Is your pricing metric a tugboat or a headwind?

Half my projects this year have been clients asking for a better, different pricing metric. Something other than seats, users, or devices. 

While the specifics are different for each client – the overall goal is to create annual contract value (ACV) growth. Whether growth is waning because customers have fewer employees or because hardware margins are getting pinched and economies of scale further out of reach, or AI is threatening to massively improve productivity – finding the right pricing metric is imperative.

It may seem obvious, but it’s worth remembering, independent of how things are currently priced, each industry, each business, has a unit of value already. A revenue-generating (or cost saving) Noun signaling to peers, leadership, and analysts which businesses are more and less successful, more or less well-run. A coin of the realm. While there are some companies where this Noun is headcount – people are always a loose proxy for value generation, so it’s probably something…even more valuable.

For real estate brokerages, the Noun is Real Estate Transactions.

For clinicians conducting medical research, the Noun is Studies.

For safety directors, the Noun is Inspections.

These Nouns may not yet map neatly to the product, and any given customer may use one synonym or anther, but even just using these terms in sales and marketing helps clarify value and context for customers.

Often when I bring up this idea, the push back is more about customers shooting past their purchased allotment. While a good problem for everyone involved, with the right metric selected, it’s highly unlikely.

Just as every company has a price window for a given solution (above which is too expensive and below which isn’t credible), every company has a window for Valued Noun – above which they’re surpassing forecast, below which something very bad has happened to their business. Which means there’s a natural tiering across companies based on their composition, operation, and ambition. 

So, while vast and filled with opportunity, our world is still finite, with hard limits and trade-offs. Just as most customers are unlikely to double their headcount this coming year, they’re also unlikely to double whatever their Valued Noun is this year. Thus, transitioning from Seats to Valued Noun is about understanding the historic ranges customers’ have operated in and aligning the price to their growth ambitions.

Our research on real estate brokerages showed smaller brokerages averaged substantially more Transactions per Agent than larger brokerages. With per seat pricing, the clear target segment for growth is the quickly growing, larger, brokerages, but if the pricing metric shifts to Transactions the disproportionally productive brokerages become a much more compelling growth segment. Of course individual Agents at both large and small brokerages can only execute so many Transactions, and the more they do, the more unlikely the next. No matter the number of Agents, we eventually hit a ceiling.

Yet another water park inspection today becomes less valuable and increasingly interferes with people enjoying themselves.

Research facilities can only run so many Studies during the year – whether on their own or in collaboration with others. Staff, resourcing, and meaningful enough questions are all limitations.

By aligning pricing their Valued Noun your product is a tool helping your customers succeed – not another headwind. Plus, it no longer matters if customers swap their staff out for an army of AI Agents.

Win-win.

I wouldn’t consider this consumption- or usage-based pricing as both imply attribution which can be readily bypassed and disputed after the fact. This is more, productivity-based or operations-based pricing, tied to a forecast and committed to up-front. A partnership incentivizing mutual success.