Are You Owning Pricing for the First Time? Start Here.
Most SaaS companies don’t hire a dedicated pricing strategist until they reach $50M ARR. So up until hitting that milestone, the person owning pricing might be the marketing director, product manager, or even the founder—and they typically have zero experience when it comes to pricing.
Getting your pricing strategy right is incredibly important for any company. How do you quickly come up with a solution without being an expert or having an expert in-house?
Related read: The Ultimate SaaS Pricing Resources Guide
A few weeks ago, I posted my best advice on LinkedIn and asked some of the smartest operators I know to comment with their feedback. I wound up receiving a ton of brilliant responses, so I’ve turned the thread into this blog post. If you’d like to join the conversation, jump in here.
Priceless pricing advice from the pros
If it’s not broken, you should probably fix it
Not getting pushback on pricing is a powerful signal that your prices are too low. In many companies, pricing doesn’t feel like the urgent, hair on fire problem that needs to be solved immediately. Even still, I bet it’s far more important to the company’s revenue growth than what else is on the to-do list.
Buddy up with the best sales reps
They’re on the frontlines with customers and have unique insights to help you evolve pricing. They will also make or break any changes to your pricing and packaging.
Identify your top, most forward thinking reps and keep them extremely close through the pricing process. You may even want to pull in these reps to pilot new pricing models before they go to GA. What you might find is that these reps hold a great deal of social capital within the team. Soon enough, other reps will be bombarding your Slack asking when they can be allowed to sell the new pricing as well.
Aspireship founder and CEO Corey Kossack commented that he “[listens] to every sales conversation to judge the reaction to pricing and how we present the offering.” Call recording software like Gong is great for doing this at scale.
Gather the data
What exactly happened after the last pricing change? What are customers buying and how much are they paying? Are discounts offered to the right customers today? Pricing KPIs are usually overlooked because there isn’t a single owner at most startups.
Zenefits CMO Kevin Marasco suggested that in addition to anecdotal or one-off data, it’s worth looking at simple third-party data (external W/L vs. AE deal notes) and market data (as in: are you selling to the right customers based on LTB, WTB to begin with?). And as part of over-communicating, Kevin said to “consider a dashboard with your pricing KPIs (actual vs. target, trends) just like demand/growth funnel, sales and CX dashboards.” Doing this, added Kevin, “keeps it front of mind and helps you identify issues proactively.”
I recommend tracking these pricing KPIs:
- Competitive win rate
- % of deals lost due to pricing
- Average annual contract value (ACV) over time
- Average discount relative to list price by deal value
- Mix of new customers by plan
- Retention rates by ACV and by plan
Don’t go it alone
Pricing is an extremely cross-functional topic. Assemble a pricing steering committee with folks from marketing, product, finance, sales and operations. You need this group’s alignment and support to make successful pricing changes.
What’s especially important here is close collaboration with the product team around their roadmap. As Intercom’s Principal PMM Jonathan Brandon pointed out, “Make sure your Product and R&D teams really, really get it, and you’re aligned super early in the roadmapping process. There’s nothing more frustrating (for everyone!) than having the ‘best feature ever’ thrown over the fence and then blocking the launch because there isn’t a clear monetization path or place in your P&P strategy. This leads to poor P&P decisions, add-on creep, value distortion, and delays.”
Over-communicate your pricing strategy
Make sure everyone knows the rationale behind the pricing, why it works for customers, and how it should be positioned in a deal.
“Think of it like a ‘program’ vs. a project or one-time event. Especially in this market. E.g. What impact is the current macro and category recovery having on your ICP’s price sensitivity, and how will that change going into next year?” said Kevin Marasco. “IMHO the programmatic mindset is important even at an early-stage because pricing is never done.”
Get the fundamentals right
Jordan Nolff, SurveyMonkey’s Director of Monetization and Corp Dev, said to “make sure you’ve clearly defined your customer segments. A ‘one-size-fits-all’ approach usually results in ‘one-size-fits-none.’ Figure out what drives value for each segment and structure your pricing and packaging accordingly.”
It’s all about understanding the trade-offs you’re willing to make. Are you optimizing for customer acquisition, revenue, profitability? Know the answer to this before you get any deeper.
Don’t neglect the mechanics of pricing
“Make sure you have a deep understanding of your billing systems and quote-to-cash processes,” wrote Madeline Stein, Director of Pricing at HubSpot. “This will provide insight into possible barriers in the buying process and inform the level of effort to make pricing and packaging changes.”
What’s your best advice for those who are new to pricing?
What’s the state of pricing in 2023? Data from our 2023 SaaS Benchmarks report uncovers a few key trends to know heading into the new year. Read the full analysis here.
How can B2B SaaS leaders use pricing to their advantage? Learn more in Paddle’s 2023 State of SaaS Pricing report here.