How should we decide whether to charge per seat (per named user) or per usage (transactions, data processed, etc.), or even based on results? What factors indicate which metric makes the most sense for our product?

Below is a structured approach based on the principles outlined in our pricing strategy book, Price to Scale:

Directly Define Your Model
• First, decide whether your pricing framework should follow a consumption-based model (where pricing scales with usage) or a capability (or capacity)-based model (where pricing is tied to the product or module). If the latter, metrics like per seat (or per named user) are more commonly used.
Determine the Tie to Client Value
• A key consideration is whether the metric you choose is proportional to the value the client derives from your product. For example, if a customer's success is more directly linked to the number of transactions processed or the data handled, a usage-based metric might be preferable. Conversely, if the value is more about access or capacity (such as the number of users or agents), then a per seat model can be more appropriate.
Evaluate How Your Metric Reflects Product Usage
• For usage-based models, assess if the metric is one that your customers routinely use to drive their business activities. Our book provides examples such as:
- Price per automated support case (when the product impacts support volume)
- Price per bot interaction or per initiated chat
- Price per specific usage step (like per bot step invoked)
  • These measurements can offer better revenue upside by directly tying price to the volume of product usage.
Analyze Tradeoffs and Revenue Potential
• Consider the scalability of your chosen metric. For instance, a per seat fee might limit revenue potential for companies with frequently changing or growing teams, whereas usage-based pricing inherently scales as the customer grows their engagement with your service.
• Look at the overall fit with your product’s value delivery. If the chosen metric is aligned with customer outcomes (results-based), it might help reinforce the promise of value delivery and improve customer satisfaction.

In summary, select the pricing metric by:
• First, deciding if your strategy is consumption-based or capability-based.
• Then, ensuring that the metric you choose is tightly tied to the client’s perceived value and the product’s key usage patterns.

This structured approach, as discussed in our book Price to Scale, will help you align your pricing with how customers actually experience value in your product.