2. Pricing that scales with usage through value metrics
Once you’ve taken your first few steps down the yellow brick pricing road with persona alignment, the second biggest factor in successful pricing is the almighty value metric. A value metric is essentially the unit that a customer pays for - per user, per GB, etc.
While personas are exceptionally important for funnel and price alignment, a value metric is paramount for proper price differentiation and expansion revenue. Their power lies in their ability to ensure that when a customer gets more out of your product - through usage, ROI, etc. - that you’re capturing a portion of that increased value. After all, you wouldn’t want to charge Disney’s 500 person sales team the same amount as Price Intelligently’s 3 person sales team, would you?
Another way to think about it is to pull out our trusty demand curve below. The beauty of SaaS is that through usage throttling and feature differentiation, we don’t need to just capture the revenue represented by the solid blue box at the $25 price point. We can capture the revenue throughout the entire are under the curve with different price points and more variable pricing.
Seems awesome, but also pretty straightforward, right? Well, so many companies get this wrong by either not identifying properly where customers actually derive value from their product or making their value metric(s) so convoluted that buyers can’t really understand them.
HubSpot - Exceptionally Well Crafted Value Metric
Two companies that get this concept completely right are HubSpot (a marketing automation platform) and Insightly (a CRM for small businesses). We most recently did a deep dive into HubSpot’s complete pricing strategy, but we can’t speak more highly about their value metric of “number of contacts” (pictured below).
The reason their value metric is worthy of learning from is because it’s the closest metric to where paying customers are getting value from the product. Theoretically, the perfect value metric would be taking a portion of the revenue gained from their customer’s leads, but this fails our value metric tests in terms of being more difficult to understand and track.
Insightly - Proper Value Metric Under Constraints
Insightly is worthy of note because they face a different dilemma than HubSpot. While HubSpot’s revenue can expand easily if their customers hit patches of growth and increase in number of contacts, Insightly’s core customer of small businesses means that they aren’t going to have a lot of customers with 300 sales people like a Salesforce.
Although this may seem like a weakness, it’s actually a strength, because they can still use “per user” as their primary value metric, but can also put some limits on their free and core plans with features and number of contacts/leads. This forces power users on the free plan to make a buying decision when they’re clearly getting a lot of value out of the product. The pricing schema also keeps things incredibly simple and focused on the one type of paying user with only the very large small customer needing to move into a larger Enterprise tier.
The bottom line takeaway: Make sure you have a multi-price mindset that throttles value by taking advantage of your value metric(s). For more on identifying and optimizing value metrics, check out our value metric guide.