Understanding API Pricing Models

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7 min read

So you are looking to monetize your API? That’s the right call! In the past few years, a growing number of companies have taken the same approach and started to monetize their APIs. This allows them to find a new source of revenue from an existing asset, or from existing data. Turning your API into products can also improve its adoption. But finding the right monetization model — and the right price for your API — can be challenging. Whether you are just starting out or looking for ways to monetize your existing API, this post will help you make an informed decision about which model is right for your business.

What are the different API pricing models?

Pay-As-You-Go, or Metered Model

With this approach, users are charged according to their actual usage of the API, rather than being charged a flat rate. This can be an attractive option for users who only require occasional access to your API, as they won’t be required to pay for features they don’t need. Companies that have successfully used the pay-as-you-go model include Amazon Web Services and Google Cloud. The PAYG model is one of the most common among the biggest API-First companies.

This model can also be combined with a Custom Unit adapted to the service provided by your API, which enables different settings to bill the consumer.

However, the pay-as-you-go model can come with some risks. If your API becomes very popular, you may find yourself with unexpected costs as usage increases. Additionally, billing can be complex and difficult to manage, especially if you have a large number of users. Fortunately, solutions like Blobr can handle this for you.

Another drawback is that you have to anticipate your monthly income depending on the number of active subscribers you have. This is what we call a post-paid business model. This business model adds some complexity as you do not know for sure the extent to which your consumers will use the API products.

Example of an API product using Pay-as-you-go pricing.

Flat fee, or Subscription Model

Buyers have changed their habits. Subscriptions are now the preferred means of payment that many SaaS businesses want to establish with customers. For sellers, it’s a simple business model as it is a prepaid model that helps to project future revenue. This business model also provides the opportunity to offer additional services to existing customers. It is adapted when the cost of providing your API is the same whatever the usage.

For example, you pay a fixed monthly fee for hosting your database server. Your costs remain the same whatever the number of API requests to access your database. A simple subscription fee, therefore, makes sense.

Note that you can also tweak the subscription business model a bit. Many businesses have their users consume their API for a fixed price per month (subscription model). Once users reach a fixed limit, they can still be allowed to use the API but need to pay a fee for each additional call. This combines the subscription model and the pay-per-use model, which will be discussed in more detail below.

Tiered Model

This model allows you to sell your APIs at different rates, depending on the consumption. This is very useful when you want to offer your API for free up until a specific threshold (Freemium business model). Giving users a free tier makes it easy for them to test your API. If they use your API successfully, they are more likely to upgrade to paid tiers.

In general, the tiered model also enables you to reach different types of customers with different requirements in terms of usage. The drawback though is that it can be hard to build the right segments and sometimes users may not understand the value you provide.

Example of an API product using a subscription model coupled with a tiered pricing.

The Free trial

The free trial is a tried-and-tested way to grow your number of API consumers. Sometimes, showing is more efficient than telling, and that’s exactly what the free trial does. It also helps increase customer satisfaction and offers a new approach to selling your product: it’s easier to sell something to someone who has already tried it. The free trial technique can be a useful lever to help you gain feedback quickly and iterate when you launch your API product.

But don’t forget to make some decisions before going ahead with the free trial:

  • Limitations: with Blobr you can set up a limited number of calls or a period (or even both);
  • The trial period: 7, 14, or 30 days are the most common ones;
  • Payment information: with no strings attached or one which requests the customer to add a means of payment before accessing the service.
Example of an API product offering a free trial period.

Final words

If each API pricing model comes with its pros and cons, keep in mind that the right one for your business will depend on your goals, target audience, and the type of API product you're offering. By considering all these factors and testing different pricing strategies, you will find the right API pricing model for your business. Blobr helps you try out each option for your API products and gives you a complete set of analytics to help you take insightful decisions.

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