Software Growth

Value metric

A value metric is the unit you charge for, such as seats, contacts or API calls, chosen because it rises as customers get more value from your product.

Your value metric is the thing the price scales with. Slack charges per active user, Mailchimp by contacts, Twilio by message. Pick the right one and your revenue grows when your customers' results grow, without a sales call. Pick the wrong one and customers either feel penalized for success or stop growing their usage to avoid the bill.

What makes a good value metric

Four tests cover most cases:

  • It tracks value. When the customer gets more out of the product, the metric goes up.
  • The customer understands it. They can predict their bill without a spreadsheet.
  • It is easy for you to measure and enforce. No arguments about what counts.
  • It grows with the customer. It creates natural expansion revenue as accounts mature.

The Paddle (formerly ProfitWell) guide to tiered pricing makes the same point from the other side: the number of users is rarely where value is derived for many SaaS products, so a per-user price can be a poor fit (source).

Common value metrics

  • Seats or users. Simple, predictable, and the default for collaboration tools. See per-seat pricing.
  • Usage. Emails sent, API calls, minutes processed, gigabytes stored. See usage-based pricing.
  • Records or contacts. Common in email, CRM and analytics tools.
  • Outcomes. Revenue processed, leads generated, tickets resolved. The closest to value, and the hardest to measure fairly.
  • Projects, sites or locations. Fits agencies and multi-site businesses.

A worked comparison

Suppose your product schedules appointment reminders. Customers have 3 staff on average. A per-seat price of $15 gets you $45 per customer. But the value is in the missed appointments avoided, which depends on how many appointments they book, not how many staff log in. Charging by appointments sent, say $29 for 500, $79 for 2,000 and $149 for 5,000, lines your revenue up with what the customer gets. Kalzumeus tells a similar story: Appointment Reminder anchored its price to the cost of a single missed appointment (source).

How to find yours

  1. Interview your best customers and ask what result they would lose if you disappeared.
  2. List what correlates with that result: volume, team size, number of clients served.
  3. Check which of those you can measure reliably.
  4. Look at your own data. In which segment does usage vary 10x while price stays flat? That gap is where the metric is wrong.
  5. Test the candidate on new signups before you move existing customers.

Value metric vs pricing model

People mix these up. The value metric is the unit (seats, contacts, API calls). The pricing model is how you charge on it: a flat fee per unit, tiers of units, or pure pay-as-you-go. You can charge per seat with tiers, or per contact with a flat rate per bundle. Choose the metric first, because it constrains everything else on the pricing page.

Mistakes to avoid

  • Charging on something customers want less of, such as the number of workflows they have to build.
  • Combining three metrics so the price page needs an explainer.
  • Changing the metric on live customers without grandfathering them.

For a bootstrapped product, a simple metric that customers can predict usually beats a clever one, because you cannot afford a pricing support queue.

Related terms

Sources

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