I’ve started work with a company that sells a solution to municipalities designed to monitor illegal parking in critical zones. Currently they charge only as a percentage of revenue collected from parking violations. The issue is that the solution works too well, i.e., it discourages illegal parking thereby decreasing overall revenue and making it less attractive to both the company and the municipality.
I’m asking if there is either: 1) a better pricing metric that aligns with the job-to-be done of reducing illegal parking? or 2) is there a way to modify the revenue share metric to enable more value capture for the company?
To me it seems clear that they need to add a set-up fee or flat-rate component(s) to their pricing model.
Would it make sense to provide a partial rebate on the set-up fee if a certain threshold of volume is reached in the early months?
I’d agree with your takeaway Ed. I worked with a client like this that charged a “percentage of savings on cloud spend” and as they did their job well, they made less money. They referred to this as a perverse incentive.
We were debating moving a little further up the value chain to charge based on total cloud spend, or going a more modular route to charge for different features and functionality.
I generally like the idea of a set-up fee, and wonder if a base fee with variable costs based on usage could make sense?
If you “peel the onion”, what does reducing illegal parking do for them? Increases legal parking? Increases parking fees (not violations)? Increases resident satisfaction? There are probably many more. Can you price based on one of these outcomes?
Thanks Mark. The biggest benefit of reducing illegal parking is safety, e.g. parking in a bus lane which causes greater risk to cyclists and pedestrians. Many municipalities belong to the Zero Vision initiative which has the goal to eliminate traffic related fatalities. So I’m trying to work along that tack.
Ultik’s book had a great section on Value Metric Chains. In theory, the best value metric is as close to the output of the customer’s value chain as possible. But in practice, the further down the chain you go, the harder it is to measure and monetize outcomes.
Your situation sounds similar - eliminating traffic-related fatalities is hugely valuable (each life saved is, arguably, invaluable). But I imagine it’s incredibly difficult to directly attribute that outcome to parking software.
Your current % of revenue collected metric is very straightforward. Maybe there’s an opportunity to break it apart - add a fixed usage fee, or look for more measurable value metrics earlier in the chain?
Thanks Serge! Especially given the ACV of this solution, there definitely need to be more revenue streams!
We are currently exploring metrics around safety, and there are budget holders within municipalities who spend money on services to improve it. So that’s the direction we’re going in now.
