How to price your web service: pay-per-unit bought

Cost-plus pricing: not

In many businesses the pricing model is Cost-plus pricing, which is based upon the cost price plus a margin to cover overhead costs and make a profit.
Although this suits the vendor, it doesn’t suit the buyer.
We believe a pricing model needs to:
- Appeal to the customer by the metric used. Metrics: something which the customer relates to.
- Give him value for money. Value for the problem it solves.
- Be easy to calculate and easy to understand by the customer.

The best is when the pricing is based upon the quantities of goods or services that are actually supplied to the customer.

Pay-per-unit bought

The web service LEADSExplorer reveals the company names of the website visitors and provides additional information about their interest, origin and other characteristics and data.
The complete package is combined with a CRM with more functions and features to serve:
- Marketing
- Mainly Sales people
in their quest for more revenue at the best cost by improving both lead generation and customer retention.

As this service is based upon the website visitors it would be obvious that the service would be priced by the number of visitors per month and the number of users.
This is the actual cost driver for the service and would be typically used with a Cost-plus pricing. Just like most web analytic solutions calculate their pricing.

However there are a few facts against the number of visitors:
- VP marketing and especially VP sales or Sales Managers are in most cases not aware about the number of monthly visitors to their website.
- The number of visitors can fluctuate significantly throughout the year giving changing sales prices for the service.

Leads and customers

What best relates to VP Marketing and VP Sales (or Sales Managers) are leads and customers.

Leads
The number of leads is directly related to their business:
- They know the number of leads a sales rep can handle.
- They should know roughly the cost of a lead (cost trade show divided by the number of leads)
- They know the value of a lead
Thus leads are the metric what people in Marketing, Sales and even management relate to.

Customers: links
If the customers are in the CRM data base, LEADSExplorer recognizes and register whenever a visitors is from a customer company. The user can link the visiting company to the customer.
Thus these links are the second metric.
Linking is important as customer retention is in most cases more profitable than generating new customers.

Pay-per-lead and Pay-per-link

As LEADSExplorer works for both:
- Discovering website visitors by company name: Lead
- Customers being discovered on the website while they visit: Link
Thus we opted for a pricing model on the number of Leads and the number of Links.

We decided to unify the pricing of both in order to keep the pricing model simple.
You could argue a “Link” would have lower value than a “Lead”, however in case of LEADSExplorer the value for our customers should be the same, as features and functions are provided for improving the nurturing and retaining of customers.

In order to simplify the quantities were grouped in buckets with each an amount of Leads and/or Links.

Total amount Leads/Links by customer
In the course of a month certain sales people will have more Leads and/or Links than their colleagues. This can be reversed the next month when the other Salesmen will find more Leads and/or Links as this depends on the randomly distributed visits.
In order to address and counter this problem the number of Leads and Links are accounted for the whole company per month.

Pricing model

Thus our pricing model is:
- A bucket of Leads and/or Links per month per company – related to the number of users.
- A quarterly, 6-monthly or yearly subscription: a longer engagement will give lower cost.

Benefits:
- Clearly understandable metrics: amount of Leads and/or Links
- Both Lead and Link have a value for the buyer
- Cost control by limiting the number of Leads/Links
- By accounting for the entire company, fluctuations in quantities per user are smoothed out.

The web service needs to be priced:
- Lower than the value of a lead from other sources
- Inline with competing services that use a different pricing system

As LEADSExplorer is a web service, the pricing has to be available on-line as people should be able to sign up on-line too. In order to remove any doubt about the service, there is a 30-day free trial.