Per User Pricing is a Value Metric Relic of the 1980s
To understand why per user pricing isn’t good for most SaaS products, we first need to review the concept of a SaaS pricing value metric. Remember, a "value metric" is what and how you’re charging for a product. If you’re selling a pair of shoes, then your value metric is “per pair of shoes” and as customers buy more pairs your business expands.
A great value metric passes three tests: 1. it’s easy for the customer to understand, 2. it’s aligned to where the customer receives value in the product, and 3. grows with your customer’s usage of that value.
In the case of our shoes, charging per pair fails to fulfill the latter two criteria, because value isn’t derived from the pair in and of itself; it’s derived from the number of days, miles, or smiles the pair of shoes brings. Of course, charging based on the number of miles you wear the shoes seems pretty preposterous, as was any method of charging for software other than per license 30 years ago. There wasn’t a way to easily monitor how much usage was occurring and even then it didn’t make sense in the cost structure of integration or delivery.
Essentially, early software companies were pricing based on similar models to hardware or even a pair of shoes. Doesn’t seem very sophisticated, does it?
When SaaS came along, we just kept going with the same model, even though our software became 10x more sophisticated and provided 10x the value. The barriers described above no longer existed, and for most products you’re building right now, it doesn’t really matter how many users are using the product. Rather, value comes from the number of tests completed, the number of files stored, or even the amount of bandwidth or visitors analyzed.