Is it time to run a pricing project?
Is it time to run a pricing project?
Your guide to a pricing and packaging revamp
DEAR STAGE 2: I recently raised an A round and my new investors are encouraging me to reevaluate pricing. Where do I start? ~Pricing for perfection
DEAR PRICING FOR PERFECTION: Pricing is a HUGE topic and can be incredibly impactful to accelerating your go-to-market motion and business when you get it right. My go-to for all packaging and pricing questions is Kyle Poyar, Partner at OpenView Venture Partners and author of Growth Unhinged, so I asked him to help us answer this question.
First things first, you need to answer one critical question: is it time to run a pricing project?
Your investors might be the catalyst for you considering a change to pricing, but you are in the day-to-day of operating the business — therefore, you need to form an opinion on whether your current pricing is/is not working. Kyle shares 4 signs it’s time to reevaluate your pricing:
Customers buy too quickly and without enough scrutiny
Usage is growing much faster than spend within your customer base
You’ve added significant value, but haven’t touched pricing in 6-12+ months
You’re going after a new ICP and haven’t identified the best pricing & packaging for your go-to-market strategy
If you found yourself nodding along reading those indicators, you’re not alone. Making a change to your pricing doesn’t have to be daunting. In fact, we encourage you to think of pricing as an ongoing evolution. It shouldn’t be “set it and forget it.” Instead, you should be looking for ways to tweak and optimize your pricing over time.
Start by identifying an owner in the organization. In the early days, it’s absolutely the founder(s), but over time, you want to name an internal champion of pricing — be it market, sales, product, etc…. There are pros and cons to each, but ultimately, you need someone who is objective, analytical, thinks from a customer-first lens, collaborative, and ready to gather input from all stakeholders:
Once you’ve decided to reevaluate pricing and have named an owner, Kyle shares some advice to help guide you through the process:
Goals — What KPIs are you focused on & how does pricing fit in your broader goals?
Start with your overarching company-level goals. Are you aiming for profitability? Are you focused on NRR? Is this year all about top line growth? Pricing can support any of these goals and can be a critical driver if you start with the end goal in mind.
Business value — How much value are you creating for your customers?
Kyle’s rule of thumb is that you can capture 10-20% of the business value you generate. With that range in mind, it’s all about how confident the customer is in the value realization. How can you help them quantify the value? Can you calculate the time savings? What can they do with that save time? Or perhaps they are saving on the cost of FTEs? Start by talking to your existing costumes to understand how they perceive and quantify the value internally.
Alternatives — What’s the alternative to buying your product from the customer’s POV?
We all start by thinking about competitive solutions, but pricing pressure doesn’t just come from other software. Instead, we need to think more broadly about alternatives — an additional hire, a contractor, manual work/excel, outsourcing, etc. Once you understand the full set of alternatives, map the potential problems with each and relative costs to understand the trade offs.
Piloting — How can you test/pilot pricing changes before fully rolling it out?
This is so critical! When you are testing pricing changes, you have much more flexibility than you think (especially if you don’t have pricing listed on your website!). While you know it’s a pricing change, all a new customer sees is the price you’ve quoted. With any pricing experiment, start with new customers — if you are too aggressive, you can always go back with an adjustment or new offer “we’re offering a 50% discount for customers who join our early adopter program.”
With these guiding principles in mind, we encourage you to build a set of hypotheses with your internal team and start testing!
See you next week!