing an API, after much thought I decided the best option was tiered pricing with different rate limits (requests per hour) at each tier. At least with that structure you don't have to worry about angry customers with huge bills or customers bankrupting you with usage gone wild that they'll never be able to pay for.
The other risk of pure usage based pricing is that it attracts a cost-minimization approach to usage. That was my original plan but speaking to prospects put me off when I realized that many were willing to forgo all business sense and invest crazy amounts of development time to minimize API costs. And you still have to support them. (NB Yes you can have a base charge but many seem to think that inherently unfair when they have to pay for usage on top.)
I figured, since Keen is in the business of helping people with those predictions it would be a really awesome application of their own API. Customers could see their usage as part of the visualizing product and it would help them predict their bill.
Certainly, if we go this route, we'll make sure our users can readily monitor their usage so as to minimize surprises. Even still, we don't want our customers to have to kill the service in the middle of a billing cycle.
- always pay $500 vs. pay a random amount between $100 and $500, except when you have a really heavy month and you pay $3,000.
Utility pricing without the ability to set caps is problematic.