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What is Flat Fee + Usage-Based Pricing?

This pricing model combines a recurring flat fee with an additional usage-based fee. It charges a certain base amount for the product, and generates additional revenue off of how much customers are using it. Usage-based pricing allows your customers to pay for your product depending on how much they use or consume it. This means your customers start paying relatively little when they first use your product little, but you still preserve the ability to generate more revenue over time because the price is ideally directly tied with the value a customer receives. You have to find one or several usage metrics that are tied to the value your customers receive. You have to be careful when choosing these metrics since you don’t want to choose any metrics that actively discourage your customers from using your product. By combining a Flat-Fee with a Usage-Based component, you can make sure that even customers who use your product relatively little at first still pay for the base value that you provide with your product.

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Why this model?

If you choose your usage metrics correctly, the value to the customer increases as they use these features more. On the other hand, your base product still offers value to the customer as well even if their usage is low - and you still get paid for that. So a flat fee + usage-based pricing lets you monetize both of these sources where your customers derive value. As an added bonus, per VC firm OpenView, since you aren’t limiting the number of users who can access your software, you’re opening the door for your customers to find new use cases. This is likely to lead to increased revenues in the long term.