I have been thinking of an idea for a small business that I could run in my spare time. I’m not going to disclose anything about it now, but I’m using this post to think about pricing and economics.

Without getting into specifics, some key facts:

There’s a whole industry of companies like this. The most typical path is charging on a per-seat basis. To understand the total potential for a company, the following variables come into play:

I’ve been playing around with a calculator to create a mental model for the effects of each variable has. With three dimensions, it’s difficult to visualize, but I found the following tables to be the most helpful.

Seats Sold vs. Seat Price
This table compares seats sold against a seat price. Each cell represents the ARR that a single customer could bring in.

No. of Seats Sold $5 per seat $10 per seat $15 per seat $20 per seat $25 per seat $50 per seat
10 $0.6k $1.2k $1.8k $2.4k $3k $6k
20 $1.2k $2.4k $3.6k $4.8k $6k 12k
50 $3k $6k $9k $12k $5k $30k
100 $6k $12k $18k $24k $30k $60k

Company Size vs. Average ARR
This table compares number of customers compared against the an average ARR per customer. Each cell represents the total ARR that the business could do.

No. of customers $2k per customer $5k per customer $10k per customer
5 $10k $25k $50k
10 $20k $50k $100k
20 $40k $100k $200k
50 $100k $250k $500k
100 $200k $500k $1m
250 $500k $1.25m $2.5m
500 $1m $2.5m $5m

These numbers are complete speculation. Their only purpose is to give me a better understanding of the economics of this potential business. While it would easy to think, “Wow, I could make $1 million a year by charging 100 customers $10,000”, that’s the opposite of what I’m doing.

Some research will help me figure out an appropriate range for the variables I listed above. Knowing these, I can model the potential of the business, which will tell me what I actually want to know.

Can this be worth my time to build?