Price and package a product

Parsewell pricing: an alternative to a flat 30% increase

To: CEO | From: Head of Product

Recommendation

Tom has correctly identified the margin problem but proposes the wrong fix. We don't charge for pages, and pages are the only thing that costs us money. I recommend we keep seats for self-serve, add a page allowance with overage, and price enterprise per page. At today's volumes this takes gross margin from 24% to 42%. Startups pay nothing extra, and margin keeps rising as cost per page falls. A 30% increase reaches 41% on paper, but only if nobody churns and we could reprice contracts in January. We can't. And it leaves the cause in place.

Where the margin went

All figures come from the 30-day export (80 accounts, 27.4M pages, $43,057 revenue, $32,903 cost to serve).

• Enterprise is underwater. It earns $0.00098 per page against a cost of $0.0012, a gross margin of −22%. Northwind and Halden alone lose $4,736 a month.
• Mid-market makes 41%. Three accounts (P, Q, V) lose money because a few seats push heavy volume.
• Startups make 87%. They are not the problem.

Seats don't track cost. Northwind's pages tripled in a year on the same contract. Cost per page falls about 34% a year (10% a quarter), but volume growth of that size outruns it. That is how margin fell from 41% to 24%.

The model

Why this shape:

• Startups: no startup exceeds 50k pages per seat, so the change is invisible to them. That protects the funnel against Formwise at $79.
• Mid-market: overage lands only on the accounts that cost us.
• Enterprise: a single per-page rate with no volume discount, because our cost is linear in pages.

Margin over time: at $0.0015, enterprise margin is 20% at today's cost and about 48% by late 2027 if the cost trend holds. Unlike today, revenue grows with volume.

Competitive position: $0.0015 is deliberately conservative. DocuLens's public price for Northwind's volume would be about $43,000 a month, against $7,230 under this model. We stay the cheapest option for every mid-market account too. Account V (3 seats, 346k pages) would pay $885 with us, $2,197 at Formwise and about $4,650 at DocuLens.

Enterprise renewals

Contracts can't be repriced mid-term. A January increase on "contracts" would reach only Copperfield. We move each account at renewal.

Northwind. "Same rate for two years" means unlimited pages for $38,400 a year. If their growth continues, they reach roughly 14M pages a month. Even after two more years of cost decline, that would lose us about $100k a year.

• Offer: two years at $0.0015, stepping down to $0.0013 in year two. This gives them the price certainty they want while we keep a margin on growth.
• Walk-away point: we should be willing to lose them. Northwind and Halden leaving would cut $5,800 a month of revenue but raise gross profit by $4,736 a month. That fact sets our walk-away point; it isn't a threat to put in front of them.

Arcadia already pays $0.00136 per page and is looking at a competitor.

• Offer: hold them at $54k for 12 months covering up to 3.6M pages a month, with $0.0015 above that.
• Discovery: competitors' public prices are far above ours, so we should find out what is really driving the evaluation before assuming it's price.

Phasing. Full enterprise effect arrives with the November renewal. Margin climbs through 2027 rather than jumping in January.

Self-serve rollout

1. January: new sign-ups get the new plan. Existing accounts get an in-dashboard usage meter showing their allowance.
2. Notice: existing accounts get 60 days' notice, with overage billing from April.
3. Personal outreach to five accounts: I, P, Q, T and V see increases of 58% to 198%. We contact each one and offer a committed annual page pack at $0.002.
4. Worst case: if all five churned, we lose $2,433 a month of new gross profit. Blended margin would still be about 41%.

The price test

The test doesn't support a 30% increase, for the following reasons.

1. The split is broken. It was meant to be 50/50 but came out 1,240 vs 870 visitors (59/41). The chance of that happening randomly is effectively zero (χ² ≈ 65). Something in assignment or tracking failed, possibly losing B-arm visitors who bounced. Until that is explained, neither arm's numbers can be trusted.
2. "Not significant" doesn't mean "no effect." With 104 conversions, the 95% confidence interval on the difference runs from −2.0 to +1.7 points. The data are consistent with a 40% drop in conversion.
3. The timing and measure are weak. It ran for two holiday weeks and measured first payment only, not retention or seat growth.
4. It covered the wrong customers for this decision. It tested new self-serve sign-ups at $129. It says nothing about existing customers or enterprise contracts. Enterprise buyers will ask for the evidence, and citing this test for their increase would hurt our credibility at exactly the renewals that matter.

At face value, B shows higher revenue per visitor ($6.23 vs $4.95). That makes the test worth rerunning, not acting on. A valid rerun needs:

• a fixed split;
• four or more weeks;
• 60-day paid retention as the success measure;
• the new allowance plan as one of the arms.

Compared with a flat 30%

Decisions needed

1. Approve the model and the $0.0015 enterprise rate.
2. Authorize the walk-away position on Northwind and Halden.
3. Ask Growth to diagnose the split failure before any test result is cited.

I'd like Tom in the room for the first two. His margin target is right, and this model reaches it faster and keeps it.

To: CEO From: Head of Product Re: Alternative to a 30% January increase

Recommendation

Don't apply a flat 30%. Move pricing from seats with unlimited pages to a model that charges for pages. Self-serve keeps seats but adds an included page allowance and a per-page overage. Enterprise moves to a committed per-page rate at renewal. At current usage, this takes gross margin from 24% to about 53%.

Tom's increase would not get us to 41%. That figure assumes all contracts reprice in January, and only one enterprise contract renews then. Self-serve-only in January gives about 34%.

What the data says

• The margin problem is enterprise. Six contracts account for 71% of pages (19.4M of 27.4M) and 71% of serving cost ($23.2k of $32.9k a month). They pay $19.0k, so they lose $4.2k a month (−22%). Four of six are negative.
• Enterprise pays too little per page. Effective rates run $0.0007 to $0.0015 per page against a serving cost of $0.0012. Seat pricing lets page volume grow without any increase in what we charge. Northwind's pages tripled in a year and its bill didn't move.
• Self-serve is healthy. It runs at 60% margin. Startups are at 87%, and mid-market is at 40%, dragged down by heavy accounts. Q and P are negative.
• We are far below market. DocuLens lists at $0.012 per page up to 1M and $0.008 above, plus a $500 platform fee. At that list price, Northwind's 4.8M pages would cost about $43k a month, against our $3.2k. Enterprise discounts narrow this gap, but not by much.

Proposed model

• Self-serve: $99 per seat per month, including 25,000 pages per seat. $0.002 per page above that. Seats stay because they are simple and match Formwise. Our overage rate is one-fifth of Formwise's $0.01.
• Enterprise: a committed monthly page volume at $0.002 per page, with overage at the same rate. No seat fee. Offered on two-year terms with a price lock.
• Floor: $0.0017 per page. Anything below it needs CEO sign-off.

Because serving cost is falling about 10% a quarter, a locked rate becomes more profitable each quarter. If that holds, enterprise margin reaches about 60% within a year at current volume.

Effect by segment

Monthly run-rate at current usage, before churn, at $0.0012 per page.

Gross margin dollars rise from $10.2k to $36.9k a month. Startups barely change because most use less than 25k pages per seat. Mid-market carries the most self-serve risk: a few heavy accounts see large increases, such as Q ($594 to $1,382) and T ($792 to $1,498).

Getting there

Self-serve. Announce in January and take effect February 1 with 30 days' notice. New sign-ups get the new model immediately. For existing heavy mid-market accounts, cap the increase at 50% for the first three months. Offer annual prepay as an option.

Enterprise, by renewal date. No contract is repriced mid-term.

• Copperfield (January 2027): $0.002 per page takes it from $2.4k to about $4.8k a month. This is the first test of the model.
• Northwind (February 2027): Its ask is "two years at the same rate." At the same dollar amount, the effective rate would fall to about $0.0007 per page while volume triples. Counter with a two-year term, a committed 4.8M pages a month, $0.0017 in year one, and $0.002 in year two. That is about $8.2k a month in year one. Trade the rate for term and commitment. If they refuse to go below $0.0017, let them walk. They lose us $2.6k a month today, and losing them would improve gross margin dollars.
• Arcadia (March 2027): It is evaluating a competitor and is the only enterprise account with positive margin ($528 a month). Offer $0.002, benchmark against ExtractIQ at their volume, and concede only down to the floor and only on a multi-year deal.
• Halden (June), Meridian (September), Brightwater (November): standard $0.002.

The price test

The test's B arm was $129 against $99, which is a 30% increase. That makes it the most relevant evidence we have, and it doesn't support the January increase.

• The result is inconclusive. Conversion was 5.0% against 4.8%. The 95% interval on the difference is roughly −1.7 to +2.1 points. That interval can't rule out losing a third of conversion. "Not significant" does not mean "no effect."
• The assignment looks broken. The arms received 1,240 and 870 visitors against a 50/50 design. That is a sample-ratio mismatch (chi-square ≈ 65). Until someone explains it, we can't trust either arm.
• Its scope is narrow. It ran two weeks over the holidays, measured new sign-ups only, and counted first payments only. It says nothing about existing customers, seat expansion, churn, or heavy page users.

We shouldn't cite it as cover. Rerun it properly: a six-week randomized 50/50 test of the new model on new sign-ups, plus a notice-based read on existing self-serve accounts.

Why not 30% across the board

• It doesn't fix enterprise. A 30% increase moves enterprise from −22% to about 6% margin. Even then, it can't be applied mid-term.
• Seats don't track cost. Serving cost is about $13 per seat for startups and about $480 per seat for Northwind. A per-seat increase raises both sides equally and leaves the mismatch in place.
• It taxes the wrong customers. Light users absorb the same percentage increase as heavy users, while the heavy users are the ones we under-recover on.

Risks

• Enterprise pushback. A roughly 2x jump at renewal is the real risk. Expect one or two losses. The two-year lock and staggered renewal calendar limit the damage.
• Cost decline stalls. If serving cost stops falling, the $0.0017 floor needs review each quarter.
• Usage shifts. Heavy self-serve users may trim usage to avoid overage. That is acceptable given the margin, but we should watch conversion closely.

Decisions requested

1. Reject the flat 30% increase.
2. Approve the self-serve model effective February 1, with a 90-day cap for heavy mid-market accounts.
3. Approve the enterprise per-page rate card, with a $0.0017 floor and CEO sign-off required below it.
4. Rerun the price test properly before any new-signup price change.

Recommendation to the CEO

Reject the blanket January increase. Replace unlimited-page seat pricing with a platform fee plus metered pages, and migrate enterprise accounts at contractual renewal. Validate the proposed rates before broad rollout; the December test does not establish willingness to pay for this model.

The problem is the pricing metric, not simply the price level. Dashboard seats do not track extraction value or cost. Six enterprise accounts generate 19.36 million pages—71% of all usage—but lose $4,232 a month at today’s costs. Meanwhile, small startups subsidize heavy users.

Across all 80 accounts, current monthly revenue is $43,057, cost to serve is $32,903, and gross margin is 23.6%, consistent with Tom’s reported 24%.

Proposed model and customer impact

Include unlimited dashboard users. Charge for successfully processed pages, with clear definitions for multipage documents, retries and failures. The calculations below assume exported pages are billable; validate that assumption before launch.

These are static, fully migrated scenarios, not forecasts: they assume unchanged usage, no churn and today’s exported costs. Monthly gross profit rises from $10,154 to $94,073. A further 10% cost reduction would raise proposed gross margin to approximately 76.7%, but we should not depend on it.

The startup revenue reduction is deliberate: remove the collaboration tax and preserve an accessible entry point. Heavy users should fund their own consumption.

The rates are plausible hypotheses, not proven willingness to pay. Our $0.006 self-serve rate is below the published competitor page rates; enterprise at $0.004 is half DocuLens’s published high-volume rate before platform fees. Those comparisons require fresh verification and equivalent accuracy, features and service levels.

Why not Tom’s approach?

At unchanged usage, a universal 30% increase produces $55,974 monthly revenue and 41.2% gross margin. It restores the historical aggregate margin but leaves the structural problem intact:

• Enterprise gross margin remains only 5.9%.
• Northwind and Halden remain loss-making.
• Growing page volume can erase the improvement without adding seats.
• Low-volume customers pay more despite being highly profitable already.
• Existing enterprise contracts cannot simply be repriced in January without contractual authority or agreement.

Our alternative is economically stronger, but its large mid-market and enterprise increases create meaningful retention risk. We must test that risk rather than treat modeled revenue as secured.

Migration and enterprise renewals

January: launch metering and shadow invoices, not a forced universal increase. Instrument billable pages, audit costs and billing, and show customers their projected bills. Provide usage forecasts, threshold alerts and optional spend limits; do not silently interrupt production workflows.

For new self-serve customers, pilot the model after repairing experimentation. For existing self-serve customers, provide at least 90 days’ notice, subject to applicable terms. Offer a six-month, explicitly expiring migration credit for large increases. Publish both discounted and eventual bills so credits do not disguise the destination price. Separate price effects from usage growth in reporting.

For enterprise, honor existing agreements until renewal unless customers voluntarily amend. Proposed first-renewal pricing is $500 + $0.003/page for 12 months, stepping to $0.004 in year two. Even the transitional rate produces approximately 62% enterprise gross margin at current usage and cost.

Renewal sequence, with monthly-equivalent first-year prices:

• Copperfield, January 2027: $7,640; begin negotiations immediately.
• Northwind, February: $14,960. Reject two years of unlimited usage “at the same rate.” Offer two-year rate certainty only against a defined page commitment, with paid excess usage. Its threefold volume growth makes this essential.
• Arcadia, March: $10,430. Start an executive-led retention discussion now; benchmark extraction quality and switching economics before conceding price.
• Halden, June: $12,380.
• Meridian, September: $6,950.
• Brightwater, November: $8,720.

Commitments should reflect validated usage and seasonality, with transparent true-ups and no unlimited overage loophole. Do not promise that renewal discounts are permanent. Escalate concessions below our margin floor to Finance and Product jointly.

Revenue will ramp through these renewals and subsequent step-ups, not jump to the table’s total in January. Build the forecast account by account, including churn, credits and volume scenarios.

One data issue needs resolution first: enterprise revenue per listed seat exceeds $99, despite the pricing document describing discounted seat rates. Use observed revenue for this analysis, but reconcile actual contract units and entitlements before quoting renewals.

What the price test actually says

The intended 50/50 allocation produced 1,240 versus 870 visitors. That is severe sample-ratio mismatch: approximately χ² = 64.9, p < 10⁻¹⁴ under equal allocation. Investigate assignment, exposure logging, eligibility, channel mix and exclusions before trusting the causal result.

Observed conversion was 5.00% versus 4.83%. Ignoring the allocation problem, the difference is approximately −0.17 percentage points, with a rough 95% interval of −2.04 to +1.70 points. “Not statistically significant” does not establish equivalence or rule out commercially material harm.

It also tested only new self-serve sign-ups, over two weeks—not existing customers, retention, enterprise renewals or usage-based pricing.

Repair the experiment, predefine a commercially meaningful conversion-loss threshold, and measure revenue per eligible visitor, paid activation, retention, usage and contribution margin. Use evidence to choose pricing—not the test as cover for a predetermined increase.