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A “pricing metric” is what you charge for. Think of it as what you put on the invoice or receipt. All companies (with revenue) have one or more pricing metrics. The term “pricing metric” became popular with the growth of cloud-based SaaS. Prior to this, pricing metrics were obvious.
In the world of physical goods, the pricing metric was always the physical item. McDonald’s charged for hamburgers. Trek charged for bicycles. IBM charged for computers and accessories. Do you remember when software was sold as an item, packaged in shrink-wrapped boxes on the shelves at Best Buy?
Then came SaaS. Salesforce priced by the number of users. Dropbox charged by the amount of storage. Banner ads were originally sold by the number of exposures. Now Google charges by the ad-clicks. Suddenly, companies have to decide on what to charge for.
Even traditional industries are using unique pricing metrics. Jet engines are sold by the hour, not the engine. Some tires are sold by the mile. Used books have been sold by weight or by the bag full. Netflix changed the movie rental pricing metric from renting by the night to the number of DVDs you can have simultaneously.
Choosing a pricing metric wisely can make or break your product or company. A great pricing metric is highly correlated with how your customers get value from your products. But often, you can’t charge directly for that. This is where usage metrics come into play. When you measure the usage of different features, you have the ability to use any of these metrics as your pricing metric.
Do you remember phone plans that charged for the minutes of long-distance? That has evolved to all-you-can-eat plans for calls and texts with caps on data usage (sometimes).
All companies choose a pricing metric (or two). Some do it thoughtfully and wisely. Think hard about your pricing metric. Is it the optimal one? What you charge for is more important than how much you charge.
What unusual pricing metrics have you seen? Share your comments on the LinkedIn post.
Now, go make an impact!
Tags: pricing, pricing metric, pricing strategy, value
