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.

To: CEO From: Head of Product Re: Alternative to the across-the-board 30% increase

Summary

Margin fell from 41% to 24% because pages are free inside the seat price and our cost is per page. Six enterprise accounts use 71% of all pages and pay 44% of revenue. Their combined gross margin is −22% (−$4.2k on $19.0k last month), and four of the six lose money. Startups run at 87% margin and mid-market at 41%.

A flat 30% doesn't fix this, for three reasons: - Contracts can't be repriced in January. All six renew in 2027, and I haven't seen any reopener clauses. - Enterprise stays near zero margin. Even at +30%, enterprise would reach only about 6% margin, and it would erode again as pages grow. Northwind's pages tripled in a year. - The price test doesn't support it (below).

I recommend pricing on pages, which is what drives our cost.

Proposed model and effect by segment

Figures are monthly, at last-30-day volumes and today's $0.0012 cost per page, with no churn.

Why these rates

• Overage at $0.005: about 76% margin on the extra pages. It is below the cheapest competitor's per-page rate ($0.008).
• Enterprise at $0.002: 40% margin today. If cost keeps falling 10% a quarter, it reaches about $0.0008 after four quarters, which puts this rate near 60% margin. That gives room to concede on rate later without losing money.
• Competitor comparison: at Northwind's 4.8M pages, DocuLens list price is about $43k a month. We would charge $9.6k. Arcadia is evaluating a competitor, but at its 3.3M pages DocuLens lists near $31k against our $6.6k.
• Enterprise seats: I'm dropping seat charges. Seats don't drive cost and mostly add negotiating friction.

Gross margin comparison

The CFO plan assumes zero churn. Even on that assumption, its best case only gets back to last year's 41%.

Getting there

Self-serve (mid-market and startup): - Meter and display pooled page usage in the dashboard now. - Send mid-market a 60-day notice with a personal usage preview. Launch the new plan around April 1. - Charge overage at half rate for the first quarter, which softens the three biggest increases. - Startups see only a new allowance line, with no change in price.

Enterprise: Start before the renewal dates, and have legal check the contracts first. - Northwind (Feb 2027): Decline "the same rate". At 3x page growth again, its cost would be about $17k a month against $3.2k of revenue. Offer a two-year deal instead, with a price lock, a committed volume and a modest discount above 6M pages. That gives them the certainty they want. - Halden (Jun 2027): Same structure as Northwind, with an early-renewal offer. - Arcadia (Mar 2027): It has the smallest increase of the six accounts (+47%) and a competitor in play. Lead with value, and keep the rate flat to the competitor's list. - Copperfield (Jan 2027): First to renew, so the first live test of the model. Start talks in Q2 2026. - Meridian and Brightwater: Standard offer at renewal.

Northwind and Halden together lose about $4.7k a month, so losing them would improve gross margin dollars. We can hold the line. For the two losers the loss continues until renewal unless they take an early-renewal offer, so I'd offer a glide path (a year-one rate between $0.0015 and $0.002) in exchange for committing early. That keeps even the worst case above cost.

The price test

I wouldn't use it as cover, because it doesn't show what the readout says.

1. The split is broken. A 50/50 split of 2,110 visitors should give about 1,055 per arm. We got 1,240 and 870, which is a 59/41 split. That is far too lopsided to be chance (p well below 0.001). Something in assignment or tracking failed, so the arms aren't comparable.
2. "Not significant" is not "no effect". The difference is −0.17 points, with a 95% interval of about −2.0 to +1.7 points. $129 pays off only if conversion stays above about 3.8% (a drop of less than 23%), and the data can't rule out falling below that.
3. It's the wrong test. It ran two weeks in December. It covers new sign-ups only and measures starting to pay, not retention or usage. It says nothing about existing customers, enterprise, or per-page pricing. Under my plan startups don't change price at all.

To test $129 properly, we'd need working randomisation and revenue per visitor plus 90-day retention as the measures. Detecting a one-point conversion change needs about 7,500 visitors per arm. I'd run that only if we want a startup price rise later.

Risks and assumptions

• Figures assume static volumes, no churn, and today's unit cost. Enterprise page growth raises both revenue and cost under the new model, and the per-page rate protects margin.
• Mid-market bill shock is the main self-serve risk. The three accounts with 2–4x increases are the ones most worth a personal call. They are also the three loss-makers (P, Q and V).
• A 2–3x enterprise increase may cost us one or two accounts. I think that is acceptable, but it is a judgment call.
• Full enterprise run-rate arrives only after the last renewal in November 2027. Savings this year come mostly from self-serve and any early renewals.
• Not yet checked: contract terms (fair-use or reopener clauses) and whether billing can meter pooled pages by April.

Decision requested: approve the model for planning, and let me begin the Copperfield and Northwind conversations this quarter.

Recommendation: move from seat-only pricing to a seat allowance plus page overages—not a blanket 30% increase. Parsewell sells document processing through an API, so pages are a better measure of value and cost than dashboard seats. Keep current contract prices as minimums during their terms; introduce usage charges at renewal.

Proposed steady-state model and 30-day effect

Figures are monthly run rates from the 30-day export; gross profit is revenue less listed serving cost. The model gives startups no increase in this snapshot, while charging the mid-market and enterprise accounts whose page usage is driving costs. Enterprise’s modeled uplift is not a January price-change forecast: contracts constrain timing, and negotiated transition terms will reduce or defer it. Serving cost is held constant in the comparison; the stated 10% quarterly cost decline would improve margins if it continues.

Rollout and renewals

• January: Publish the new self-serve schedule for new customers, with clear usage meters, alerts, and overage controls. Give existing self-serve accounts at least 90 days’ notice and a transition period; do not surprise-bill them. Show each account its included pages and forecast bill before charging overages.
• Enterprise: Honor current terms. At renewal, use the 50k-pages-per-seat allowance and overage rate as a transparent proposal, not a take-it-or-leave-it increase. Offer a ramp, annual usage commitment, and negotiated cap where needed; make any concession conditional on term, volume commitment, or other value.
• Renewal sequence: Copperfield is listed for January 2027, followed by Northwind in February and Arcadia in March. Copperfield is the first negotiation. Northwind’s usage has tripled and it wants two years at the same rate: counter with a two-year ramp and committed volume, rather than accepting flat pricing or imposing the full modeled charge at once. Arcadia is evaluating a competitor, so lead with a usage review and a capped transition. Prepare Halden (June), Meridian (September), and Brightwater (November) well before renewal. Confirm the applicable contract dates and notice provisions before sending any proposal.

What the price test says

It does not justify a blanket increase. The observed conversion rates were 5.0% at $99 and 4.8% at $129, but the visitor counts (1,240 versus 870) are materially imbalanced despite the intended 50/50 split. The 0.2-point difference is small relative to sampling uncertainty—roughly a ±1.8-point 95% margin—so the test cannot establish either a meaningful conversion loss or that $129 is better. It also measured short-term conversion among new self-serve visitors, not retention, revenue per visitor, API usage, or enterprise willingness to pay.

Run a properly randomized, adequately powered follow-up and track revenue per visitor and cohort retention, not conversion alone. Use those results to tune the self-serve seat price; use usage economics and renewal conversations to set enterprise terms. The export supports changing the pricing metric and addressing accounts with negative gross profit—not treating this test as cover for raising every price.