An effective API pricing strategy begins with granular usage analytics. To earn through API usage-based billing, having complete transparency into how your customers consume your product will allow your team to optimize pricing based on adoption, value, and stickiness while optimizing and editing pricing and plans to drive the best monetization of your API.

Full transparency around API usage analytics references your ability to view usage across all facets of your business. This includes analyzing usage on a per-plan, per-product, and per-customer basis, as well as more granular analytics around churn and adoption metrics, how your power users consume certain products, and more.

For API products that charge on a super simple pricing model, such as a per-seat basis or general access subscription, we recommend that you explore the benefits of adopting a more complex usage-based pricing model for your API.

The key reason why businesses lean into simple pricing when they look to explore more complex billing is typically technical constraints. Stripe and other payment processors are great for supporting a single use case around your billing model. As companies look to scale and optimize revenue or try API monetization at scale, don’t let your payment process hold you back, as one should look to leverage a dedicated API-based billing system.

A common contract we see is those offering data-rich APIs on an all-access subscription basis, where permissioning individual data sets and gating access to certain tiers can yield huge jumps in revenue. This can also empower small users only looking to access small amounts of your overall data sets access for lesser rates, whereas if they were positioned to pay for all access, they might shy away due to costs.

Another common inefficiency is charging a set minimum to access your API with no volume discounts offered for high-usage clients. Automating this process via a pre-built usage-based billing model can extract maximum value for your power users while allowing you to edit pricing plans in real time for small clients, or any client in general, to encourage product adoption and drive revenue.

For API products already charging on a usage-based model, we will explore the various ways you can think about using analytics as a framework to modify pricing, engage with your users and drive revenue.

From our various customer conversations from an API developer to large-scale organizations, it is evident that building or using a tool that allows for hyper-focused usage tracking is essential to understand how your customers are consuming your products and how to optimize pricing best.

API usage tracking may live in Stripe, your CRM system, or another vendor, depending on what product you sell, your payment processor, and how your stack is set up. Accuracy is key, so ensure your data streams and how you understand this data are perfect - including data syncs. We have seen many cases where data is either inaccurate, or the business does not trust the data.

In addition to accuracy, real-time usage metrics into the churn, new plan signups, and which plans to drive the most users are not commonly supported via payment providers (or in a limited capacity). For startups, pricing will remain the hardest nut the crack and can remain exceedingly difficult when there are many endpoints to price or metrics to gate and charge for across various tiers of plans. Having real-time and accurate usage data via an API-based billing system is your first step in this process.

Your customer API usage can be viewed by your sales and revenue teams for products sold via a sales-led approach. Viewing usage can only be seen by logging into Stripe or other payment processing systems. In that case, certain sales members may not have permission or the ability to see real-time API usage. CRM syncs or daily reports would be best to solve this issue. We chatted with one business that auto-filled all their deals as a single revenue number in the CRM system as there was no way to push actual usage to the CRM system, and these sales teams were able to engage with power users, upsell, and proactively see issues.

At Archetype, we have emphasized our new Alerts feature. Alerts can be utilized in two key ways and are crucial to allow you to earn through API usage-based billing. For a business using Archetype, you can set up your internal team to receive alerts depending on various usage triggers. Under a usage-based model, users will most likely consume your product at very different levels. With accurate usage tracking in place, your sales team can receive alerts that will allow them to engage directly with your customers and upsell.

For example, suppose a customer utilizes 90% of their allotted usage on Plan A. In that case, your AE can receive an automatic Slack or email notification alerting them to call on that customer, alert them and potentially upsell to a higher plan.

This works similarly in reverse, as low usage or a sharp drop in usage can be flagged, whereas you can engage with that customer and ask if they are having technical issues and/or understand why this is the case. This will help prevent churn and boost your customer experience.

Alerts can also be utilized in a customer-facing capacity. This is supported for both products that are delivered via self-serve and sales-led approaches. As users consume your product, they can receive ongoing alerts around their usage, alert them regarding overage, etc.

An API-first customer we spoke with ran into many issues as his customer was supposed by the total usage and bill at the end of the billing cycle. Since his product was charged a flat monthly fee, each API called was billed on a per-unit basis over the minimum - the end user broke through the minimum allotment and was charged a significantly higher amount than expected. The business felt obligated to waive overage changes to keep the customer happy. This situation could have been avoided if proper alerts were set in place, and jointly there would have been no need (or lesser need) to refund a customer.

This same business is now looking to implement usage alerts to avoid this situation again and ideally renegotiate with the customer before costs rise to an uncomfortably high level. Action drives revenue.

Usage tracking and alert systems are built to bring increased transparency to your product that can be shared with internal and external teams. Accurate and granular usage tracking is the bedrock for any API company to analyze, iterate and optimize its pricing strategy. At the same time, alerts are key in driving customer engagement with leads to revenue growth, hedging against churn or upset customers, and more.

We recommend investing in your usage tracking for API-first businesses looking to boost their revenue. Our team would love to connect at sales@archetype.dev to learn more!