Price and package a product

To: CEO From: Head of Product Date: January 2027 Subject: Alternative to the 30% Across-the-Board Price Increase: Shifting to Usage-Based Pricing

1. Diagnosis: We Have a Metric Problem, Not a Price-Level Problem

Tom is right to sound the alarm on our gross margin falling from 41% to 24.4% ($10,775 margin on $44,127 monthly revenue). However, a flat 30% price hike across seats and enterprise contracts will not fix our unit economics, and it risks triggering churn among our highest-margin customers.

Our fundamental issue is a mismatch between our value metric (seats) and our cost driver (pages processed): * Startups (50 accounts): Generate $9,999/mo in revenue and cost $1,297 to serve (87.0% gross margin). They average 21.6k pages/month. * Mid-Market (24 accounts): Generate $15,147/mo and cost $8,454 to serve (44.2% gross margin). Three high-volume accounts (P, Q, V) are already gross-margin negative. * Enterprise (6 accounts): Generate $19,000/mo and cost $23,232 to serve (-22.3% gross margin). Four of our six Enterprise customers are underwater. Northwind Logistics alone processes 4.82M pages, costing us $5,784 while paying $3,200.

Because our API is integrated by a few developers and runs headless in production, customers scale page volume massively without adding seats. Even if we could magically apply Tom’s 30% hike to all Enterprise contracts tomorrow (ignoring that four don’t renew until Mar–Nov), Enterprise revenue would rise to $24,700 against $23,232 in costs—a dismal 5.9% gross margin. Meanwhile, we would penalize our 87%-margin Startups, giving them a reason to look at Formwise ($79/seat).

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2. Critique of the December Price Test

We cannot use the Growth team’s price test to justify a broad 30% increase for four reasons: 1. Severe Sample Ratio Mismatch (SRM): The test intended a 50/50 split across 2,110 visitors, but routed 1,240 (58.8%) to Control and 870 (41.2%) to Variant ($\chi^2 = 64.9, p < 0.0001$). Our randomization or tracking broke—likely due to caching, bot traffic, or self-selection before the event fired. The readout is invalid. 2. Significantly Underpowered: With only 104 total conversions, the 95% confidence interval for the difference is roughly $\pm 1.9\%$. The test could not detect anything smaller than a ~38% relative drop in conversion. "Not statistically significant" here means "insufficient data," not "no effect." 3. Wrong Cohort & Seasonality: A two-week window in mid-December captures holiday anomalies and tests initial sign-up conversion of small self-serve accounts, telling us nothing about 90-day retention, seat expansion, or Enterprise contract elasticity. 4. Ignoring Usage Economics: Raising the seat price to $129 still leaves unlimited pages uncapped, inviting adverse selection from heavy API users.

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3. Proposed Pricing Model: Platform + Usage (Hybrid)

Competitors price on pages ($0.008–$0.015/page) or cap pages per seat (Formwise at 50k/seat). Our cost to serve is $0.0012/page (falling 10%/quarter). We must align revenue with page volume while retiring the "seat" tax for API products.

The New Model: * Starter (Self-Serve): $199/month platform fee. Includes 50,000 pages/mo and unlimited seats. Overage: $0.006 per page. * Growth (Self-Serve): $499/month platform fee. Includes 150,000 pages/mo and unlimited seats. Overage: $0.004 per page. * Enterprise (Annual Contract): $1,500/month ($18k/yr) platform fee. Includes 500,000 pages/mo and unlimited seats, plus SLA/SSO. Tiered overage: * 500k – 2M pages: $0.0035 per page * 2M+ pages: $0.0025 per page

Why this works: Even our lowest Enterprise tier ($0.0025/page) yields a 52% gross margin on marginal pages today, expanding to 67% over the next year as inference costs drop 10% per quarter. Meanwhile, we remain 50% to 70% cheaper per page than DocuLens ($0.008–$0.012) and ExtractIQ ($0.015).

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4. Segment & Financial Impact

The table below compares our current state, Tom’s 30% hike (assuming 100% immediate realization and zero churn), and the proposed model (assuming customers optimize for the lowest-cost tier at current volumes):

(Note: Table sums exact per-account figures from the export; CSV rounding accounts for minor differences from the $44,127 / 24.4% total).

Customer Impact by Segment: * Startups (Neutral/Positive): Every single Startup processes $\le 40,000$ pages. On Starter ($199/mo), all 50 accounts are 100% covered by the 50k included allowance. The 17 accounts with 3 seats see a 33% price drop (from $297 to $199); the 19 accounts with 2 seats pay the exact same ($198 vs. $199); the 14 single-seat accounts pay $100 more (which we will grandfather for 6 months). Removing seat limits encourages whole-team adoption. * Mid-Market (Rebalanced to Value): All 24 accounts optimize onto the Growth plan ($499 base + $0.004 overage). Low-volume, high-seat accounts (e.g., Mid-market L at 7 seats / 134k pages) actually see a $194/mo price reduction, protecting them from churn. High-volume, unprofitable accounts (e.g., Mid-market Q at 544k pages, currently -$59 GM) move from $594/mo to $2,075/mo (68.5% GM). * Enterprise (Profitability Restored): Average effective price becomes $0.0033/page—still ~65% below DocuLens, giving us massive pricing power while turning a -$4.2k monthly loss into a +$41.4k gross profit.

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5. Rollout & Enterprise Renewal Playbook

Self-Serve Rollout (February 1): 1. New Sign-ups: Launch Starter and Growth tiers immediately on the pricing page. 2. Existing Self-Serve: Migrate accounts whose bill decreases or stays flat (37 of 74 accounts) immediately in February—this builds goodwill and unlocks unlimited seats. For accounts whose bill increases (14 single-seat Startups and 23 high-volume Mid-Market accounts), grant a 90-day transition window at legacy rates, paired with new dashboard usage alerts and an annual-commit discount option.

Enterprise Renewals (Account-by-Account): We cannot unilaterally hike annual contracts in January, as 5 of 6 renew later in the year. However, we have two immediate renewals and strong competitive leverage: * Copperfield Freight (Renews Jan 2027 | 2.38M pages | Currently $2,400/mo, -$456 GM): Immediate priority. Under the new card, their usage prices at $7,700/mo ($92.4k/yr). Playbook: Offer a 1-year transition bridge at $5,500/mo ($66k/yr)—a 48% gross margin for us, and still less than a third of what DocuLens ($19.5k/mo) would charge them. * Northwind Logistics (Renews Feb 2027 | 4.82M pages | Currently $3,200/mo, -$2,584 GM): Their pages tripled in a year and they want a 2-year lock at the same rate. Locking in -$31k/yr in losses for two years is a non-starter. Standard new pricing is $13,800/mo. Playbook: Show them their 3x volume growth and competitor benchmarks ($39k/mo on DocuLens). Offer the 2-year lock they want in exchange for a stepped commitment: $8,500/mo in Year 1 (47% GM today, rising to >60% as costs fall) and $11,500/mo in Year 2. * Arcadia Health (Renews Mar 2027 | 3.31M pages | Currently $4,500/mo, +$528 GM): Evaluating a competitor. Paying $0.00136/page today. Playbook: Any competitor they are evaluating will quote them $25k–$40k/mo for 3.3M pages. Position our new model aggressively: waive the $1,500 platform fee for Year 1 and lock in a flat $0.0028/page ($9,268/mo) on a 2-year deal. We double our revenue, hit a 57% gross margin, and remain 70% cheaper than the competitor they are evaluating. * Halden (Jun), Meridian (Sep), Brightwater (Nov): Begin QBRs 120 days prior to renewal, sharing usage telemetry that highlights their cost-per-page savings vs. market benchmarks before introducing the new rate card.

Recommendation: charge for document processing, not collaborators

Tom is right about the margin problem, but a blanket increase treats the symptom. Replace unlimited processing with a platform fee plus metered pages; make seats unlimited. Launch for new customers in January, migrate existing self-serve accounts after notice, and renegotiate enterprise contracts at renewal—not unilaterally.

The complete export shows $43,057 revenue, $32,903 processing cost and 23.6% gross margin. Enterprise accounts generate 71% of pages but 44% of revenue, losing $4,232 monthly. Startups generate $8,688 gross profit and are subsidizing heavy users.

Even with no churn and immediate contractual permission, Tom’s 30% increase produces only 41.2% overall margin and 5.9% enterprise margin. Northwind and Halden remain loss-making.

Proposed model and customer impact

A billable page is a successfully processed page; failures and internal retries are not charged. Provide usage dashboards, budget alerts and optional customer-controlled hard limits. Never silently interrupt production traffic.

The following is a fully migrated, unchanged-usage scenario, using reported account costs. It excludes churn, growth, transition concessions and future cost reductions.

Enterprise projections assume commitments do not exceed observed annualized consumption. Final commitments require longer usage histories and seasonality analysis.

This model deliberately sacrifices $4,377/month of startup revenue to lower adoption and collaboration friction. That is an investment to validate, not “free” growth. Conversely, mid-market V would move from $297 to $1,383; we should expect objections and possible churn.

The enterprise rate yields 60% incremental processing margin at today’s cost, before the platform fee. It remains well below the published competitor page rates, although September list prices do not establish negotiated prices or willingness to pay. If unit costs fall another 10%, unchanged-volume portfolio margin reaches approximately 68.7%; we should not spend those savings before they materialize.

These margins use the supplied cost definition. Finance must verify whether support and other delivery costs belong in COGS before adopting formal margin targets.

Migration and enterprise renewals

January: offer the model to new customers as a controlled rollout. Before billing, reconcile meters against infrastructure usage and invoices. Give existing self-serve accounts 90 days’ notice, two shadow invoices, and an account-specific comparison. Contact every materially affected mid-market account; offer usage optimization and narrowly approved, expiring credits rather than indefinite unlimited-use grandfathering.

Removing seat charges also requires workspace-level billing and anti-splitting controls for included allowances. Publish clear page-counting rules and a dispute process.

Enterprise: honor existing agreements through renewal unless customers voluntarily amend them. Confirm notice requirements immediately; if a deadline has passed, follow the contract. Use actual billed revenue as the baseline: the file’s description of discounted enterprise seats does not reconcile with observed revenue per seat.

For the 2027 renewal cycle:

For difficult renewals, authorize a 90-day bridge at $500 plus $0.002/page, then the target rate. This preserves more than 40% processing margin at current usage while providing an explicit transition—not another unlimited contract. Finance approves exceptions and their gross-profit cost.

If existing self-serve accounts migrated while all enterprise contracts remained unchanged, portfolio margin would be only 37.3%. The 65.2% figure is a destination, not a January forecast. Build the operating plan from renewal dates, signed commitments, concessions and account-level retention scenarios. Be willing to lose persistently uneconomic volume, but do not confuse that with costless churn.

What the price test actually says

It does not justify a universal increase.

• The intended 50/50 allocation failed: 1,240 versus 870 visitors gives a sample-ratio-mismatch statistic of approximately 64.9, with p < 10⁻¹⁴. Investigate assignment, exposure logging, exclusions, bots, acquisition channels and repeat visitors before causal interpretation.
• “Not significant” does not mean equivalent. Even ignoring allocation concerns, conversion changed by approximately −0.17 percentage points, with an approximate 95% interval of −2.0 to +1.7 points—wide enough to include substantial harm.
• The population and outcome are wrong for Tom’s conclusion: new self-serve sign-ups over two weeks tell us nothing directly about installed-base churn, enterprise renewals, seat reductions, usage cost or durable gross profit.
• $129 is a 30.3% increase over $99, but the test measures neither realized revenue per visitor nor longer-term contribution.

Repair the experiment, then test the new model against current pricing with persistent account-level assignment. Predefine sample size, conversion guardrails and 90-day gross profit per eligible visitor; also track activation, retained usage, bill disputes and retention by segment. Use negotiated enterprise pilots—not this acquisition test—to validate renewal economics.

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.