Memecast #28: Pricing Metrics Are Correlated With Value Metrics

<p><span style="font-weight: 400;">The best pricing metrics are highly correlated with users value metrics. </span></p> <p><span style="font-weight: 400;">A pricing metric is what do we charge for McDonald's charges for hamburgers? That's a simple pricing metric, PayPal charges a percentage of the revenue that we collect.</span></p> <p><span style="font-weight: 400;">If we're. That's a pricing metric. There are many different types of pricing metrics, especially in the world of SaaS. We have this ability to choose many, many different possible pricing metrics. We could choose the number of clicks we could choose. The number of leads we could choose, the amount of data that somebody downloads or the number of gigabytes.</span></p> <p><span style="font-weight: 400;">Someone has access to there's many, many different possible. Pricing metrics. Probably the most common is users. How many users are there or a per seat basis, we get to choose what pricing metric we want to use. And what we want to do is choose a pricing metric that is highly correlated with a value metric and a value metric is how is it that a customer perceives value from the product.</span></p> <p style="text-align: center;"><strong>“Choose a pricing metric that is highly correlated with a value metric.”</strong>- Mark Stiving</p> <p><span style="font-weight: 400;">Now, if you think about Netflix a long, long time ago when they first came out, they put Blockbuster out of business. Well, how did they do that? They did that by changing the pricing metric metric. Blockbuster was charging rentals of a movie by the night plus late fees. If you forgot to return it, Blockbuster changed the entire pricing model.</span></p> <p><span style="font-weight: 400;">And instead of charging a rental per night, They charged a monthly subscription, which said how many DVDs you were allowed to have at your house at any one point in time. They just changed the pricing metric. And because people love that pricing metrics so much more than they loved paying late fees to blo