Logto unveiled a new pricing model to tackle startup hurdles behind the scenes

Introduction

Logto is an Auth0 alternative for building modern identity infrastructure with minimal effort, for both your customers and their organizations.

In March of this year (2023), Logto introduced its Cloud (Preview), a preliminary version of the official Logto Cloud. Since then, we have received a tremendous response from developers and businesses eager to learn about our pricing. Today, we are excited to share the insights and proposal, most importantly, our thought process to tackle the issues that are happening behind the scenes.

Problems Logto's pricing model aims to resolve

The pricing model is more than just a way for a business to earn money. When we created our own pricing model, we considered it an important feature of our product. We are motivated by the following challenges and problems that companies face.

AI advances boot app development, but having an authentication solution is a must despite being expensive

To swiftly create an app that incorporates the latest AI trends, it is extremely necessary to integrate an authentication solution with your app. Without proper authentication solutions, your app's security could be compromised.

Yet, it's surprising that despite AI's evolution and the ease of app development, the high cost of authentication implementation persists. This is a hurdle for enthusiastic developers and emerging businesses, especially in 2023, a year with tightened budgets. It's important to address this as it could delay product launch and affect security and user experience.

We've looked at many plugins in the ChatGPT app stores. Half of them don't have good authentication, or any at all, which is a big security and privacy risk for both businesses and end users.

Lots of companies don’t have a mature monetization strategy in place when building an identity system

No monetization at all

We've heard lots of similar stories from our clients, like these:

“We've been Googling for reasonably priced and/or open-source alternatives to Auth0. The problem is that ChatGPT plugins are getting sign-ups in the thousands a day. We were pushed into Auth0 enterprise after just 4 days, and that was before we even have a monetization in place.”

“What company is going to want to risk spending that much money into authenticating users that they can't monetize?”

Low trial to purchase conversion

Early-stage companies, such as those offering generative AI products, often find it relatively easy to acquire users, but their overall conversion from trial to purchase is low. This is due to marketing trends and the curiosity of a large generic audience. These companies face the challenge of managing a large number of users who have low engagement levels, all while dealing with the financial burden of authentication costs.

Let's consider a hypothetical scenario with a SaaS product that has a minimum pricing tier of $10 per user. Using the following calculations:

1. The unit price is $0.05 per Monthly Active User (MAU), which is a common pricing model in the Customer Identity and Access Management (CIAM) market.
2. The conversion rate from trial to paid user is 1%.
3. The cost of authenticating a paid user is $5 accordingly.

In this case, the cost of authenticating and managing a paid user accounts for nearly 50% of the pricing, which is quite high for an early-stage product.

As pioneers in developing AI products, these early adopters faced challenges related to the unclear monetization policies from emerging platforms, and significant financial pressure due to high costs.

On the other hand, many companies may choose to build their own authentication solutions. However, they will encounter unforeseen challenges along the way. You can explore how we evaluate the security checklist in this article.

Many early-stage startups experience fluctuating Monthly Active Users (MAU)

You're right, and that's quite common. Early-stage operations like cold starts, launches, online campaigns, MVP tests, and so on, can cause MAU to fluctuate. Basing costs solely on MAU, which counts active users in a month, doesn't accurately represent usage levels.

For instance, 80% of the MAU may log into your app on a single day due to a marketing campaign. This volatility can make financial planning tough.

CIAM products available in the market lack clarity in their billing processes

We've often heard from customers that the billing process can feel like a mystery, leading to unexpected costs. They want to be sure of exactly what they're paying for and prevent sudden, high bills. This clarity should be a consistent part of the customer experience, not just found on a pricing document somewhere hidden in the help center.

Deep dive into Logto's pricing model

Let's now see how Logto's pricing model tackles these concerns.

Essentially, Logto provides four plans: Free, Hobby, Pro, and Enterprise. The Free and Enterprise plans operate in their own ways, while the Hobby and Pro plans follow a monthly pricing model based on Tiered Monthly Active Users (MAU) and Tiered Unit Prices.

In summary, the overall strategy combines tiered pricing with usage-based pricing for a more flexible and fair approach.

SKU and offerings

• Free plan: Perfect for developers and enthusiasts working on side projects or exploring Logto. It's completely free, no credit trial is required. If your Monthly Active Users (MAU) are under 5,000 and you don't need any premium features, you can use this plan indefinitely.
• Hobby Plan: Ideal for individual developers handling small projects or small teams using it as a development environment.
• Pro Plan: Our most recommended plan for business use. It lets businesses enjoy all the benefits of Logto without any worries.
• Enterprise Plan: Despite being new to the Product-Led Growth (PLG) model, we're open to discussions for enterprise-level businesses. This plan is designed for large organizations, with Logto providing enterprise-level support.

Usage-based pricing

MAU statistical caliber

Logto offers a transparent measurement of Monthly Active Users (MAU): An MAU refers to a user who has engaged in at least one token exchange with any Logto Cloud server within a billing cycle (30 days by default).

The formula

For most products in the market, the total monthly invoice is calculated as follows:

In the case of Logto, we introduce a tiered pricing model that allows for better segmentation of your Monthly Active Users (MAU) based on their levels of activity and engagement.

In the Logto environment, the formula for calculating the tiered MAU is as follows:

To gain a better understanding of how the formula functions, it's important to be familiar with the definitions of the variables involved.

• Total Monthly Invoice: The total amount of money customers are charged for Logto services within a 30-day billing cycle.
• Base Price: A fixed charge specific to each plan at the beginning of a billing cycle.
• Tiered MAU: The count of monthly active users who log in to the app within a specific range of days during a billing cycle.
• Tiered Unit Price: The price charged for each tiered MAU

Here's a table for reference:

Tiered MAU and Tiered Unit Prices are key aspects of our pricing model. Let's delve into the specifics to better understand them.

Tiered MAU

A crucial question is how users are categorized into different tiers or segments based on their active login days in an app.

• Tier 1 MAU (Occasional MAU): Users who engage in your app for 3 days or less within a month will be classified as Tier 1 MAU.
• Tier 2 MAU (Frequent MAU): Users who engage in your app for 4 to 6 days within a month will be classified as Tier 2 MAU.
• Tier 3 MAU (Almost daily MAU): Users who engage in your app for 7 days or more within a month will be classified as Tier 3 MAU.

Tiered unit price

Naturally, the unit price is charged for each tiered MAU. In the case of Hobby and Pro plans, the following unit prices apply.

• For Tier 1 MAU (Occasional MAU), the Unit Prices are $0.008 for the Hobby plan and $0.024 for the Pro plan.
• For Tier 2 MAU (Frequent MAU): the Unit Prices are $0.012 for the Hobby plan and $0.032 for the Pro plan.
• For Tier 3 MAU (Almost daily MAU): the Unit Prices are $0.016 for the Hobby plan and $0.048 for the Pro plan.

In summary, Logto offers innovative categorization of MAU into different tiers based on user engagement. This helps to mitigate the unpredictability and uncertainties of monthly bills, making them more affordable and reasonable.

Why did Logto address the mentioned concerns?

Logto addressed the concerns by offering affordable pricing options and considering user engagement to reduce costs. According to our pricing model and industry standards in terms of the engagement level, we’ve predicted the average company could have a cost of $0.01 per monthly active user (MAU) in the Hobby plan, and $0.03 per MAU in the Pro Plan.

Logto pricing principles

Now that you have a better understanding of our pricing model, let's shift gears a bit and delve into our origins and the principles that guide us.

Reasonable and accessible

Accessible

A fundamental principle we abide by is to ensure our pricing is competitive compared to other options in the market. It should not be more than what potential clients are expecting to pay.

Reasonable

Tiered prices based on user engagement

Our team had been puzzled by a mystery for quite some time: why is the price the same for users who sign in once and those who sign in every day of the month? Tiered MAU price can guarantee the integrity and reasonability of the final bill of the customers.

Feature availability

At the same time, when determining the features of different plans, our default is to place developers in the free or lower-cost plans. This strategy promotes adoption, encourages contributions, and helps us receive feedback from a broader user base.

We strive to avoid large differences in feature availability between different plans. Our users can utilize the free or less expensive plans for development purposes without requiring a more comprehensive, higher-quota plan.

Predictable and transparent

Predictable

We offer predictability by providing a pre-invoice calculator. This tool will assist developers and businesses in budgeting planning by providing minimum and maximum cost estimates.

Transparent

By displaying the complete formula in our billing process, every variable and unit price is clearly shown in the bill. With our pricing model and formula, users can even perform the calculations themselves, ensuring clarity and understanding.

Profitable and sustainable

Logto's monetization plan is designed to ensure the sustainable operation of our services without compromising quality or engaging in unhealthy marketing practices. We provide the best possible service to our customers while maintaining a pricing structure that supports our ongoing operations.

Mirror genuine usage level

As mentioned earlier, relying solely on Monthly Active Users (MAU) for pricing can be misleading and may result in unnecessary expenses. Imagine investing a significant amount of money to acquire users, only to find that maintaining those identities becomes costly, with a portion of them not contributing to valuable MAU.

To address this, we have delved into the core essence of MAU and established a guiding principle of reflecting genuine usage levels, which are tiered MAU and tiered Unit Price mentioned above.

Focus on segmentation

We understand that large organizations have different CIAM needs compared to individual developers or smaller organizations. So Logto offers varied product packages designed to cater to different types of customers. These plans vary based on the features they include, the level of support provided, and their cost.

Deter bypassing tiering

Maintaining fairness, aligning customer incentives, preserving system integrity, and ensuring long-term sustainability are critical aspects of Logto's approach. For example, we achieve this through carefully designed feature quotas and prompt upgrade suggestions to higher tiers.

Users can quickly determine the most appropriate tier for them, without the need for complex decision-making or resorting to unconventional tactics.

Why Logto is so generous on pricing compared to other players?

We stick to an open-source culture

Open source is ingrained in our DNA, which fosters a wonderful culture at Logto. Our values include openness, collaboration, transparency, and community. We see Logto as a bottom-up company and, from the early days, we've sought to collaborate with developers to refine and co-create Logto. We want to ensure that our pricing doesn't deter our users.

We prioritize resource and team efficiency, and we follow the Product-Led Growth (PLG) approach

We work hard to minimize the cost of operating our services, all while keeping our small but talented team product and engineering team, offering our unique and flexible product, and staying true to Logto's vision of scalability.

Our focus is on scalability rather than the average spending per customer

To this end, we've opted for competitive and penetration pricing strategies. To attract a large number of paying users, competitive pricing is necessary. We aim to entirely remove pricing/budget as a deal-breaker that has been a challenge for decades. If unreasonable pricing is prohibitive and creates barriers for startups, it's impossible to sell product values and the so-called developer experience, which doesn't truly empathize user and market problems. Setting accessible prices early on helped us tackle this issue.

Closing notes

And there you have it! We've thoroughly examined Logto's pricing strategy, addressing the problems we aimed to solve and sharing our guiding principles along the way. We invite you to provide any comments or feedback you may have. Feel free to explore Logto to view our pricing options, or simply reach out to us for more information.