How Important Is Your API’s Pricing Model

How Important Is Your API’s Pricing Model?

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There’s no doubt that API monetization is a hot topic right now, and much of the conversation boils down to two big questions. First, if your API is already up and running, how can you tactfully start charging people to use it? Second, if you haven’t yet launched your API, how do you figure out what to charge? Doing so successfully is as tricky as pricing any other product.

Postman’s 2023 State of the API Report found that 47% of respondents said price is a consideration in their adoption of an API, up from 41% in the previous two years. That number jumps to a huge 60% when surveying those in an executive role.

In other words, it’s very clear that API consumers want to get the best bang for their buck. And although we’ve written extensively about this topic, including the art of constructing an API monetization stack, we’ve rarely touched on the impact that pricing can have on adoption. We’ll focus on that below, because it’s no exaggeration to say that pricing can be crucial to API success in 2024 and beyond.

Consider the Value Your API Adds (and Your Own Costs)

When you’re building an API that you plan to monetize, or any other product for that matter, you should always be asking yourself the following question: “Why would people pay for this?” Or perhaps, to go even more granular, “Why am I building this?”

The answer to that question is (hopefully!) that you’re solving a problem your users have. But there’s a huge amount of nuance tucked away in that answer. At one end of the spectrum, we have “it’ll save them a bit of time,” and at the other end, “this will revolutionize their business.”

Thinking honestly and asking users about where your offering sits on that scale is a huge step in figuring out what to charge for your API. Even a simple product with replicable functionalities can generate a modest profit when offset against your costs if the price is right.

If your API has features that are gold dust, then you shouldn’t be afraid to price them as such. That said, overcharging is — and will always be — a good way to turn people off. There’s been a lot of talk in the industry, for example, about how Twitter’s (now X) $42,000 monthly charge for API access prices out almost everybody who would be interested in it.

When pricing an API, you also need to gather an understanding of the costs to develop and maintain your API. In 2020, we estimated a ballpark figure of $10,000 upfront costs, and estimated monthly running costs (such as running API servers, versioning, and support staff) to be around $11-15,000 for a moderately trafficked API.

Armed with a realistic break-even point, you’re one step closer to determining how much you need to charge to make your API profitable.

How Are Similar Products Priced?

Copying exactly what the competition is doing is rarely the perfect solution to any problem, but exploring some similar services will at least give you an idea of the landscape in your space. Even if you don’t have any direct competitors per se, it’s a safe bet that there are APIs out there with functions that are at least comparable to what you’re providing.

There’s a great post on the Moesif blog that goes into pricing strategies for API products, but one thing they all have in common is a clear, unambiguous breakdown of their charges. This is great news when you’re trying to get the lay of the land.

Consider Twilio, often cited as one of the gold standards in APIs, for example:

This breakdown is clear, thorough, and easy to understand. It facilitates a self-service approach to adoption, the importance of which we’ve previously written about. Beyond that, Twilio also makes it easy to check the impact of their volume pricing discounts:

Google is similarly transparent when breaking down its pay-as-you-go pricing model, providing clear and straightforward information about its price per-call and volume discounts. The following refers to SKU – Place Details (Location Only):

You might notice that both Twilio and Google Maps (at least for these functions) charge $0.00X per call. Yet, in a 2022 article, we found that the average cost of an API call of RapidAPI’s top 10 APIs came out at $0.01266. Is the average API now ten times cheaper?

Probably not. It most likely demonstrates the massive variance in the cost per call of popular APIs. When it comes to API pricing, one size definitely does not fit all.

Look to Your Stats…if You Have Them

Unless you’re launching your API completely cold, the odds are good that you already have users of some description or other. You might, for example, have partners who use the API, have provided keys to early adopters, or be running a beta version of it.

Let’s say, for example, that even your biggest users are making only a few thousand API calls monthly. In such a case, it doesn’t make sense to implement a tiered pricing model with a top tier that allows for hundreds of thousands of monthly calls because it just won’t get used.

Instead, focus on smaller scale tiers (such as Basic – up to 100 monthly calls, Pro – up to 1,000 calls, and Elite – up to 10,000 calls). As and when people get close to exceeding your highest tier, you can consider implementing a Custom or Enterprise plan and contacting these customers directly. After all, these are your power users, so you want to be in touch with them anyway.

We’ve written about key metrics for API productization elsewhere, and if you’re not already, it’s well worth monitoring these if you’re considering monetization. The more you can optimize these metrics, the more robust (and thus a more worthwhile investment) your API(s) will become.

Is Now the Time to Monetize Your API?

In our post about when API monetization makes sense, we suggest various things to consider in monetizing an API: different pricing structures, larger platform models, and other factors, including the tricky balance inherent in API monetization:

“Start charging for an API too early and you deter potential users, but wait too long and you risk angering users who’ve been on board since the early days.”

Charging for API access is a minefield, but it’s one that more providers are navigating: the Postman report mentioned above suggests that two-thirds of APIs now generate income, with 43% of those respondents saying they’re responsible for 25% of company revenue.

In other words, we shouldn’t be ashamed to think of APIs as money makers anymore. In that context, however, ensuring optimum performance — high uptime, low error rates, short Time To First Call (TTFC) — is more important than ever. As, of course, is security and compliance.

Without knowing anything about it, we can’t tell you how to price your API. However, considering the above points will help you figure out how to do it yourself.

Far more valuable than us just giving you a random set of numbers, right?