How do we determine the right usage metric to charge for (for example, API calls, data volume, number of transactions) that best correlates with the value customers get?

Below is a structured approach from our saas pricing book, Price to Scale, for selecting the right usage metric that correlates with the value your customers receive:

Determine Your Pricing Model
Our book suggests first deciding whether you're pursuing a consumption-based model or a capability (lump-sum) model. For usage-based pricing, you’re in the consumption camp where the pricing correlates directly with how much the customer uses the product.
Generate a List of Candidate Metrics
For usage-based pricing, come up with several potential metrics such as API calls, data volume, number of transactions, or similar measures. The key is to choose candidates that are inherently tied to the core value your product delivers.
Evaluate Metrics Based on Client Value
Assess each candidate using criteria that include:

How well does the metric tie to the value delivered to the client?
Is it directly proportional to the benefits the customer gets?
Can customers easily measure and understand how their usage impacts cost?
For example, if your product’s primary value comes from processing transactions, then charging based on the number of transactions might closely mirror the value provided.

Consider Practical Aspects
Our book also recommends taking into account aspects such as:

How measurable is the usage across different customers?
Does the metric align with any underlying hard costs (e.g., compute power or storage) that change with increased usage?
Will the metric lead to simpler client adoption and scaled growth over time?

Rank and Choose
With a shortlist and evaluation criteria set, rank them based on their alignment with client value and operational practicality. The one that best encapsulates the customer's usage and benefit should become your key usage metric.

In summary, Price to Scale emphasizes a systematic approach where you first decide on the consumption model, then generate candidate metrics, and finally assess them based on their direct connection to customer value and operational ease. This ensures that you’re not only covering your costs but also aligning pricing directly with the value customers perceive.

By following these steps, you'll be well-equipped to select the right usage metric whether it’s API calls, data volume, or transactions that best captures the value delivered to your customers.