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Estd 4.22.2023
Below is a concise summary based on our pricing strategy discussions in Price to Scale:
Direct Answer:
When deciding the increment or unit for usage pricing, start by selecting a metric that aligns with how your customers actually use the product. This could be per GB, per 1,000 transactions, or another measure that reflects real consumption. However, if the usage data is less predictable or if granular data might confuse customers, choose larger, more aggregated buckets rather than very fine increments.Supporting Insights from Price to Scale:
Predictability and Measurability:
As described in our book, “the more predictable and measurable the metric is, the more granular you can make your units and tiers.” If your metric is consistent and easily trackable (like data usage or a specific number of transactions), it makes sense to use smaller increments. Conversely, if the metric is less clear-cut, consider larger increments to maintain billing simplicity.Consumption vs. Capability Model:
Our book outlines a checklist that starts by asking whether you’re using a consumption-based or capability-based pricing model. For consumption-based models, choose a key usage metric that reflects how your customers run their business – for example, a per-transaction basis, but possibly bundled into blocks (e.g., per 1,000 or 10,000 transactions) to avoid overwhelming granularity.Ease-of-Use and Transparency:
Another key tip is to ensure that the pricing remains transparent and easy to understand. By opting for larger increments when the measurement isn’t straightforward, you reduce the risk of confusing your customers with overly complex billing structures.
- Practical Application:
- Evaluate Historical Data: Check how consistently customers use different aspects of your service.
- Test Increments: Consider testing different increments (e.g., per GB vs. per 10GB) during pilot or beta phases to gauge customer response.
- Keep it Intuitive: Often, aligning with industry standards (like how similar SaaS tools bill per usage) helps customers immediately understand the pricing without needing to decode too many details.
In summary, choose your pricing unit based on the predictability and measurability of customer usage. Larger, intuitive increments often help avoid confusion, ensuring clear, transparent billing while staying aligned with the value your service delivers.