How Your Value Metric Drives Growth
The foundation of any great pricing strategy is the value metric—the "what" you charge for. It's the core unit of your pricing, and it is the single most important decision that will determine whether your revenue scales naturally and sustainably
In my last post, we explored how a well-structured tiered pricing model can act as a ladder for customer growth. But a ladder is useless without a foundation. The foundation of any great pricing strategy is the value metric—the "what" you charge for. It's the core unit of your pricing, and it is the single most important decision that will determine whether your revenue scales naturally and sustainably.
A truly effective value metric is more than just a unit of measurement; it is the embodiment of the promise you make to your customers. When your pricing scales in perfect harmony with the value they receive, you create a virtuous cycle: as your customers succeed and use your product more, your revenue grows. This eliminates the need for aggressive, friction-filled upsells and builds a relationship based on mutual success.
At Foundational Edge, we don’t just look at what you could charge for; we focus on what you should charge for. This means identifying the core unit of value that creates the most powerful, organic link between your product and your customers' success.
The Two Pillars of Value Metrics: Access vs. Outcome
When designing your value metric, it’s helpful to think of the two primary philosophical approaches: access-based metrics and outcome-based metrics. Each serves a different purpose and offers a unique value exchange with your customers.
Access-Based Metrics (The "Seat at the Table" Model): These metrics are focused on providing access to your product, not necessarily on the specific outcomes a customer achieves. The most common example, suggested by Cobloom's pricing guide, is the per-user or per-seat model [2]. You're essentially selling a key to the kingdom, and the price is based on the number of people you let in.
Pros: This model is simple to understand and forecast. It’s perfect for collaborative tools where the value truly comes from having more people on the platform. It's also easy for customers to budget for and predict their costs.
Cons: It can create a friction point for adoption. Customers might be reluctant to add a new user if it increases their bill, leading to a "user cap" mentality or, worse, password sharing. This metric also fails to capture the value from a single "power user" who may drive immense value for the organization.
Outcome-Based Metrics (The "Pay for Success" Model): This approach directly links your pricing to a quantifiable outcome or a clear unit of value that the customer receives. You're not just selling them a seat; you're selling them a result. This is often seen in usage-based and value-based models.
Pros: This is the fairest model in the eyes of the customer, as they only pay for the success they experience with your product. It’s also an incredible growth engine for you—as your customers grow, their usage (and your revenue) grows in parallel. It lowers the barrier to entry by allowing customers to start small and only pay more as they see a clear return on their investment.
Cons: It can be unpredictable for customers, potentially leading to "bill shock" if their usage spikes unexpectedly. It also requires robust infrastructure to accurately track and meter consumption. For a more traditional business that needs predictable budgeting, this can be a tough sell.
How to Find Your "Price of a Promise"
So, how do you discover the right value metric for your business? It's not about guessing; it’s about listening.
Ask Your Customers: Go beyond "What would you pay for this?" Instead, ask, "How do you measure success in your business?" "What would be the impact if this problem were solved?" "What is the single most valuable thing our product does for you?" Their answers will reveal the core outcomes they truly care about. For an email marketing tool, they might not care about "emails sent" as much as "leads generated" or "revenue driven," which gives you a more powerful metric to anchor your pricing to.
Analyze Your Data: Look at your most successful customers. What does their usage pattern look like? Are they sending a lot of emails? Creating a lot of projects? Storing a lot of data? The behaviors of your power users are often the best indicators of what to charge for.
Consider the Trade-Offs: The right value metric is a balancing act. Simplicity is great for customer understanding and forecasting, but it might leave money on the table. Granularity allows you to capture more value but can introduce complexity. Your job is to find the point where fairness to the customer, profitability for your business, and operational feasibility for your team all meet. For example, a company might use a hybrid model with tiered pricing based on a single value metric (e.g., users) but with additional usage-based pricing for a second metric (e.g., data storage), allowing for both predictability and scalability.
At Foundational Edge, we believe that choosing the right value metric is a strategic decision that can unlock exponential growth. It's about understanding how your customers truly derive benefit from your product and then building a pricing model that scales in perfect harmony with their success. Our white paper, "White Paper: SaaS Pricing Methods & Analysis" provides the detailed framework for identifying, implementing, and optimizing the value metrics that will propel your SaaS business forward.