Guest Post by RapidAPI with benchmark data on 1,800 APIs
There’s big money in the API economy. Last year alone, $500 million was invested into API-driven companies. But the rise of this new economy begs some key pricing questions. How do these companies actually make money from their API? What are the best practices for pricing? Are there any industry standards for API pricing or are we still in a wild west phase?
As an API hub housing over 7,500 APIs, we at RapidAPI found ourselves uniquely positioned to answer these questions. We’ve determined benchmark quotas, prices, and overage fees associated with the four most common API business use cases. The result? Everything you need to know to price your API effectively for hobbyists, small businesses, and enterprise developers. Use these benchmarks, along with the three C’s of your business (cost, competitors, and content), to help guide your API pricing.
First Things, First. How Do Businesses Monetize Their APIs?
There are three ways that companies monetize APIs: data collection, product adoption, and developer usage.
|Monetization model||Definition||Example APIs|
|Data Collection||Collect data from third party apps to use in product design or advertising efforts.||When consumers log into a third party app with Facebook, the social media company’s API learns what apps consumers use and how they use them.|
|Product Adoption and Customization||Allows developers to build custom integrations to increase value and make it harder to migrate to competitors.||When developers automate commands and processes with the Slack API, it becomes trickier for them to migrate to a competing chat software.|
|Developer Usage||Charge developers directly for API calls and requests.||The Imgur API charges developers to upload and download images from their online gallery.|
The vast majority of APIs charge developers directly for calls and requests. This developer usage pricing model is what we’ll be focusing on for the majority of the article.
Three Developer Usage Pricing Models
Developer usage models typically fall into three categories: fixed quotas, pay-as-you-go, or overage pricing. A pay-as-you-go structure means that developers pay for each individual call. A fixed quota model allows a developer to purchase a fixed number of calls per month, but they cannot exceed the quota. Lastly, the overage model allows a developer a fixed number of calls, but charges a small overage fee if the developer exceeds the number of calls.
To illustrate the differences between the three models, here are some sample pricing plans for an image storage API.
|Pay As You Go||Fixed Quotas||Overage Model|
|$0.01 per download||500 downloads / month||250 downloads / month + $0.01 per additional download|
|$0.05 per upload||100 uploads / month||50 uploads / month + $0.05 per additional upload|
Each of these three models has its pros and cons:
|Pay As You Go||Fixed Quotas||Overage Model|
|– Pricing scales linearly with activity||– Predictable pricing||– Predictable pricing|
|– Pricing scales for larger apps||– Predictable revenue||– Predictable revenue|
|– Revenue is unpredictable||– More revenue from low volume developers||– App is never shut down|
|– Pricing varies monthly for developer (harder to budget)||– App shuts down after quota is reached||– Miscommunication around overages|
While each model has its pros and cons, we recommend the overage model. The overage model allows the predictable pricing of the fixed quota plan, but there’s also the scaling advantages of the pay-as-you-go model. Plus, with overages, a developer’s app will never go down. As long as you communicate your overage model clearly to developers, we recommend this model.
Original Benchmark Data
Most APIs on RapidAPI follow the overage pricing model. We focused this original benchmark data on 1,800 public paid APIs. These have four options: a free limited testing plan, a hobbyist developer plan, a small business plan and an enterprise plan.
We weighted the average plan price, overage fee and the quota by the number of subscribers that the API had. Here’s what we found.
|Monthly Subscription Plan Price||$0.00||$9.08||$76.00||$370.00|
|Quota(calls per month)||64,326||688,991||4,051,181||16,120,060|
While every API is different, these benchmarks are a good place to start when setting your API prices. Based on this data, we recommend starting with the following plan prices as a rule of thumb:
- Limited free plan
- Hobbyist: $10 – $20 base plan price
- Small Business: Approximately $90 – $100
- Enterprise: $150 or more but varies widely
While this data helps by providing numerical context, it also provided a larger strategic insight.
Include a Free Testing Plan
Developers like to try before they buy. This is common advice, but for good reason. In fact, according to our data, developers are 3x more likely to subscribe to a paid API with a free tier (aka freemium API) than an API with only paid plans.
As you can see from our chart above, even though freemium APIs make up 23% of the 1,800 APIs sampled, they have over three times the number of developer subscribers than paid APIs.
Tailor These Benchmarks for Your Business with The “Three Cs”
These numbers are a helpful place to start, but it’s important to apply them in the context of your own industry. As you review your own business, look at the three “Cs” of API pricing:
- Cost: How much does it cost you (the provider) to fulfill a call? What are the business expenses that you incur?
- Competitors: How are other industry players charging? Are you in a crowded space with many alternatives or a less busy vertical?
- Content: What exactly are you offering with an API request? How valuable is each individual call or endpoint?
The goal with asking these questions is to put your API in context. Which “C” drives your pricing strategy? Here are some examples from our marketplace:
|Business Example||Example APIs|
|Cost-driven pricing||Shipping API||This is an industry with fewer competitors. Each shipping API provides a similar service/content. The prices are high and depend on outside vendors. We recommend pricing to account for these outside factors.|
|Competitor-driven pricing||SMS API||This industry is very competitive, where multiple providers provide similar offerings. The costs are fixed per call with tight margins. We recommend investing in branding, and pricing based on competitors.|
|Content-driven pricing||Business Data API||Each API call provides very rich business intelligence. The costs are minimal and the content is specialized information with little competition. We recommend similar pricing, but with a lower quota for this API.|
As you move forward with your API pricing, here are some final thoughts to keep in mind. The overage base model seems to be the most popular and offers the best flexibility over a fixed quota or pay-as-you-go model. Consider adding a limited free trial plan to increase developer adoption.
Also, when you are pricing your API, arrange it into smart pricing tiers. We’ve found that separating your offering into a free trial, hobbyist ($10–20), small company ($90–100), and enterprise plan ($150+) is a good way to maximize sales. Lastly, consider the business implications of your pricing model by determining which of the three “Cs” (content, competition and costs) drive your strategy when pricing your API.
What do you think? How do you price your API? Let us know in the comments below!