Variable Pricing for a NanoSat Launcher

From a recent post about NanoSat Launch Vehicles, a commenter asked some good questions about NLV pricing.

Paraphrasing and summarizing, he asks how a NanoSat Launch Vehicle operator could achieve a low price point ($500-$1M) while still making the price attractive to universities which are often funded from small $10-20K grants. He also asks about how in this same post, I derive a desired NLV price point from between $500K and $1M. My response is below.

I believe the following business model could be effective at both increasing demand for a NanoSat Launcher and earning significant revenue for each flight. The model can be summed up in two themes:

1. Offer frequent, well-published launch opportunities
2. Provide variable pricing

Frequent, well-published launch opportunities increase demand by giving customers the ability to fly as often as they desire. Variable pricing charges your customers what they are willing/able to pay while still giving you, the launch operator, a business model capable of making money long-term.

Without frequent, well-published launch opportunities and variable pricing, your capacity to launch will dwarf the current demand making long-term profitability illusory.

Launch monthly (weekly if you can) per a schedule posted online. Regulations will probably limit your flight rate more than your technical solution, so focus resources on minimizing regulatory delays. I envision online payload reservation for customer convenience with orbit targets for each launch clearly posted. Sub-divide your cargo space into 1kg/1u modules (1u= one 10cm cubed space. This is CubeSat language). Sell Three products to your customers:

• Standby Payloads are priced low enough to attract University customers but such "standby" payloads may get bumped from a particular flight if a customer willing to pay “guaranteed” rates is available. University customers on standby will not be choosing the orbit in which their CubeSat is deposited, but since most of these payloads are for education purposes, the loss of orbit selection is more than offset by the combination of frequent launch opportunities and ridiculously low cost. 
• Guaranteed Payloads are priced at a premium attracting customers willing to pay for the frequent on-time flight opportunities. 
• Allow one customer per flight to choose the orbit (altitude/inclination) for a price. I would assume that the first customer reserving Guaranteed Payload Space on a given launch would also secure the orbit that best met the need of their payload.

$1.5M per flight.  If the launcher’s payload bays were full, the revenue per flight might look like this (arbitrary pricing):

$1.1M per flight.  If the launcher’s payload bays were less than full, revenue could still be more than $1M per flight (again arbitrary pricing values). Payloads are only at 60% in the example below:

$515K per flight.  Depending on the cost structure of the NanoSat Launch provider, they could even launch a single 3u P-Pod for about $550K. Would some customer’s find value at that price if they launched when they wanted, to the orbit they wanted? Under such circumstances, you may consider filling your unused payload space with non-paying education payloads.

The commenter also wanted to know why I thought $500K-$1M price point makes sense for single 20kg payload? As we have seen above, through innovative pricing, aggregate price points per launch could be considerably higher while still offering bargains to the universities to help keep your manifest full. But below was my logic for why I thought $500K to $1M was a safe range:

1. The US Army is interested in Nano Launch and had put a price point of $1M per launch.
2. My interview with the CEO of CubeSat component manufacturer Clyde Space revealed he thought $250K for a 3u is definitely too much for most customers.
3. My interview with Professor Jordi Puig-Suari from Cal Poly and professors from MIT, and St. Louis University who are currently active in either university satellite development or active in space research of some kind show they are targeting a price point under $50K per CubeSat with $20K being preferred.  Relooking at my notes from those interviews, at a $20K price point, these professors thought the US demand for CubeSat launches would grow to 50-100 each year. Interesting they thought the low flight opps of the current “secondary payload” system a bigger problem than the high cost. Prof Michael Swartwout said in my interview with him, he waits 5-7 years to secure a spot on a rocket to launch his CubeSats. This is longer than an undergrads college career – not too inspiring for young engineers!
4. $500K price point would cover launching 20 CubeSats at $25K each (even if you were not swayed by my variable pricing strategy).
5. $1M price point would represent the Army’s desire for a nano launch capability that I mentioned under #1