In this episode, we cover
Featured Links: Follow Dan on LinkedIn | Product Tranquility | Buy ‘How to Measure Anything Workbook: Finding the Value of Intangibles in Business’ book by Douglas Hubbard | Fermi Estimate examples | ‘Decoding the mysteries of pricing strategies’ – Part 1 of Dan Balcauski on The Product Experience
Episode transcript
Lily Smith:
Randy, I know we just had Dan Balkowski, founder and chief pricing officer at Product Tranquility, on the podcast a few weeks ago, but I have so many more questions about pricing. Do you think there’s a chance we could get him back on?
Randy Silver:
Well, lily, let me answer that question with another question. Have you ever heard of Bedirige’s law of headlines? No, it says that any headline in a newspaper that’s posed as a question can be answered with the word no. But I think we found Lily’s corollary. If there’s a question asked in one of our intros, the answer is always yes.
Lily Smith:
Okay, so you’re saying that.
Randy Silver:
Yep Dan’s back. We go even deeper into the world of pricing strategy this week. Will we need to get him back again someday to answer even more questions from us? Stay tuned. The product experience is brought to you by Mind the Product. Every week on the podcast we talk to the best product people from around the globe.
Lily Smith:
Visit mindtheproductcom to catch up on past episodes and discover loads of free resources to help you with your product practice. You can also find more information about Mind the Product’s conferences and their great training opportunities happening around the world and online.
Randy Silver:
Create a free account on the website for a fully personalized experience and to get access to the full library of awesome content and the weekly curated newsletter Mind. The Product also offers free product tank meetups in more than 200 cities. There’s probably one near you.
Lily Smith:
Welcome back to the podcast, Dan. It’s so great to be here for part two of our episode on pricing. How are you doing?
Dan Balcauski :
I am doing great. It’s so great to be back. I’m very excited for a conversation today, Lily and Randy.
Lily Smith:
So we had a really good chat in our last episode, which, guys, if you haven’t listened to already, you should definitely go and listen to that first. And right at the beginning of the conversation, you teased us with a bit of like a potentially controversial statement about why you hate freemium as a strategy for pricing. So I need to ask because I didn’t ask last time why do you hate freemium?
Dan Balcauski :
Oh man. Well, I’m expecting the torches and pitchforks to come out as I take on this Holy War topic. Maybe nothing could be as controversial as whether you use tabs or spaces in your code. So I think I maybe mentioned this at the last time I had done my first real world stint in the world of pricing. I had done an internship 12 years ago now for a successful Silicon Valley startup and one of the questions on the CEO’s desk was should they do a freemium strategy? And it was the time the high flyers if you looked at the TechCrunch articles was all like oh, evernote was sort of the darling of the freemium movement, and so I spent a lot of time looking at the companies that were held up as these paragon of success using a freemium approach, and one of the interesting things I discovered as you sort of dug below the headlines of those articles, is this really loose definition of success, because what they were able to do was, en masse, pretty significant user bases, but curiously missing was any sort of numbers around the revenue or profitability or growth on those metrics whatsoever. And so learning over the course of now, over a decade since, and talking to many companies have tried to do this, what I found is just, it’s a really not a good approach. What I’ll say overall is that if anyone’s mentioning freemium as approach, almost universally, the better answer is to go with a free trial 14, 30 day free trial. I’m a big fan of and freemium. We should be very precise in how we define it, because I think some of the confusion in this space is because people will be like oh well, you know Facebook is freemium, it’s like no free. You know Facebook is a multi sided network. You know you’re the user we’re being paid. You know monetize your attention as being sold to advertisers who are paying real, real cash right versus you know what a true freemium is is we’ve got a free offer and then we’ve got some other premium offer. Also, where this gets confusing is people talk about something like Duolingo, like oh well, duolingo is freemium. Well, duolingo is not pure freemium because they have an ad supported free model, so that’s still not what I call freemium. So when we’re talking about freemium, I’m explicitly saying there’s a non monetized free offer and then there’s a premium version of that that you upgrade to.
Randy Silver:
So slack or Calendly or something like that.
Dan Balcauski :
Yeah, I think those are. Those are canonical examples of freemium that I think people will bring up that, and so I think the problem is is that and I’ll come back to slack and Calendly because they are exceptions, but people use them as if they’re the rule, and so let me, let me come back, and if I don’t, remind me, because I’ll come back to why those are important. So let’s, let’s quickly just dive in on so this idea of, you know, free trial versus freemium Software is what economists would refer to as an experience good. So, an experience good your perception of the product’s value changes as you experience it, and so this is not something that’s only the domain of software. If you’ve ever been in a grocery store, you know, pushing your grocery cart around and somebody tries to hand you a sausage on a toothpick. As you’re doing your Sunday shopping, you try the sausage, like, oh, that’s good, well, okay, like you know, oh, what are those? Let me see, let me go look at them, because you’re you know you weren’t thinking about sausage before it wasn’t on your shopping list, and now you’re like, oh, actually, like that sparked something in me. Now I want to, I want to do more Right, and so, look, consumers have been using this in sample for a while, and no matter how good your marketing or growth teams are I’m sure they’re amazing it doesn’t matter the you know your website design or copy your white papers you create, the videos you create there’s something that doesn’t quite hit that reptilian part of our brain such that when we see the product with our own experience, with our data in it, that we go, oh, now I get it, now I understand, and so I think we get that with a free trial. So I’m a big fan of that. But ultimately, you know, freemium, what I learned over over the you know course of you know research in many years is that, look, best in class freemium. They’re going to convert about 1 to 3% of those users into paid customers. So it tends to be one of these things that really you need a massive market for. And so, you know, in B2B that’s rarely the case. So it immediately sets you up to, you know, not be successful in monetizing those folks. The other thing is, is it, you know, given this we’re talking to mostly product managers, I believe, in your audience, one of the things I’ve seen is that the people that adopt your free offering over time they tend to almost be an entirely different customer segment than those that go to your paid offering. The problem is is that in the flow of product feedback that’s coming back in the organization, often it’s very hard to tell if the feedback is coming from your free users or your paying customers. I’ve worked with companies before that you know they’ve got a support Slack channel that the product managers are on, you know, in case for escalations and maybe support sending in feature requests, and you know like everyone’s trying to be diligent, but like you know like, oh hey, user requested, this feature comes through. You don’t understand that. Oh, it’s from our free side, right, and so that we’re we’re then blending and I will say the signal versus noise ratio can be overwhelming Because if we think about this 1 to 3% conversion, I was like, well, 99 to 97% of my user base is now this, this free side right, which couldn’t. I’ve seen this very dramatically because what can tend to happen is if you go to some of these review sites like a trust pilot, you may see, you know, 90% of the reviews are from a persona that is using it for a use case that you’re like you’re paying customers aren’t using it, for I actually had a client one time that was you know their B2B SaaS software company and but most of their free users were using it for their families, some family use case, and so they’re like oh, this is great for being able to monitor what my kids watch on, you know, on their computers. You’re like monitor what your kids. And if you imagine like you’re a legitimate buyer, like doing your research on one of these review sites and you’re seeing all this, you’re like is this, what is the software for? Right? So all the work your marketing team is doing and positioning etc. Is all getting diluted and I think this giant you know 90 plus percent of free users as well it’s. It creates this illusion, this mirage in the growth desert that look, cmos, growth teams are doing a very difficult job. It’s very hard to acquire customers, and so I think the thing is is that it looks very tempting. Look if, if product would just add this one more feature, if we just change this onboarding flow, if we just maybe we have this pop up for the free users that showed them all the amazing stuff they could get if they upgraded. Just, you know, we just do this one thing and we unlock this conversion. I just think it drives a lot of inefficiency, unproductive conversations, and it just haven’t seen it work, and so I think that we set ourselves up for a significant amount of malinvestment and you know unfortunate conversations in the business.
Lily Smith:
I feel like we should. We could do like a whole episode just on why not to call it premium, but you talked about a few different kind of departments there that were sort of would be involved in conversations around pricing and packaging In your experience, like who is typically involved in deciding, or like defining what the pricing and the packaging options look like for a business and what kind of roles are they playing and who’s kind of making that, I guess, that final decision? Hmm, Well.
Dan Balcauski :
So I think you know there’s obviously different companies or different stages in their maturity level, so it’s hard to say broadly, uh, exactly where it is. I think one of the uh difficulties of me is, on my business is I’ll, I’ll have, uh, you know who the kind of champion stakeholder is, who even you know, reaches out for uh to me for for pricing help can be different. It could be the CRO, it could be the CPO, it could be the CMO, it could be the CEO, um, and so I think there’s not sort of a consistent owner. Uh, the best data I saw on this, I believe, was open view had some uh info on it. It was about, I think, 50% of 50, 60% of B2B SaaS companies. Uh, the CEO still own pricing and then the remaining, let’s say 40% was sort of, you know, evenly split depending upon the company, by you know how to say LCPO or CMO, um, so the who is sort of leading the charge can vary quite dramatically. But in terms of you know, so that that’s sort of the uh, uh descriptive like how things are right, uh, but if we want to talk about the normative how, how I think they should be, uh, then ultimately usually my recommendation is is product marketing should own it. Um, so there’s a couple of a couple of things going on here. So so who should know it? Whoever is responsible for negotiating pricing with customers, shouldn’t own it. Uh, because we really want to protect the uh strategic element of pricing from the tactical day to day concerns. And I think you know, giving you know year ahead of sales pricing authority is kind of like putting Dracula in charge of the blood bank. It is almost Halloween, so we’ll we’ll throw a little uh Halloween reference in there for our listeners. So I just don’t think the the right incentives align. Um, ultimately, look, I, I I come from a product background. I’m sure your listeners are all a lot of product folks. Um, I believe product management could and has the capability to own it. I just think, as I, you know, have done that job and the uh amount of different things that are on your plate, the ability to do a rigorous uh job doing that I’m, along with all the other things product leaders are asked to do Just becomes a little much. It’s again, I think they’re in the right position in the organization. It’s just, you know, given all the other super critical priorities they’re asked to do, uh, they’re definitely should have a seat at the table, uh, but I think product marketing and look I, I look at product marketing and product management is dynamic duo. They’re Batman and Robin. I’m not saying one is Batman and one is Robin. They could both be Batman if we want but uh, I believe them, as you know, they should be partners tied at the hip for the most part, uh, but they’re going to own different elements of of strategic uh go to market and so product marketing. They usually will own positioning. I believe your pricing and packaging is a function of your positioning in the organization. They’re usually really tied into messaging, which requires a really deep understanding of your fundamental customer value and value propositions. They really have to know uh competitive alternatives because you’re usually involved in helping uh create sales enablement material for uh sales and go to market and other collateral that may exist on on the website, and so they and they also are in a strategic position in the business where they can own that more long-term strategic level without getting caught into the sort of the tactical day-to-day uh needs of the business, right? So, that being said, pricing is a, I think, a less mature function overall than product management, because we often talk about your product management. Compared to many, many other functions in the organization, it’s it’s undergone, you know, tremendous evolution in the last, you know, 20 years. I think pricing is even farther behind it, and so one of the things I recommend is that, until we can get pricing to a a level of maturity similar to product management, I really think it makes sense to have a pricing committee or pricing council. So so what I just said is that doesn’t deviate at all Like still having product marketing in charge, but you do want to have the other stakeholders, you know sales, customer success CEO, uh, finance, uh, at those, uh, product, obviously at the at the table there in a pricing council. Uh, but have someone you know like we require. You know we give authority to product managers to make difficult decisions in order to keep the business moving forward. I think we still need to have, although you have a pricing council, you still have a designated leader who has authority to continue to make decisions, cause there’s always, you know, pricing, much like product. You know, you’re always going to make a decision that makes someone at the table unhappy, right, I mean, uh, I’m a pick on customer support. Just nothing wrong with customer support people. They work really hard but they would love if product never shipped a new feature, because their support load will go up every time. You know, features and UI changes but business can’t, you know, continue to survive and grow that way. So we do make trade-offs. I think pricing is very similar.
Randy Silver:
Dan you, you said earlier that uh, you know, if the product managers are in the support channels and you’re on a freemium thing, then you’re just going to be hearing things back from from the free customers. Similar uh and and you need to ignore some of that Uh. Similarly, if you just monitored the reasons that people didn’t sign the deals with sales, they’re always going to say it’s too expensive. So when do you actually go and what are the triggers to for for reviewing uh? Is our pricing strategy right?
Dan Balcauski :
Hmm, I think that’s a great point. So, uh, look, I think we talked about last time some of the different sort of metrics that you might want to be looking at. So you know, I’m not going to rehash, uh, all of those, but I think you know one of the kind of rules of thumb is, you know, we should be looking at pricing. If we have win loss codes in our CRM, for example, we should be looking at those win loss codes. Uh, generally, we want to be seeing, you know, maybe a third of our deals being lost to pricing. That’s less than that, we’re probably priced too low. If it’s higher than that, we’ve got another problem right. We want to be looking at things like discounting percent in terms of overall, like when do you make a change? Or when do you, you know, reevaluate pricing? I would say there’s no, you know, magic number. Ultimately, pricing is a function of value, and I think you’re especially your relative, differentiated value, and your value is always changing. You know you’re, as product leaders, we’re constantly focused on how do we, you know, add more value, solve more customer problems? Our competitors, product teams, are doing the same thing. You know we live in very dynamic markets. You’ve got changes in interest rates, which which change you know how people value different uh, the importance people place on different value drivers. So you may see, uh, a shift from you know how can you help us grow revenue to how can you help us save costs, right, and therefore you know you’re at that point. You know, if we believe that pricing and value are tied together, it’s like, okay, well, now we’re shifting the value proposition and so our pricing may not need to change because our buyer has shifted how they sort of value our product Right, and so we may want to do things that things like that Generally we put guardrails on it. I think you should be, at a minimum, evaluating or changing something in your pricing and packaging at a minimum once every two years, and probably no more than once a quarter. I think those are good, you know. And then what I see is you know, but making it so it’s top of mind in the organization, and that’s things like putting together a pricing council, having governance and a process by which, you know, conversations about monetization can happen on a regular basis. You know I’ve had conversations with CEOs who they will talk about. Oh yeah, we had a three day business, our three day offsite with our executive team, right. Three days with the most expensive resources in your company. I mean great. What did you guys talk about in terms of pricing and packaging? Well, we didn’t talk about pricing and packaging, and I really did three full days with the most senior people in your organization and one of the three growth levers in your organization. You didn’t talk about it all. Now, they did. They just didn’t talk about it in an explicit way, because I’m sure they talked about things like conversion rates or how do we increase value, right, and so I think that’s part of the. What I’m hoping to get is just it becomes much more of an explicit conversation and that this is a thing that’s you do have control over in your, in your business. So, yeah, I’ll let you kind of drive whatever you want to from that.
Randy Silver:
Hey Lily, you’re a senior product leader.
Lily Smith:
Why yes, randy, how kind of you to notice I may have led just a few product teams in my time.
Randy Silver:
So you know how important it is to hear stories and get insights from other product leaders facing similar challenges.
Lily Smith:
Oh, my golly gosh. Super important and, to be honest, not so easy to find that these days. So much has changed in the past couple of years. Oh God, I hear you.
Randy Silver:
Well, the reason I bring it up is because mine, the product, have just released a series of brand new case studies from senior product leaders, all without leading product teams through change.
Lily Smith:
Tell me more.
Randy Silver:
Well, in this brand new and totally free resource, mind a product to explore the stories of five product leaders who have effectively navigated change near current and past positions, unveiling crucial lessons and sharing the principles you need to embrace in order to tackle challenges in your role as a product leader.
Lily Smith:
Very interesting. So who are these product leaders?
Randy Silver:
Well, they’ve got some goodies. There’s Dave Walsh, who is the former CPTO at Zupa, kate Lito, who’s an amazing product leadership executive coach, and Navya Rahani Gupa, cpto at Peak, for starters, and there’s even a bonus tip section on how to look after yourself as a product leader, and Oodle’s more further reading suggestions.
Lily Smith:
This sounds amazing. How do I get my hands on it?
Randy Silver:
Oh, that’s the easy part Just sign up at mindtheproductcom. Leading through change.
Lily Smith:
I love your idea of the pricing council. I think that sounds like a great strategy for I guess, and that pricing council would then drive those conversations and make sure they happen as well, which sounds awesome as well. One of the things that I was curious to dig into a little bit more and we’ve talked a little bit about this today is how different businesses do pricing strategy whether it’s symptomatic of the business being at the stage that it’s at and just kind of we talked before as well about the different types of pricing, so doing your cost-based pricing, your competitive pricing and then your value-based pricing. Is it symptomatic of, oh, we just need to cover our costs and then we need to be competitive and then we need to understand value, and that’s the process that every business goes through, or is there more to it than that? Is there more strategic planning and thought that goes into the pricing strategy for different businesses In your experience? obviously I know you don’t know what everyone does- but, it’d be great to get some of your insight into how that happens in different businesses.
Dan Balcauski :
Yeah, so just to clarify the question a little bit. So it’s how do people currently or how do I generally see people approach the pricing and packaging process in their companies?
Lily Smith:
Yeah, and are they thinking like, okay, we’re going to do this now, but in three years we’re going to have this thing and at that point we’re going to pivot to a different model or a different kind of type of pricing?
Dan Balcauski :
I would love to think that it’s that strategic. I don’t look. I mean, I think the part of the problem is that I I see a biased sample of companies because there’s there’s a reason that they come to me, because they they’re realizing it’s a problem and they’re realizing that they don’t know what to do about it. So I don’t see the companies that you know maybe don’t even realize the problem, don’t know what they’re doing about it. Right, I don’t see it talked about nearly as much as something like acquisition. So I think maybe I don’t know if we talked about this last time, but when I talk about there’s three ways to grow a SaaS business, there’s acquisition, monetization and retention. And it feels like to me I don’t know if you know this resonates with you but almost all the oxygen in the room gets taken up with acquisition. It’s like how do we get more people in the door? Grow, grow, grow, acquire new logos, etc. And you know, maybe you see a little bit of that shift into the retention space when you start to see some macroeconomic or recessionary headwinds start to take in. But now monetization is, you know, I think part of it goes to this problem of do you have a governance process? Do you have a monetization process? Do you have an ownership structure at all? Assuming you do, first of all, that’s a big assumption. I think the what some data I’ve seen is that you know sort of full-time, full-time pricing person. Only about 50% of B2B SaaS companies that are IPO stage which I think is like a hundred million in ARR have have a full-time pricing person. And then you know it’s again it’s difficult to tell. You know it’s like okay, is that in in the interim? Is that owned, you know, partially by product marketing and they doing anything about it at all? So it’s a data on this can be a little bit difficult to come by. But I think the part of the decision-making from a strategy perspective, what you’re wanting to think about, is a couple of different factors as you scale. So how, so how do how do these things change as companies grow? You know you’ve got a change in strategic alternatives, like are you primarily focused on short-term, relatively certain profits or long-term, relatively uncertain profits? So you know it’s like it’s very difficult. You know I think one of the conversations over the last say I mean that we’ve been in the weird zero interest rate phenomenon monetary regime for the last you know, since basically 2008, and so there really was this idea of you know, a dollar in profitability acquired a hundred years from now is just as valid as a dollar profit acquired now, and so I’m gonna push all of my decisions out into the future that maximize profitability, and it’s only recently have we started to come out of that fever dream, and so I think that’s that’s one area where that’s really sort of driving this level of conversation. Then I think the other thing is, as you sort of scale, you know, do you have the process, people and technology? Are you, are you just pricing for one market or you pricing internationally? Right, those are, these are different areas that can grow over time.
Lily Smith:
So it’s difficult to answer, because the problem is like there’s so many companies at different levels of scale that it’s difficult to say like how everyone’s doing it, because we just have to talk about every company sort of individually, depending on you know where they are cool and I suppose when you’re kind of looking at making, just, you know, those sort of strategic decisions and you’re looking at changing your pricing and packaging, obviously there must be some modeling that needs to happen in order to see, okay, so if we change it like this, then this is the impact that it’s gonna have on forecasting and and that kind of thing. How do you, when you’re working with businesses, like, how do you work on modeling the impact of changes to pricing?
Dan Balcauski :
yeah, that’s a great question. I want to be very cautious with a question like this because there is a contradiction in, let’s say, general manager behavior, where they have a tendency to say, well, if I can’t get a hundred percent certainty, then I’ll just go with my gut. So it’s. It’s the like well, if data can’t give me precise, you know answers of exactly what’s gonna happen, that I’m just gonna completely shoot from the hip. And so I feel like what? There’s a, there’s a. There’s a logical fallacy embedded there, because actually, the larger the uncertainty, the less data you actually need to produce that uncertainty. So it’s really about how do we measure where the uncertainty is in our in this exercise and then actively pursue ways to remove it. So I will say, like one can never know with absolute certainty how customers will react to a price change, but you know there are many ways that you know we can go towards that problem and try to avoid getting too nerdy for your audience. I know you know two big movies of the summer this year were Barbie and Oppenheimer. So anyone who did I didn’t see Barbie, but I did go see Oppenheimer. Anyone who went to see Oppenheimer may recall that there was a discussion in there when the Manhattan Project was going on was hey, if we split the atom, there’s a non-zero chance we could set the atmosphere on fire. And so you had the smartest physicists in the world trying to figure out. Well, crap like what do we do? Right? So it makes looking like what’s the impact of a pricing change going to be? Look like you know, this is, this is a baby, baby stakes here is like we’re worried about setting the entire atmosphere of the planet on fire with the nuclear explosion. So one of the very intelligent I believe we want to know about prize in physics, enrico Fermi, came up with what’s called a Fermi decomposition, and so Fermi decomposition is a structured way to look at problems with a lot of unknowns, right? So we think about any sort of financial or impact modeling. Now, fermi decomposition for anyone who’s ever gone through consulting interviews, you may have things like well, how many ping pong balls can fit inside the fuselage of a 747? Right, it’s like well, I don’t know, right, we’re like well, what I have to know? Okay, well, there’d be some uncertainty around I, what’s the diameter of the ping pong ball? What’s the diameter of the fuselage? How long is the 747? Right, like, is it, but putting balls in the wings or just in the main compartment, right? So this is a generic example of what a Fermi decomposition is right, and we can do the same thing with any sort of business impact and then strategically look at what is the different values of the variables and what is our relative uncertainty about those values. So I want to make sure that people understand that actually I wrote a post about this last week was books I highly recommend. One of them is this book by a guy named Douglas Hubbard, and he talks about Fermi decomposition. He wrote a book called how to measure anything measuring the intangibles of measuring intangibles in business, I believe, is the subtitle, and one of the things that he talks about is, you know, measurement is not the removal of uncertainty, it’s a reduction of uncertainty, and so we want to think through that in terms of like okay, how do we think of all of the different factors, whether it’s you know, what is this going to do to conversion? What is this going to do to churn? What is this going to do to our, our new business growth? What are existing customers going to do? And then, how do we think about getting additional information to reduce those uncertainties right, and this is how we need to think about the value of information, like we’re talking about customer value, but there’s also a value of information, right, and so, depending on the level of this exercise, you know, for example, let me just use the case like if you’re the CEO of Intel and you’re trying to decide should I spend ten billion dollars on a new fab for in, for Intel to manufacture chips? Well, it could very easily be worth ten million dollars to go run some of these very in-depth analytical studies for you to determine, or whether or not you spend, you know, ten billion dollars. Likewise, if I’m trying to make a decision, I think the net impact to the company is going to be a hundred K like. No way am I going to spend, you know, a million or a hundred thousand. I mean, I’ll spend a, maybe I’ll spend a thousand dollars, right, and so we need to always think about what is the relative impact going to be to the business, and I happen to be in a position where, you know, pricing has tremendous upside, which is why people why people do it. So there’s a couple of different other methods you know. So one of, I think, one of the things we talked about last time was indirect research methods like discrete choice modeling, which is a way to get quantitative willingness to pay and preference data from your market, and so one of the things that companies will do, based upon the results they get from those studies, is they have very sophisticated statistical models in the back end that allow you to run, you know, simulations. Some of those techniques may or may not be applicable in, you know, given the other factors, dimensions of your business, but but that is what another way people do it. You know there’s plenty of FPNA analysts out there you know working on you know former Goldman Sachs investment bankers right, who can run different. You know scenario analysis models with a. You know performance inside Excel, etc. And there’s there’s many other advanced sort of techniques that you can use as well.
Lily Smith:
So, just as a kind of quick follow-up to that, when you are making changes to pricing or pricing and packaging, what do you recommend for your existing customers, like, how do you recommend changing either maintaining or changing the situation for existing customers?
Dan Balcauski :
Yeah, it’s a very important question, and I think the first thing is that it’s totally acceptable and recommended to almost treat that as a second project, because it can be so intense to determine what you’re. So I think we want to be able to create the right frame such that we’re optimizing for the ideal long-term future, and some of that is going to be like well, there should be like well, what do we do about our existing customers? And if you have to answer that question first before you figure out what sort of the ideal state is and move towards that, you’re going to get stuck in this constant battle of like well, what? So there is a line of thought out there that I don’t agree with that says we should just absolutely 100% grandfather all existing customers on their existing plans, and grandfather just means that we don’t, we leave them be. That may or may not be practical or appropriate given your business, and there are costs incurred by doing that. So it can complicate your revenue operations systems. It can complicate your renewal conversations, which also complicates your training and education of your internal employees. Right, because they have to be like oh well, this customer is on this, but I just started last week. What do you mean, like this plan that doesn’t exist on our website? All of a sudden you have to have a? You know, and you can imagine it like tree rings on a Sequoia right over time, like those can really add up and create a lot of complexity in your systems and upgrade paths etc. So there are costs. A couple of tactical pieces of advice. So separate that as a project, right. Separate from what do we want our ideal future state to be? Knowing new versus existing customer price changes can be different, and you can. There’s no hard and fast rules in this game, right? One of the things you can do is that you could move your customers existing customers over a sequence of price hikes or price changes, right, when maybe just the new customers. There’s a philosophical argument to be had that if we change the pricing for new customers, is that a really price change? Because I don’t know about you, but I’m not often price shopping for products. I’m not actively buying, I’ve got other things to do with my time. So nobody really knows who’s a new customer, what your old pricing would be and whatever. They didn’t buy them, so they don’t get the old pricing. So we can continue to sort of iterate and update there. And so then one of the things we want to think through is okay, as we’re looking at changing our existing customers, do we want to do it all in one big bang or does it want to be a sequence of moves? One of those things, one of those other pieces of tactical advice, can be when we’re looking at changing again pricing and packaging. We’ll often just talk about pricing, but we mean both the idea when we are doing any of these significant pricing changes, we’re also changing the plans. So even before we made a head starter and now we have the entry plan right, it’s a different marketing name, it’s something else, and there’s a whole bunch of other reasons internally why we may want to do that as well, but because, hey, we’re no longer offering that plan. And then we want to create structured ways that customers can either stay on their existing plan or maybe migrate, and so a lot of this can get into the weeds, depending upon an existing customer situation. But know that you have those levers available to you. You have that flexibility to think through. Also, I think the thing is is that we’ve I’ve seen a lot of bad pricing announcements come on recently, and I think one thing is that in our pricing announcements I’m not a fan of talking about costs. So, yes, inflation is big, salaries have gone up, but I’m not a fan of cost plus pricing for software. And if you live by the sword, you die by the sword. Like customers don’t care about your costs. You haven’t justified any of your other pricing based upon your costs. If your costs go down, you know, is it your set of the expectation that your prices will also go down in the future? And look, some companies absolutely have that. They’ll have a, especially if you’re selling physical goods. They may charge, have writers in their contracts based upon some commodity input prices. Those are those aren’t unheard of in more industrial B2B markets. But I don’t think that’s what most of the people were listeners of this podcast or it or want to do, and so one of the things that we want to really focus on is the value that we’ve added and changed. You know and like, especially if we have a usage data. So we’re talking to a lot of product managers in this audience If we know. You know we’re in a world of mass customization. Hey, lily, I see you’ve been using feature a. You know that we just launched six months ago. I see you and your team are using it a bunch. You know from what we could tell that’s probably you know helps you guys encourage, increase your, your customer acquisition by X percent or this many dollars of revenue based upon you know what we’ve seen from from other customers. And then talking about hey look we, we really value as a customer and in order to continue to make investments, we’re needing to do a price change. We’re going to need to do this and then making it one of the. I think one of the other tactical tips is giving them a you might call it like a loyalty discount and hey, since you’ve been such a loyal customer, we want you to. You know we’re raising prices for all new customers, but you know we’re extending you at your existing price for six, 12 months, you know, before we move you up. So you’ve got time right. We’re just letting you know now, right, and then, yeah, so focusing on the value, focusing on the investments you want to make, not the costs that you’ve incurred, and then, you know, highlighting the value that they’re receiving from the, from the product.
Lily Smith:
Yeah, I think it’s really interesting having it as a as a second project. I think that makes total sense.
Randy Silver:
Dan, we’ve got time for one last question, and this is going to be have to be a short one, I think, but Just curious about something that we see over and over again on B2B company sites. You know they’ll give you indicative pricing for a couple of things and then they ask you to get in touch for a quote. Or maybe they don’t give you any pricing at all and they ask you to get in touch it for a quote. What’s the logic behind this?
Dan Balcauski :
Most companies B2B, saas companies Do have public pricing and packaging. Date on this is actually a little bit harder to come by than you might expect. Best date I’ve seen is between 50 and 75 percent have public pricing and packaging. But there can be you know many reasons why so for example, I worked with a client once that they were more of a legacy provider that had both hardware and software components and they had a 55 page price list and one of the reasons why they were talking to me is because their pricing was so complicated that even their internal sales people Couldn’t effectively quote their customers. So yeah, you could publish a 55 page price list on your website, but I don’t know that would do you any favors. So that could be a very legitimate reason to have a contact us for a quote. I could talk about what do we do this so? So one of the things that you know you’ll often see is, even if you do have public pricing and packaging, you’ll often see maybe they’ve got a you know good, better, best, and then enterprise and they’ve got public pricing for the other three. But then enterprise is like contact us for a quote. Why is that the case? Because sometimes you know it can be for a bunch of different reasons and it’s not just because, oh, the enterprise people have, you know, we’re just gonna jerk them around because the enterprise people may require such additional, for example, services that the Licensing of the cost the licensing costs that you might quote them on the website becomes a Relative minor point of the of the whole invoice that are gonna pay, because they’re gonna need, you know, training and special SLAs and maybe they need some additional customization and implementation services and you know you need to hook them up with a partner, and so you know what you’re trying to do. There is be like well, I don’t want to create a false anchor and sometimes also you can have different, entirely custom customized offer configurations or pricing metrics for your enterprise clients, and so it can really change depending upon you know what the needs of the end client are of, like how you’re gonna configure and price this thing. I will say there are bad reasons to show contact us for a quote. So you’re being afraid that your pricing is too high or too low is a bad reason. Our competitors will get easy access to our pricing information. That’s a bad reason. Our pricing doesn’t represent our actual Price because we discount so much. That’s a bad reason. So all those reasons signal more significant upstream issues Relative to your pricing process, your value proposition definition, your go-to-market strategy or sales process. But you know those, you know. But why do customers do it or why do companies do it? You know it. Good reasons. There are good reasons as well.
Lily Smith:
Not just to be really annoying, then. Dan, thank you so much. This has been really great. We’ve run out of time again and I feel like, once again, we kind of Could carry on talking about this for ages, but yeah, and I really appreciate it. Thank you so much.
Dan Balcauski :
I really appreciate getting the chance to come back and chat with you guys in your audience. Thank you so much for having me.
Lily Smith:
The product experience is the first and the best Podcast from mine the product. Our hosts are me, lely Smith and me, randy Silver. Lu Run Pratt is our producer and Luke Smith is our editor our theme music is from Hamburg based band POW.
Randy Silver:
That’s PA. You thanks to Arnie Kittler, who curates both product tank and MTP engage in Hamburg and who also plays bass in the band, for letting us use their music. You can connect with your local product community via product tank regular free meetups in over 200 cities worldwide.
Lily Smith:
If there’s not one near you, maybe you should think about starting one. To find out more, go to mine the product comm forward slash product tank you.
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