Communicating your value is the unshakeable core of a successful product-led growth strategy. If you have simple pricing tiers and plans, users will upgrade on their own. If you have complicated pricing or users have to reach out to understand your “unique” pricing model… game over, you’ve lost a ton of sales you didn’t even know you could win.
In this course, we’ll cover:
Wes Bush:
It all comes down to identifying your value metric. Now, if you're thinking of yourself, "Wes, I have no clue what a valid metric is." I'll just quickly go through it. If you do know what that is, bear with me for a minute. So what is a value metric? A value metric is a sense of the way you measure value exchange in your product. If you're thinking, "Oh, this sounds kind of wordy." I'll just give you some examples and I'm sure you'll figure it out. So here's some examples. Active campaign, email marketing platform, they charge per contact. So if I have 25,000 contacts and I want the pro plan with all those features, boom $645 per month. Pretty easy to find out how much I have to pay. And if I go to Slack and try and upgrade this for my team, all right, so I see 6.67 USD. That sounds specific, but it's per person, all right. Per month, per person, per month per person got it. So that's, Slack's value metric. That's how they charge us.
Wes Bush:
And when we look at HubSpot, so kind of similar to Active campaign, but a lot of other things it does. They also charge per contact, since at its core HubSpot is a CRM and they built a lot of other products around that. And we look at Stripe, so they charge by percentage of sales. Interesting. So I want you to think about this. What is your value metric? And while you're thinking about that, because I'm going to keep prompting you to answer that question. I want to share the two main types of value metrics. Because they were not all created equal.
Wes Bush:
The first one we've gone through for a few of those examples was really the functional value metric. That's when we're charging by per user, or let's say it's per hundred videos, or it's just some capacity or a unit that you can easily measure in your platform that hopefully correlates with the value that people are getting from your platform. Now, typically when you're thinking of, should I use a functional or an outcome-based value metric? You typically will use a functional one if you can't quantify the impact. So outcome based value metrics, like you saw with Stripe for instance, back here, this is percentage of sales. Now outcome based value metrics are really, if you can get them, they're probably arguably the better metric to pick, but it's not always cut and dry, whenever it comes to picking it for your business. So if you see that, you're like, "Hey, I can't quite pinpoint the amount of revenue someone's making with my products." That's okay. It might just mean you have to pick a functional value metric.
Wes Bush:
But if you can please try and optimize for that outcome-based value metric, because what's really cool about this is, if we look at even just Stripe, when we are charging people based on the percentage of sales that they're going to get from their business, where do our incentives as a business align? It's really about, how can we help our users get a ton more value from their businesses? How can we help them scale up? Because if they're making millions, we're making 2.9% on those millions. They're making billions, we're getting really excited because we're making 2.9% on those. I'm sure there's definitely enterprise deals and different things like that at that scale, because that would be a gross amount of money for Stripe to take in. But that is really, what it comes down to. How can we align our pricing model with the value exchange with folks who sign up.
Wes Bush:
So those are the two types of metrics. I want to ask you, why do you think value metrics are so important for product led businesses? Why is the case? Why do you think these value metrics are so important for product-led businesses? While you think about that, I'm going to ask you another question. What makes a great value metric? If you think of all the metrics we could choose, what separates the really good ones from the bad ones? We could charge people per credits. We could charge people in monopoly money. We could charge people based on how many logins they could do every single time in our product. But what makes a good one? So I want to make sure that, before we go through this test, it is a live test here. You write down, what is your value metric? See if you've got to pause the video, just write it down. What you believe your value metric is for your business. And then we're going to vet it here in a second.
Wes Bush:
So write it down. Next step, this value metric that you have selected must pass three tests. And if it doesn't pass these three tests, go back to the drawing board, keep writing down another value metric and come back here. Because it has to be easy for the customer to understand. A lot of times this is probably one of the trickiest ones. Because we think of a value metric and then we have to communicate it to the user. And the longer it takes for someone to understand what they're getting charged by, it just adds more friction. So you will have to eventually do a lot more testing to understand what is the best one that your users can identify with and understand easily. But for right now, we're just brainstorming, trying to find what that looks like.
Wes Bush:
And so the second stage of this test is really, you have to answer yes to this. And that is, is your value metric aligned with the value that the customer receives in the product? So with Stripe, it's percentage of sales. With Active campaign and HubSpot it's per contact. And so, try and think about that. Is your value metric aligned with the value the customer receives in the product?
Wes Bush:
And the last piece, this one's really important. Because if you miss this one, you're going to miss out on a very important growth lever in your business called ARPU average revenue per user. Ideally your value metric grows over time, as people use your product more and get more value out of it. When that happens, people start spending more with you and it's not because you're just getting better at monetizing them. No, it's because they're getting more value from your product. If people are raking in $10 million per year using Stripe, it does actually make more sense that we're charging them more than someone who's just raking in 1 million per year.
Wes Bush:
So make sure that as someone uses your product more, that you're also able to charge them more because if you don't, you're going to miss out on a lot of average revenue per to yourself "Okay, I wish there was more of a framework around this. Like these three tests are nice and all, but let's dive deeper." So we do actually have a pricing metric decision guide that we do recommend you to go through. It is definitely a little bit more complex than what we're going to cover in this lesson today. But I do encourage you to either click on this and the slide, or I will also link to the resources below because this will really just give you more of a foundation for you to pick what that value metric is, as it relates to some of these other factors as well.
