# Value Metric Pricing

> Price is tied to a unit that scales with customer value, users, volume, transactions, outcomes. That creates expansion by design: as the customer grows, revenue grows with them.

- Canonical URL: https://www.convios.com/en/methods/value-metric-pricing
- Language version: https://www.convios.com/de/methodik/value-metric-pricing
- Status: Externally proven
- Method library: https://www.convios.com/en/methods — Markdown: https://www.convios.com/en/methods.md

## Problem

Your pricing is a flat rate or a handful of rigid packages. Small customers find the price too high, large ones pay far below the value they receive and there is no built-in reason for existing revenue to grow. Without a scaling price metric, the business model lacks the expansion engine that makes net revenue retention above 100 percent possible in the first place.

## Approach

1. Identify the unit that actually grows with customer value, seats, processed volume, transactions, achieved outcomes.
2. Check that the metric meets three conditions: the customer understands it, it is measurable, and it rises when the customer gets more value.
3. Tie the price to this metric and deliberately design a wide spread between your smallest and largest customer.
4. Survey willingness to pay per segment (for instance via Van Westendorp) and review pricing regularly, driven by data.

## Example

A typical case: a B2B SaaS in document workflow sells a company license at a fixed price. One large customer now processes many times the volume of the small ones but pays the same. The company switches to a tiered price metric per processed document volume: small customers enter at a lower point, large ones pay in line with their value. As existing customers grow, revenue now grows automatically instead of every upgrade being negotiated one by one.

## Limits

A badly chosen metric penalizes exactly the behavior that drives product value, whoever pays per user invites no colleagues. For lender and embedded-finance models the logic does not apply; there, monetization reads as spread or take rate. Migrating an existing base is delicate and needs clean migration paths and communication.

## Metric

Net revenue retention and expansion's share of growth; as a supplement, the price spread between the smallest and largest customer as an indicator of whether the metric truly scales.

## Sources

- Ward S. Bowman, Jr.: Tying Arrangements and the Leverage Problem, The Yale Law Journal 67(1), 1957, S. 19–36 (Abschnitt "Single Product Discrimination, A Counting Device", S. 23–24), 1957 · academic and scholarly literature · supports the underlying mechanism. Bowman shows that a seller whose product is worth more to intensive users, but who cannot observe usage intensity in advance, picks a consumable as a counting device and charges through it, with the ceiling set by the saving the product delivers to the user; that is the pricing unit tied to customer value. (https://openyls.law.yale.edu/handle/20.500.13051/3718)
- What's going on with pricing this year? A deep dive into 2023 pricing data — OpenView Venture Partners (Kyle Poyar), 2023-11-30 · investment, consulting and analyst firms, industry bodies and public agencies · provides benchmark figures. Quantifies how widespread usage-based pricing is, drawing on a SaaS benchmarks survey of more than 700 companies: 18 percent price predominantly on usage, 23 percent use usage-based tiers, 42 percent have no usage component at all. The source measures adoption; it does not establish that usage is the metric through which customers derive value. (https://openviewpartners.com/blog/2023-pricing-data/)
- Product Pricing for Startups: Value Metrics — Long-Term Stock Exchange (Patrick Campbell), n.d. · practitioner source · describes the method. Defines the value metric as what a customer pays for and by, and shows with the example of a per-transaction fee how revenue grows with the customer's usage. (https://ltse.com/insights/product-pricing-for-startups-value-metrics)
- Walter Y. Oi: A Disneyland Dilemma, Two-Part Tariffs for a Mickey Mouse Monopoly, Quarterly Journal of Economics 85(1), 1971, S. 77–96, 1971 · academic and scholarly literature · supports the underlying mechanism. Formalises the tariff structure of a lump-sum fee plus a per-unit price and shows how the usage price extracts consumer surplus; explicitly names Bowman and Burstein as the prior work on the metering mechanism. Covers price level, not choice of unit. Full text read. (https://gwern.net/doc/economics/mechanism-design/1971-oi.pdf)
- M. L. Burstein: The Economics of Tie-In Sales, The Review of Economics and Statistics 42(1), 1960, S. 68–73, 1960 · academic and scholarly literature · supports the underlying mechanism. Economic formalisation of tie-in sales as a device for extracting consumer surplus through the tied unit, the economics version of what Bowman set out three years earlier. Verified only via the citation in Oi 1971 (fn. 2 and closing section); no free full text checked. (https://doi.org/10.2307/1926092)
- Primary source: Ward S. Bowman, Jr.: Tying Arrangements and the Leverage Problem, The Yale Law Journal 67(1), 1957, S. 19–36 (Abschnitt "Single Product Discrimination, A Counting Device", S. 23–24) (https://openyls.law.yale.edu/handle/20.500.13051/3718)

## Related

- Method: [Good-Better-Best Pricing](https://www.convios.com/en/methods/good-better-best)
- Method: [Willingness to Pay (Van Westendorp)](https://www.convios.com/en/methods/willingness-to-pay)
- Method: [NRR as the Number One Value Driver](https://www.convios.com/en/methods/nrr-as-value-driver)
- Tool: [Fin](https://www.convios.com/en/toolbox/fin)
- Tool: [Zendesk](https://www.convios.com/en/toolbox/zendesk)