Your Pricing Project Starts Here
Editor’s Note: This article was first published on June 24, 2021.
We’ve found that the hardest part of running a pricing project is the initial inertia of getting started. If you’re looking to get started ASAP, here are the two documents you’ll need.
- Get aligned internally with a pricing workshop deck
- Organize your customer research with a value-focused set of questions for your survey or interviews
Recently, we’ve been seeing businesses adjusting their pricing more than ever and for good reason—the impact can more than double average annual customer value (ACVs).
Based on the data we collected from the SaaS Benchmarks Report, the majority of startups tend to change their pricing each year. We’ve seen this number ticking up as companies work to account for external factors like inflation and pressure to maintain growth while reducing cash burn. We’re also seeing that pricing changes are worth the effort, as the typical company sees more than a 20% increase in ARR versus their historic pricing. There’s no other business change that can have that type of an impact at almost zero cost.
But one challenge we see founders struggle with consistently is where to start.
The average SaaS company doesn’t have anyone on their team who’s an expert in pricing, let alone a dedicated pricing function. However, these projects can be done internally. In doing so, you can get the results you need at a lower cost than consultants while developing the muscle memory to make the next change easier.
We’ve built the project plan and the tools/templates below from over 50 pricing and packaging projects with B2B SaaS businesses. The truth is, it’s not rocket science, but it does take a dedicated cross-functional approach.
The step-by-step guide for running a pricing project
There are four high-level phases of any pricing project:
- Setting the strategy;
- Validating with customer research;
- Preparing for implementation; and
- Following through post-launch.
Going through steps one to three could take as little as a few weeks or about six months depending on the magnitude of the change a company may be contemplating. Within each stage, there are a number of workstreams that are required and others that may be optional depending on the situation.
Let’s dive into the details of each step.
Step 1: Set the strategy
The goals of this phase are to get buy-in to prioritize pricing as a cross-functional initiative as well as to generate alignment over what needs to change and why. To do this, it requires the following:
- Some internal research on your own customer data,
- External research on competitors and tangential projects, and
- Getting internal alignment of what you’re trying to accomplish.
This work should culminate in a meeting with the leadership group. We’ve started the deck you’ll want to walk through here:
Key workstreams in Step 1:
- Appoint a project manager to own and manage the pricing process. This person typically sits in product, product marketing, or business operations.
- State the goals of the pricing strategy, i.e., “increase volume of our lowest priced products” or “increase revenue per customer given the value of our products.” These should come from the executive team and align with company-wide OKRs.
- Conduct internal interviews with executives and customer-facing employees to understand what’s working or not working. We recommend involving sellers in these conversations. Not only are they closest to the customer in talking about your current pricing, their buy-in is make-or-break to the success of any changes you want to make.
- Assess competitive pricing and packaging models. Sometimes this information is readily available through public pricing pages or analyst reports. It might also take some digging through win-loss data, Gong recordings, or other inputs. Don’t just look at the current pricing, but instead evaluate how pricing has evolved over time (the Wayback Machine is an awesome tool) and how buyers respond to it.
- Collect benchmarks on how companies in adjacent spaces have changed pricing. VCs can be a great place for this information and/or for making introductions to other portfolio companies that have recently changed their pricing.
- Analyze pricing data. This usually includes sales KPIs (win/loss including win-loss reasons, conversion rates by segment, package mix by segment, average discounts by plan and by customer size), customer behavior (churn rate by plan, NDR by plan, NDR by ACV), and product engagement (utilization by feature).
By the end of Step 1, a company should have homed in on a strategic direction for future pricing changes. In addition, the leadership team should be aligned about why these changes are important. Now it’s time to figure out the details.
Step 2: Validate with customer research
Any strategy needs validation with actual input from customers. This input could come from running pilots or simply changing pricing and seeing what happens. But the ideal would be to use customer research to de-risk decisions and generate more buy-in for pricing changes.
We find that it’s most successful to do this in the form of a survey, but if you can’t get more than 50 responses, you can take your survey and go through the questions live with 10 to 15 customers. We’ve started the survey for you here.
Key workstreams in Step 2:
- Conduct voice-of-customer research (qualitative interviews and/or an online survey) on perceived value and willingness to pay. This research shouldn’t be positioned as “pricing research,” but rather include pricing-related questions as part of a broader conversation about the customer’s buying process, the value/ROI they’ve seen, what additional capabilities they’d like to see, and what they’d like to see improved about their experience. We recommend that this research include a healthy cross-section of accounts, ideally including either lost prospects or churned customers rather than just those who are already happy.
- Translate voice-of-customer findings into specific recommendations about pricing and packaging changes.
- Quantify the expected financial impact of the new pricing on both new and existing customers. Ideally you want to look at this financial impact on a customer-by-customer level and map how much customers would pay if they were migrated into the new packages and pricing.
- Socialize findings and recommendations with the pricing council and get a go or no go decision.
- Set up weekly cross-functional meetings to align on pricing decisions and coordinate implementation.
The team at Cypress took a particularly in-depth approach to customer research as they contemplated launching usage-based pricing earlier this year. We’d recommend reading about their pricing playbook if you’d like to learn more about Step 2.
Step 3: Prepare for implementation
As challenging as Steps 1 and 2 can feel, Step 3 ends up being the most resource-intensive—especially if a company is contemplating a significant pricing change.
Key workstreams in Step 3:
- Build a final price list, package names, and business rules. Get formal approval from the pricing council.
- Decide on business rules for existing customers—i.e., keep on current plans perpetually; keep on current plans with limits; offer carrots and/or incentives to move to new plans; and migrate to new plans. Consider an exceptions process for customers that don’t fit neatly into these business rules.
- Pilot the new pricing via a subset of the sales team prior to widespread launch. (Optional)
- Create a communication plan—both internally and externally. Emphasize the benefits that this model brings to customers and why it’s in their best interest. As part of this communication plan, decide whether or how to use the new pricing as a marketing tactic with existing deals (“the price is changing soon…lock in your rate now”).
- Decide on exact launch dates (go live date, date when you no longer honor existing quotes, i.e., usually give prospects ~30 days).
- Define the appropriate pricing KPIs to monitor (average revenue per customer, conversion rates through the funnel, customer support requests, plan mix, NDR, etc.).
- Review potential billing and/or invoicing limitations within existing systems. These potential limitations should have also been considered when contemplating what pricing changes to make in the first place. Then implement new SKUs / pricing models into billing (and/or CPQ as needed).
- Publish rate card and discount rules for the sales team. Conduct sales / CS training on the new pricing (talk track for the new pricing, FAQs, responding to potential objections, etc.).
- Build and iterate on new pricing page design; ideally collect usability / UX feedback from folks in the target market or lean on Sales as a beta tester.
- Update financial plans or forecasts (as needed). Pricing changes could have an impact on revenue recognition and cash flow (annual plans).
Step 4: Keep going
Pricing work doesn’t end at implementation. After launch, make sure your changes are being effectively implemented and generating the desired impact.
Key workstreams in Step 4:
- Report on the appropriate pricing KPIs decided in Step 3 (average revenue per customer, conversion rates through the funnel, customer support requests, plan mix, NDR, etc.).
- Update the pricing council with post-launch retrospective emails and/or meetings (i.e., seven days out, 14 days out, 30 days out, 60 days out, 90 days out). Initially companies should look at early signals or leading indicators. Over time, there will be a richer set of data that provides a complete picture on the impact of pricing changes.
- Monitor response post-implementation and conduct follow up sales / CS training(s) as needed. It may take extra coaching and time for the new pricing to land across the team.
Pro-tip: If the pricing change was a success, let people know! That will increase the team’s confidence in pitching and defending the new pricing going forward. This data will also help inform future pricing changes.
For example, if a company raised prices by 25% and conversion rates stayed the same, that’s a powerful signal that there’s additional room to raise prices in the future.
Pricing projects get easier each time you run one
We won’t sugarcoat it; pricing changes require a lot of work from many different teams across a company. But running a pricing process in-house gets easier the second time (and the third time) once a company has a solid foundation. And this hard work does eventually pay off in spades.
We hope this post helps to demystify the pricing process and enables folks to make more informed pricing decisions.
Ready to Get Started? Download the templates here: