The first step in identifying the right price metric is to understand the possibilities – what metrics align with customer value? What are competitors using for their price metrics? Price metrics for subscription products typically fall into the following categories:
- User-based: named user, concurrent user, etc. Activity-based: number of transactions, number of reports, etc.
- Business scale: size of business, number of customers, etc. Performance-based: against key performance metrics or client performance, etc.
Create a list of metrics to brainstorm possibilities. Discussing even seemingly odd metrics can spark good ideas. Once you have a list of 10-20 possibilities, you should evaluate the performance of each metric on its benefits to customers:
- Fairness / acceptability: The metric is tied to the intrinsic value of the product, enables competitive comparisons
- Flexibility: The metric allows customers to scale service with their willingness-to-pay, overcome budget constraints, and scale with future usage & growth
- Predictability: Costs can be estimated and forecasted The metric should also have a positive impact on your internal goals and be rated on its benefits to your business.
- Customer adoption: The metric drives adoption, enables up-sell & cross-sell
- Ability to capture full customer value: The metric covers all customer segments, scales with customer growth, and allows future price increases
- Ease of implementation: The metric makes it easy to administer, monitor, control and enforce prices; it is easy to sell and communicate
Create a single score for “benefit to customers” and another for “benefit to your business”, and plot the score for each metric on a matrix (as shown in the Metric Evaluation Matrix). The metrics you should use are the ones in the top right “Ideal” corner of the matrix.