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Estd 4.22.2023
Based on the principles outlined in our SaaS pricing book, Price to Scale, the decision isn’t an either/or between factoring in internal costs versus customer-perceived value. Instead, it’s about finding the right balance that aligns your pricing metric with both the value your customers receive and the underlying costs that can scale with usage.
Here’s how our book approaches this:
• Customer-Perceived Value First:
Our pricing strategy emphasizes that the metric you choose should ultimately reflect the value that your customers derive from your product. This alignment makes it easier for prospects to see a clear connection between the cost they incur and the benefit they receive.
• Considering Hard Costs:
However, if your product incurs significant hard costs that scale with usage (such as API calls incurring server or compute expenses), it’s prudent to factor these into your pricing decision. As noted in Price to Scale, usage-based models are especially effective when your costs—like S3 storage or compute power—directly correlate with the consumption of your service.
• The Checklist Process:
In the book, we suggest a decision process where you first determine if your model is based on consumption or capability. If it’s consumption-based, you then choose a usage metric (e.g., price per API call, per ticket processed, or per chat interaction) that best ties the cost to both customer value and scalable costs. This process allows you to prioritize customer value while ensuring that your pricing structure can support your revenue and cost recovery goals.
In summary, while customer-perceived value should drive your pricing unit selection, you should absolutely consider your internal cost dynamics when those costs scale with usage. This dual lens ensures that your pricing not only resonates with your customers but also safeguards the financial health of your business.