Let's imagine you and I decided to sell a "smart faucet"

You install it in your apartment and save water!

Which pricing metric will we choose?
(a pricing metric is what we charge for)

For the faucet itself?
For the number of people in the apartment?
For liters through the faucet?
Or the volume of water saved?

(I ran out of ideas here)

All this is a simple example of a metric ladder

Why a ladder...

Usually, a product develops iteratively, step by step.

And, as a rule, with each iteration, the team gains a deeper understanding of the most valuable customer value.

And along with this understanding, the main pricing metric changes.

In our promising startup...

Charging for the smart faucet as such is the most convenient metric at the start.

It's easy to understand, calculate, compare, quickly package into an offer, etc.

BUT!

The nuance is that the faucet itself is just a tool, a "feature," a way to solve the customer's problem.

The value is not in it.

And the less value the offer has for the customer, the lower our chances of making it into Forbes.

And over time through interviews / observations / tests, we realize that a more profitable and scalable metric for us should always be closer to the real benefit for the customer.


That's how the "ladder" appears.

Why is it important?

It's a profit management tool.

Because even if the product's revenue is growing and the team is happy, but a poor pricing metric is chosen...

(or it doesn't account for context changes)

You can get...

Increased churn of paying customers (selling expensive to those who get little value)

Or increased costs (selling cheap to those who heavily consume resources)

Or decreased ARPU (when our customers grow, but they pay the same amount)


And overall,

If you don't manage your metric ladder, you can accumulate "old" customers on "wrong" terms.

(and when trying to change them, you'll get hate and "we were cheated")

A good metric ladder is when...

You understand what you're charging for now and where it makes sense to go in 12-24 months.

Important point!

There will always be customers who like to cheat: 10 people on 1 account, cramming all tasks into 1 project, etc.

And here, the right architecture of pricing metrics can also save you resources and nerves.


After all, not all customers are equally profitable.

(but that's a story about segmentation)

PS: I made a small step-by-step plan on how to build a metric ladder. Write "Plan" in the comments, and I'll send it to you in a private message.

(gotta boost engagement in the channel somehow)

And react to the post. Otherwise, I get a treacherous feeling that I'm writing uninteresting nonsense.

#pricing_metrics