This post is based on the captions of a short Y Combinator video with the same title. The speaker is not named in the video’s title or captions, so everything below is drawn from what is said in the clip, plus clearly marked comments of our own.
Key Takeaways #
- Keep pricing simple when you choose it.
- Committed recurring revenue (monthly or annual recurring revenue) is preferable to usage-based pricing.
- In a downturn, committed revenue is protected at least until the contract comes up for renewal.
What The Video Says #
The speaker makes three points in the clip:
- When you are choosing pricing, keep it simple. Over-complicating pricing will kill a sales process in general.
- Committed recurring revenue, whether monthly or annual, is preferable to usage-based pricing. During an economic downturn or slowdown, your revenue is protected at least until the contract is up for renewal. Then you can have a debate with the customer about whether it is worth renewing.
- With purely usage-based revenue, there is a real risk that revenue falls off a cliff in a bad month, and investors are really wary of that. So aim for monthly or even annual recurring revenue.
Our Comment #
The video is a short piece of advice, not a study, and it gives no data. Whether committed or usage-based pricing is better depends on your product and customers. Some products fit usage pricing naturally, so treat the advice as a default to test against your own numbers.
