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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Pricing metrics are the fundamental units by which companies charge customers for their products or services. For SaaS businesses especially, selecting the right pricing metric can mean the difference between stagnant growth and explosive success. But what exactly is a pricing metric, and how can you choose the right one for your business?
Pricing Metric Definition: The Basics
At its core, a pricing metric is the unit of value upon which your pricing model is built. It answers the question: "What exactly are customers paying for?" In traditional businesses, this might be straightforward—customers pay per product. In SaaS, however, pricing metrics can be much more nuanced.
A well-designed pricing metric should:
- Align with the value customers receive
- Scale with customer usage or benefit
- Be easily understood by customers
- Be measurable and trackable
- Grow as customers derive more value
For example, Slack charges per active user, Dropbox charges based on storage space, and Mailchimp uses the number of contacts in your database as their primary pricing metric.
Types of SaaS Pricing Metrics
SaaS pricing metrics generally fall into several categories, each with distinct advantages and challenges:
Value Metrics
Value metrics directly connect pricing to the value customers receive from your product. These metrics are powerful because they create a natural alignment between what customers pay and the benefit they derive.
According to a study by ProfitWell, companies that use value metrics grow 38% faster than those using feature-based pricing alone.
Examples of value metrics include:
- Revenue percentage (for payment processors)
- Return on investment (for marketing tools)
- Cost savings (for efficiency software)
- Outcomes achieved (for specialized tools)
Usage Metrics
Usage metrics tie pricing directly to how much a customer uses your product. These metrics can be highly effective because they allow customers to start small and pay more as they increase usage.
Common usage metrics include:
- Number of API calls
- Amount of data processed
- Storage used
- Computing resources consumed
- Messages sent
According to OpenView Partners' 2023 SaaS Benchmark Report, 61% of SaaS companies now incorporate some form of usage-based pricing, up from 34% in 2018.
User Metrics
Perhaps the most common SaaS pricing metric, user-based pricing charges based on the number of people using the software. This model is simple to understand but may not always align with the value delivered.
User metrics typically include:
- Per seat/user pricing
- Active users
- Admin users vs. regular users
- Concurrent users
Feature Metrics
Feature metrics charge based on access to specific product capabilities. While not strictly a pricing metric in the purest sense, many SaaS companies use feature tiers alongside other metrics.
How to Select the Right Pricing Metric for Your SaaS
Choosing the right pricing metric is critical. According to a study by Simon-Kucher & Partners, pricing is the most effective profit lever, with a 1% improvement in pricing yielding an average 11.1% increase in profitability.
To determine your ideal pricing metric:
Understand your value proposition: What problem does your product solve? How do customers measure success?
Map customer behavior: Identify which product aspects correlate most closely with customer value.
Analyze customer segments: Different customer segments may value different aspects of your product.
Test with customers: Before fully implementing a pricing metric, validate it with customer feedback.
Consider operational feasibility: Ensure you can accurately track and bill based on your chosen metric.
Patrick Campbell, founder of ProfitWell, notes: "Your pricing metric is the foundation of your monetization strategy. Get it right, and everything else in your pricing structure becomes much easier to optimize."
Common Mistakes in Choosing SaaS Pricing Metrics
Even experienced SaaS leaders can make these common pricing metric errors:
Choosing metrics that don't scale with value: If customers get more value but don't pay more, you're leaving money on the table.
Selecting overly complex metrics: If customers can't easily understand what they're paying for, they'll hesitate to buy.
Picking metrics that penalize success: Your pricing shouldn't discourage customers from using your product more.
Using metrics that are difficult to measure: If you can't accurately track your metric, billing becomes problematic.
Real-World Examples of Effective Pricing Metrics
Twilio: API Calls
Twilio charges based on the number of API calls made, directly tying cost to usage. This model allows customers to start small and pay more as they grow, creating a natural alignment between price and value.
HubSpot: Contacts Database
HubSpot's pricing scales with the number of contacts in a customer's database. This metric works because it reflects the scope and potential value of using their marketing platform.
Snowflake: Compute Resources
Snowflake's data warehouse pricing is based on actual compute resources consumed. Customers pay for what they use, making the value proposition clear and fair.
The Impact of Pricing Metrics on Business Growth
Your choice of pricing metric doesn't just affect revenue—it shapes your entire business. According to research from Boston Consulting Group, companies that optimize their pricing strategy can increase their valuation multiples by 30%.
A well-designed pricing metric:
- Attracts the right customers
- Encourages product adoption
- Supports customer expansion
- Simplifies the sales process
- Provides predictable revenue
Conclusion
A pricing metric is far more than just a billing unit—it's a strategic choice that affects every aspect of your SaaS business. The right pricing metric aligns your revenue with the value customers receive, creates natural expansion opportunities, and builds a sustainable business model.
When evaluating your current pricing structure or developing a new one, take time to thoroughly analyze your pricing metrics. Are they truly aligned with customer value? Do they scale appropriately? Are they easily understood? Answering these questions can unlock significant growth potential for your SaaS business.
Remember that pricing isn't static—as your product evolves and market conditions change, your pricing metrics may need to evolve too. The most successful SaaS companies continuously test and refine their pricing strategies to maximize both customer satisfaction and business performance.