Many executives wonder why sales aren’t coming as fast or as easily as they should – despite their best efforts to focus on the right customers with the right product and the right benefits. One possibility that’s often overlooked is at the heart of a pricing model. It’s the value metric – the way a company charges for its application.
Using the right metric can accelerate sales and can even provide a competitive advantage. A value metric can be nearly anything related to how an application’s deployment and functionality delivers customer value. It can include users, transactions, bandwidth, storage, and even hardware (cores or computing capability). The task is to select the metric (or metrics) that best aligns with value, without adding too much complexity – something that can happen when a software vendor tries to get things “exactly right”.
Don’t Just Follow the Pack
Assuming there are a few metrics that align reasonably well with value, how can you choose the right one? A common approach for most vendors is to “follow the pack” and use the most common value metric. Unfortunately, this metric may not align well with customer value because the pack is simply following what the first competitor thought was right.
Try stepping back and look at the metric independent of the competition, at least as a first step. If you end up where they are, go ahead and join the pack. If you decide that the metric that’s best for your application is different, ask yourself whether your prospects can be convinced that the metric you want to use is better aligned with how they will extract value. If so, you may be able to create a competitive advantage that can be more significant (and enduring) than the actual price you charge.
As you’re exploring alternative metrics, here are three tests you can use to find the best candidate(s):
- Is the metric easy for the customer to understand and estimate their requirements (e.g. how many seats of CRM are needed)? A “user-friendly” metric helps the customers and the sales channel estimate their needs and therefore the cost of meeting those needs.
- Does the metric scale smoothly with value delivered (e.g. individual sales rep productivity increases as more CRM seats are licensed)? A metric that scales with value gives customers a way to align amount paid with value delivered.
- Setting aside prices and discounts, does the metric encourage widespread use because more value is being created (e.g. the customer wants more seats of CRM because sales are increasing and more sales reps are needed)? A metric that is tied to value created can increase follow-on product sales.
Bringing In An Outsider For A New Perspective
Sometimes the right metric is hard to find because there are nearly equal alternatives or because a product serves multiple customer needs. And sometimes industry changes, like increased mobility and use of the cloud, can be disruptive enough to revisit the choice of metric. Many times outsiders who bring a broader perspective can be used to help in deciding on the right value metric. They can also help reduce sales friction during the transition to a new metric.