I've thought about this a lot and my current-best-thinking is the following framework

​Map - Measure - Monetise - Manage

It's a 4-step approach to think about how to actually deploy usage based pricing in an organisation.

Each layer builds upon the next - e.g. if you mess up 'Map', then the next three doesn't really matter.

Here is the quick walkthrough.

​

Map

First, you must map your customers value creation process and draw it out in a straight, causal line - a value chain.

For example: if your solutions help hospitals make more efficient treatments, then the value chain might look like this:

Hospital building & Staff -> Patients Enter -> Patients are treated.

At each step of the chain, you can measure something:

#Buildings, #staff -> #Patients -> #Treatments

Find out which is most associated with value by your customer - e.g. if a genie gave them the choice would they want more staff or more treatments?

​In 90% of cases, they want the stuff at the end of the value chain - the output.

​

Measure

To use your new pricing metric you must be able to measure it.

But more importantly: so must your customer!

To really trust usage-based pricing the customer should have real time access to the measured data that they are priced by.

​

And if you give them access to the data, you might as well also:

• Predict future usage and spend.
• Give them control via caps, limits and permissions.

​

Monetise

Once Map and Measure are in place you are now ready to monetise.

This usually means choosing a primary modality for your pricing metric:

• Flat fee
• License Model
• Usage Based (why we are here)
• Credit System

​

No modality is 'better' than anyone else - they are just different.

Usage based is usually easy to sell (if you can get Measure-Predict-Control right) and has really good expansion..

​.. but you run the risk that the customer doesn't use anything AND you don't get paid until the end of the period.

​Based on your product, your cost structure and your market there will be a more appropriate way for you to monetise.

​Also: you need really solid work in both the Map and Measure steps to really do Usage and Credits well. So if in doubt: stick with a license (committed volume, paid upfront).

​

Manage

Manage is what happens when your new model is live in the market... and then your Sales or Product team decide to change it!

​This is where 'commercial debt' creeps in - slight variations across customer deals. Special discount here. Bespoke clause there.

​And then a new add-on. With a new modality. And a special 2-for-1 discount with that old add on.

​The complexity builds and builds.

​If you let it.

​

That is what 'Manage' is about: having an overall plan for how you want to evolve monetisation in your business that doesn't explode complexity.

​The most certain way to get this done is - simply - to just appoint ONE PERSON internally who is the ultimate dictator of everything pricing and packaging (including discounts and deals) and who can overrule anyone and anything. Then that person gets to also be responsible for managing it.

​-

And there it is: my 4-step framework for what is necessary when you do usage based pricing (especially).

​And remember: the quality of each step determines the next. It is impossible to manage something that is poorly mapped and poorly measured (because it doesn't match customer value and customers do not trust it, for example).​

​
​As promised: a point about pricing every Monday.
​
PS: If you want to learn how we do pricing at WillingnessToPay you can join our 6 week online Master Class Monetization Mastery.

Spaces are limited and it kicks off Nov 6th.

​You can just sign up by replying to this email and I'll sort you out.

‍