4 important pricing metrics you need to be tracking
Enough of the why. Let’s dig into some juicy details on how you can get started tracking your pricing analytics. It’s worth noting that while some of these metrics are relevant to all business models, a few are specific to SaaS and other subscription businesses.
Willingness to pay (WTP)
Willingness to pay (WTP), sometimes called price sensitivity, is the maximum amount a customer is prepared to pay for your product or service.
WTP is easily the most important component of your pricing strategy. Without an understanding of the price sensitivity of your product, you have no way of knowing whether or not your product development efforts are yielding an augmented product value (i.e., if customers are really interested in the features you’re creating). In fact, a study at Harvard Business School revealed that a 1% improvement in pricing can improve your revenue by 11%.
Check out this example data from a recent case study of YouTube’s Premium pricing page. The chart shows the monthly willingness to pay of over 6,000 current, former, and prospective YouTube Premium customers based on age group. Two things quickly become clear: 1) Older audiences are less likely to pay for YouTube, and 2) YouTube Premium’s current pricing of $11.99 per month is exactly what their target demographic—millennials—is willing to pay.
This chart shows the monthly WTP of 6303 current, former, and prospective YouTube Premium customers based on age group.
Tracking willingness to pay—especially when you segment customers by age group, as with YouTube above, or other factors like product features or job title—can ensure your products are priced competitively for maximum profit and that your prices stay in line with current market conditions.
Feature value analysis, also called relative preference analysis, measures which features are more or less important to customers relative to other features. The same idea also applies to value propositions (high-level benefits that prompt purchasing decisions).
Asking customers to choose their favorite and least favorite features can quickly show which features customers care about.
You can't just guess which features customers value— you have to ask them directly. Here at Paddle, we like to take the simple approach of asking customers to choose their favorite and least favorite features. This eliminates the “more is better” mindset that makes most customers check more boxes and masks which features are truly valuable.
If you’re a SaaS company, your pricing page is likely tiered based on a sliding scale running from basic attributes to premium components. Analyzing which features motivate your customers to buy helps you establish how you package and bundle each pricing tier accordingly, helping you capture the most value for that section of the market.