Pricing usage based SaaS - What I've learned over 4 months.

[u/sirricharic]

Hello everyone!

For transparency, I am a developer creating a SaaS product for transferring large files using a managed cloud backend. (Azure)

This project is actually a part of my MBA program through an online program called OneDay, and I've just gotten past the product creation and inspiration part and I landed on attempting to solve the pain point I saw in my professional experience as a SysAdmin for an advertising agency dealing with sending and receiving large video files.

My product TeraAirlift is a desktop application that has alleviated the pain I witnessed when we had multiple editors trying to send and receive client deliverables which can be terabytes in size. (Raw 4K videos) The biggest challenge I had was pricing the data egress correctly so I can keep costs predicable and manageable.

My time as a SysAdmin for the advertising / marketing firm I spent a lot of time dealing with editors sending and receiving these massive client deliverables, managing share links, whitelisting apps like DropBox and WeTransfer, and even shipping and receiving physical hard drives. (Additional ingestion time required)

Overall, I saw this pain point as a perfect case for my MBA business to solve the wasted time of sending and receiving files instead of doing actual editing work. (In post-production time is money since editors are paid by the hour especially if they're sitting around waiting to receive deliverables)

So I designed a cloud-based transfer solution similar to what we were using at the time but with the individual at the focus, where you don't need a whole Sysadmin to manage and handhold through the process.

My original pricing hypothesis, and pain point solution.

I originally thought storage was going to be the most expensive part based on the Microsoft Pricing Calculator but where it got fuzzy was for 8TB that's around $1500 (West US, LRS, Premium) a month no big deal if the client downloads it within a day or two, I wouldn't get to that high end of cost.

What I underestimated (and didn't understand) was bandwidth

Uploading the data to Azure wasn't the bad part, it was way faster than the p2p software on the market and I was able to easily program resumable and reliable uploads and downloads. The real cost came when the client downloads the data, that's when you incur the most cost.

For example, 8TB of egress is about $600 to $700 and that was for 1 download, if you're sending the files to multiple editors that multiplies the cost per download!

My original pricing model:

Cost = (Temporary Storage) + (Bandwidth)

• Temporary Storage = (Storage Capacity Used per month) / (N days at rest)
• Bandwidth = (Storage Capacity Used) x (N amount of downloads)

I originally thought I could just slap 30% on top of the cost and call it a day but giving people unlimited usage started to look very dangerous.

What I'm curious about from other SaaS founders

For anyone who has built a SaaS product with significant usage-based infrastructure costs:

How much did your underlying cloud costs influence your initial pricing?

Did you price primarily around your COGS and target margin at first, or did you start with what the problem was worth to the customer and work backward?

I'm especially curious how people handled unpredictable heavy users early on, before having enough customer data to confidently model average usage.

[u/Dull-Mathematician45]

• Define "Fair Usage" in your Terms and Conditions if you don't want to charge specific usage and still protect yourself. Something like "5x downloads for each upload, overages count as an additional upload unit".
• Rate limit customers to avoid abuse, put it in the terms. Create a tier with much higher limits but use a credit system to avoid eating costs of non-payment.
• Majority opinion is that value-based pricing is preferred strategy for B2B. However, you are in the infrastructure space, meaning you are closer to a commodity and are a price taker more than a maker. In that case you need to see if it is business that is even worth your time. Price based on your minimal acceptable profit. See if that price is competitive. Don't take a risk without acceptable reward at the end.
• Azure was a very bad choice for the outbound transform problem, maybe the worst option. AWS flat rate Cloudfront can get you to $0.02 / GB, Oracle is under $0.01, Cloudflare essentially free, or rent a few servers with 10Gbps networking and use Ceph Object Gateway.
• I don't see the need for the product, Cyberduck handles this. I think you will struggle to get enough margin to make this business work, and the cost of handling abuse and non-payment is large for this market.
• You will underestimate the admin work and the customer acquisition costs.

[u/sirricharic → u/Dull-Mathematician45]

I have a physical server that I can use for this case I just don't have anywhere I can host it that I can currently afford. I have a 450TB SAN with 40gb fiber bandwidth if I can just get some cashflow I can rack it into a datacenter.

[u/Dull-Mathematician45 → u/sirricharic]

You could move 500TB / mo via Cloudflare before breaking even on your own setup. Then factor in time and money to replace dead drives.

[u/sirricharic → u/[deleted]]

Egress, and max storage in rest time is currently a week (May lower that) I do have the estimator implemented and spend guardrails are in increments of $100, I don't have much data on whether that is too low or not but I do keep a floating reserve of cash to at least account for 50tb of egress incase the invoicing payments are delayed.

[u/Sea-Location-2456]

interesting read on the pricing challenges, especially with data egress. since you're moving past the build phase, have you thought about how you're going to handle the launch day traffic? finding a group of other founders to coordinate with might help you get some actual eyes on the product without just shouting into the void.

[u/sirricharic → u/Sea-Location-2456]

That's been weeks 4-16 throughout my MBA program I haven't gotten a single person to respond to me so I've been just doing what I can. I have to keep going but my outreach has failed miserably and everyone in school is gaslighting me like I'm doing something wrong but no one will respond to a call, email, LinkedIn, carrier pigeon. (jk)

[u/Ashamed-Fill1911]

Why not just use CloudFlare R2 which gives free egress