Survey of 1,000 SaaS Executives Reveals Major Blind Spot Around Pricing
As companies hit milestones in their growth, they naturally bring on functional experts to help optimize their businesses. Experts have seen it all before and can quickly recognize patterns and work more productively than generalists. They get the job done right the first time. What’s more is that functional experts who own a few specific areas can be held accountable when their metrics don’t move up and to the right – there’s only one throat to choke so to speak.
HubSpot and InsightSquared very deliberately hired such experts as they were growing their teams from 0 to 100. Among a SaaS startup’s first 100 hires, there should be seven or more department executives (Product, Finance, Marketing, Sales and so forth).
Jason Lemkin of SaaStr also notes that SaaS companies should bring on functional leads to build out important capabilities around outbound lead gen (BDR/SDR), sales operations, demand gen, field marketing, product marketing, content marketing and more.
There’s one key gap both in Lemkin’s advice and the above org chart. There’s not one resource in either of these models to specifically own pricing. Consequently, all too often pricing becomes an ad hoc, gut decision, and fails to get the dedicated attention, research and testing required for its optimization. SaaS companies make thoughtful, data-driven decisions on so many facets of their business. Why is pricing such a blind spot?
According to a recent OpenView survey of more than 1,000 SaaS executives across different stages of growth, we found that among expansion stage SaaS companies (1-$20M ARR), 55% say they have nobody in their company who handles pricing as part of their job description. For the remaining 45%, pricing tends to be a small piece of someone’s responsibilities, rather than a dedicated focus area. Growth stage companies (>$20M ARR) fare somewhat better, but still have significant room for improvement. Even at this stage of growth, 37% of companies fail to hire a specific resource to handle pricing and only 26% say they have a packaging/pricing manager on staff.
Our survey results show that companies that fail to hire a specific pricing resource rarely conduct market research on customer value and pricing, nor do they A/B test pricing changes. These types of analyses reveal a company’s price-value position in the market and whether there’s an opportunity to increase prices, which drives a far higher profit improvement than any other initiative. Put simply, companies without dedicated pricing resources are literally losing money because of it.
With so few folks actually working on pricing, you might suspect that companies don’t think pricing is worth the attention of management. But the opposite is true. More than two-thirds of expansion stage companies say that CEOs or company leadership ultimately own pricing and make pricing decisions.
SaaS CEOs are blindly making decisions on a topic that is fundamentally important to their long-term success without the subject matter expertise required to succeed. It’s high time to put someone in charge of pricing. But when you finally make that move, what attributes should you look for in a new hire and where should they sit within your organization?
What to Look for in Your First Pricing Lead
Value-based pricing sits at the nexus of the customer, competition and costs. A great pricing lead needs to have a handle on each of these. First, and most importantly, they need a relentless focus on the customer. They should be insatiably curious about customer needs, common pain points, different segments in the market, how the buying process works and how the value proposition resonates. Understanding the competition and costs are both teachable skills, and a qualified candidate needs only the aptitude to get up to speed on both rather than specific in-depth knowledge.
Since pricing touches on so many different parts of an organization, a great candidate will be a relationship builder and a strong communicator. Look for someone who’s willing to spend a week sitting with the Sales team or going on ride-alongs with customers to fully grasp how pricing works “on the ground.” Meanwhile, make sure that person has credibility with the Product team and is passionate about the product roadmap. Ideally, pricing will come to have a strong influence on the roadmap since it collects the richest set of data on what customers need and value.
Let’s not forget that your pricing lead should also be analytically savvy and comfortable with both qualitative and quantitative techniques. For instance, they should be able to jump into your Salesforce and billing data to unearth opportunities as well as design surveys to extract pricing insights from your customers.
Where Pricing Should Fit in Your Organization
There is no widely accepted wisdom around where pricing belongs, and I’ve seen it roll up to Marketing, Product, Sales, Finance and Operations. In many organizations, it becomes a part of Product Marketing, which similarly rolls up into different departments depending on the company. Here’s what to consider for your company.
Do you have someone in charge of pricing? Where do they sit in your company? Let us know in the comments, we’d love to hear from you!
Zapier has come a long way since its founding in 2011. Learn how some of their earliest decisions as founders still hold up, even after years of growth and evolution.
Why is transparency such a core component of GitLab’s DNA? Co-founder & CEO, Sid Sijbrandij, breaks it down and explains how they’re able to provide so much more value to users because of their community.
Hired’s Head of Global Revenue, John Kelly, explains how the company successfully transitioned from a transactional to a subscription model – and lessons learned along the way.