Robin Neidorf Value metrics pricing: Pricing based on basic multiples
Jinfo Blog

Tuesday, 3rd April 2012

By Robin Neidorf

Abstract

The first of three approaches to pricing is what we call "value metrics" and tends to be the simplest. Even if there are a number of variables that go into the metric (e.g., numbers of readers versus in-depth users, different content sets, different delivery mechanisms), the fundamental approach comes down to A x B = Price. Learn which levers to pull when negotiating over value metrics.

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This is the second in a four-part series of FreePint Features on how vendors of content products invest in product development. If you influence or negotiate contracts, you may find this approach to understanding the various levers you can pull to be useful.

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With a value metrics pricing philosophy, contract values are generally a multiple of users or seats, the amount of content supplied, and (sometimes) the inclusion of different product features such as a certain number of custom alerts or use of widgets.

The key investments that support this pricing philosophy are content creation or acquisition and robust, reliable features. Many vendors that use value metrics for pricing aggregate content from a variety of sources, and they have to focus on assembling a strong set of content from sources their customers want at a reasonable price.

These sources are at risk for losing content – something that has happened all too often in the past two years, as publishers have begun to pull their content out of aggregators to try to monetise it independently.

Many of these vendors also have incorporated content from social media and blogs; they also face risk and costs with this web-based content, because of the inconsistent nature of so much web content. A value metrics vendor with a decent-sized web-based content set may need to test and repair tens of thousands of URLs every month to meet appropriate customer demands for reliability.

In negotiations, buyers need to understand the underlying costs the vendor takes on in order to supply the product. The revenues vendors generate must be shared with other publishers in the case of licensed data, and the fixed costs of skilled developers and product managers are significant.

For few seats or users, there is often very little room for concessions on price. At larger numbers of seats or users, however, account managers may have more flexibility in adapting to buyer budgets. 


 Four-part series:

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