SaaS Stories
SaaS Stories is my not-so-secret quest to learn what it truly takes to succeed in the world of SaaS—and I’m inviting you along for the ride! I have the pleasure of sitting down with brilliant minds and industry trailblazers to explore their journeys, uncovering the secrets behind their growth, the gaps they spotted in the market, and what really drives them.
It’s not all smooth sailing—there are challenges, unexpected turns, and moments of reflection where they share what they’d love to change about their journey. Think of it as a candid, insider’s look into the world of SaaS, with just the right amount of curiosity, empathy, and wit.
Join me as I dive deep, selfishly soak up all the insights, and hopefully share a little inspiration with you along the way—one SaaS story at a time.
SaaS Stories
Leveraging Pricing as a SaaS Growth Strategy | From Per-User Fees to Value-Driven Models
Join us as we welcome Bill Wilson from Pace Pricing, who brings a wealth of experience in B2b SaaS pricing. Having coached over 400 SaaS founders, Bill shares invaluable insights into the vital role of transparent pricing in building customer trust and disrupting industries. We challenge conventional wisdom by examining the risks of opaque pricing and how even small adjustments in your pricing strategy can lead to significant growth and industry disruption.
Explore the future of SaaS pricing as we discuss the shift from traditional subscription models to innovative hybrid approaches, including usage-based and outcome-based pricing. Bill emphasises the importance of aligning pricing strategies with the true value customers derive from software, urging startups to look beyond per-user fees.
Whether a start-up or an enterprise in the world of B2B SaaS, this episode promises to equip you with practical strategies to refine your pricing model in a way that resonates with your customers and maximises your revenue potential.
Show Notes:
The pricing page scorecard: www.pacepricing.com/pricing-page-scorecard
Find Bill on LinkedIn at www.linkedin.com/in/wdrwilson, where he posts pricing page teardown videos of well-known SaaS companies.
Welcome everybody to another episode of SaaS Stories. Today I'm super excited to be joined by Bill Wilson at Pace Pricing all the way from Canada. Welcome Bill.
Speaker 2:Hi, thank you. Thank you so much for having me. I'm super excited.
Speaker 1:I'm super excited to be discussing the topic of price because, as you know, we were talking about this earlier there's a lot of controversial news out there at the moment around the subscription model being dead, so I'm keen to hear your thoughts on that. But before we dive into that, please tell me a little bit about yourself and about what Pace Pricing does.
Speaker 2:Sure. So I've been in software probably for about 25 years, I would say. I came up as an engineer and then, through product, I started building my first company in 2007, which was a mobile app design and development studio based in Halifax, canada, and we built mobile apps for companies all over the world, including a lot of B2B SaaS companies. And so, as we were in the process of productizing our own services, we had to come up with a way of pricing it and selling it. And that's when I sort of really started to dig into pricing and so, um, best kind of SaaS pricing page, but it was specific for each customer, so it was kind of like a quote that looked nice, gave them some optionality and they could pick the one they wanted and get started. So they all asked about it. They all said, hey, how do we get a tool like this? It'd be really great for our sales teams.
Speaker 2:And then my head of sales at the time, you know, kept pestering me, I should say, and convincing me that we should go build a product for this.
Speaker 2:So that's exactly what we did. So we created a company called SalesRite and it was focused in around B2B SaaS quoting, and that's when the pricing education really started and I was getting into so many conversations with revenue leaders about their pricing and they kept asking me questions like hey, you see a lot of pricing, does this make sense? All these types of questions and I realized that B2B SaaS pricing was a bit of a black box for a lot of people and a lot of people didn't understand it. And so, fast forward a few years, we got acquired and I was lost in the wilderness, as they say, and I started helping out other SaaS founders, primarily on all kinds of topics, but naturally things evolved around to pricing, and so that's how I got into pricing and helping SaaS founders for pricing. So I've coached over 400 SaaS founders over the last few years and as a result of that, I created a firm called Pace Pricing where we specialize in helping B2B SaaS firms nail their pricing and install good pricing etiquette hygiene along the way, and so that's our goal.
Speaker 1:Amazing and I should say, nothing frustrates me more than getting onto a SaaS website. And when it comes to the pricing page they just say contact sales and I'm like, oh, just tell me the price there's definitely something to be said for transparent pricing.
Speaker 2:I'm very I'm a big fan of transparent pricing. I do think there's a a time and a place for contact us, but generally it's funny, like if you wanted to chat about that for a second. The the number one thing that I say to people that don't want to publish their pricing is, if you're not going to publish your actual pricing, at least publish how you price. So that means it's like hey, we charge on a per user basis plus a percentage of transactions, or at least tell people how you structure a deal, because that is probably the most important thing in pricing it's not necessarily the price, it's how you, how you charge. And so that's the thing I try and get through, but it's a baby. It's just really a trap for those SaaS founders, right, because it's just a baby step into getting them to put their pricing online, getting them to publish it. So that's step one. Step two is a starting at price, and then step three is finally just sort of revealing everything, being as transparent as you can.
Speaker 1:Do you think a lot of them potentially lose a lot of customers because they don't reveal the price? Do you think a lot of these people get onto the website and go, oh, this looks like it could be too expensive and too time consuming. I'm not going to go down this road.
Speaker 2:It could be. I mean, they're depending on the audience that you sell to. So, for example, if you were selling to an audience that typically buys software all day long and your price point is in the you know, less than a hundred dollar range and you're like contact us, it's probably a waste of time and you're definitely you know and I know that's a bit of a contrived example Not many people would do that, but yeah, I do believe that it goes down to audience. It's about. You know, if they understand it already, if they're a sophisticated buyer and they've sort of have bought software like that before and they understand the price tag, then publish it. What's the problem? Most people think they're protecting it from their customers at that level or their competitors at that level.
Speaker 2:And they're not, they're not. I mean, they're just making it slightly harder for people like me to go get it, and we always get it. So there's no point. In fact, I think some people who don't publish their pricing, or at least in industries that typically don't publish their pricing if someone came out and did publish their pricing, it could be quite disruptive, and so, yes, I do think that people could run the risk of alienating some people by not publishing their pricing, for sure.
Speaker 1:I definitely agree with that. I can't tell you how many sites I've jumped off and gone with a competitor who does actually publish the price, because I just appreciate the transparency and at least I know what I'm getting with them.
Speaker 2:Yeah, and you can sort of do your own calculation. You can figure out how you're going to grow with them. You can see what this could cost you over time. You your own calculation, you can figure out how you're going to grow with them. You can see what this could cost you over time. Like you can have all of those. What if scenarios that help you build?
Speaker 2:the confidence to make the decision and at the end of the day, you know, we want our prospects to have confidence that we are the solution. And part of that, a big part of that, is price, so kind of have to share it.
Speaker 1:Exactly Coming back to that controversial topic on subscription and actually I'd love to get your thoughts as well about maybe some other big misconceptions in the SaaS world around pricing. What are your thoughts on that?
Speaker 2:On the current sort of subscriptions are dead. Long live subscriptions.
Speaker 1:Yes, that's the one.
Speaker 2:Yeah, I've seen a little bit of this lately and honestly, I think I understand why. Right, I think people are starting to realize that. You know, they're seeing the glimpse of outcome-based pricing show up in various companies intercom with the number of tickets closed by AI, for example. So something really easy to measure and outcome around and something really easy to charge. The difference is is that that's not their entire business model, right, their entire business model is based around subscriptions still, and this is one element that they're able to base completely around outcomes, and that makes sense. But this idea that you know subscriptions are dead, I think, is really misplaced and way too early. Maybe at some point in the future we're going to get to a place where we trust the plethora of AI that are existing in the world to solve my problem and actually I trust it enough to actually do the work. That's the difference is, like you know, we still have to monitor this stuff to make sure it's getting done before I can trust it and let it go. So until we get to a point where that's happening, we're still going to be based in subscriptions. Now, has subscription changed over the last 30 years? A hundred percent, like, if we have a look at the history of SaaS pricing, you know, if we go back to the late nineties, we've got. You know, all we cared about at that time was like get the product to a place where anybody can use it over the web and charge something for it. Like that's kind of where we were at. Salesforce comes along and says you know what? Let's just charge for access and they start charging by seat and that starts this whole kind of SaaS model that we still have today, for better or worse. We have a lot of people charging for access to their product. Now get into the 2000s and we're starting to get into feature differentiation and we're really talking about value for the customer at some level. It's still pretty light, but we are talking about value. We understand that not everybody needs everything, so we're going to try and package it up in such a way that we can meet people where they are. So now we're paying for access and we're paying for features.
Speaker 2:Now get into the 2010s and we start thinking about usage right. Usage is the way and at the same time, product led started coming up and freemium and all these types of things. So everything is usage right and we had a great examples Amazon web services, for example, things. So everything is usage, right, and we had a great examples Amazon web services, for example and for a certain type of business, it makes perfect sense. But usage, again, is not the answer, right? So we've got what do we have? We've got pay for access, we've got feature-based and now we've got usage-based.
Speaker 2:And so we, as we hit into 2020 and you know beyond, we're looking at a lot of hybrid models, right, and I think this is just a it's. When you think about it, it's kind of obvious, right. It's like, okay, we need, we need various levers in our model to be able to extract value and deliver value to our customers, so we don't want them to feel like they're getting overcharged or undercharged. We don't want to feel like we're not getting the value for money and you know, somebody who's getting a lot more value should pay more than someone who isn't. So that's sort of how we shift into this value spectrum.
Speaker 2:So, from my perspective, all of this stuff that we're talking about how subscriptions are dead is not true. We're going to have a subscription. We're going to have usage elements. We're going to have inter-package expansion, where people are moving from package to package to package. We're going to have intra-package where growing and shrinking inside their their particular tier, and we're going to start to get into some of this outcome-based pricing. That is going to feel a little more transactional, but it's going to feel a lot like usage um at some point. So that's my thought process.
Speaker 2:I don't.
Speaker 2:I think that's where we are and I think we're embracing it, and I think a lot of people that I talked to at least can look at that timeline and put themselves in a particular spot.
Speaker 2:And it's surprising to me that still in 2024, there are many B2B SaaS companies that are sitting in this idea of charging for access, which is probably, unless you're Slack, is probably not where the value is, and so that's the big shift I see. So forget is subscriptions dead. We need to move people to models that actually allow them to generate, you know, a ton of uh, nrr, right, we need to get them well over into the a hundred percent range and all that kind of stuff. And AI and the rest of it is just going to be a mechanism to it. The price of AI is going to come down significantly over the next several years. It's going to become ubiquitous, it's going to become part of the fabric and until such time we can really trust it to do the job autonomously, we're not going to be getting into a space where we don't have subscriptions, at least in my opinion.
Speaker 1:Yeah, that's really interesting. I like that you mentioned hybrid models. I think that's where the future lies. I think if you're a SaaS company and you're able to offer that, that would be amazing. I think you'd be winning in that game. But I think the problem is that a lot of them don't know how to do that, so they just go off the legacy subscription model that everyone offers, which is charge for the whole year, maybe just offer two different types of basic and premium, and then I think a lot of them also don't really monitor how their customers are using their SaaS as well, so therefore they're not looking at ways they can customize the pricing For the startups.
Speaker 1:For the startups that are kind of new to the market and probably don't have that much experience with pricing, you know they're just looking to start out. They're probably just looking at what their competitors are doing at the moment. What should they be considering when, you know, deciding on their initial pricing strategy?
Speaker 2:Yeah, great question and something I've actually been thinking a lot about this lately. There's a couple of things that I think are really, really important, and I may have mentioned this already, but the most important thing is how you charge, not what you charge. And so the first thing, I would recommend that early stage SaaS companies, as they're trying to figure out what pricing model is, to really figure out how they think at least the customer is going to get to value in their software and try and get to a usage metric or a value metric of some kind that lines up with that value. So you know, this is why the per user stuff is easy, because it's at the very beginning of the value chain, right? So if I think about how someone gets to value in my software, the very first thing we usually have to do is add users, right? So they're like, aha, cool, we have to add users to the system to get to any kind of value. So let's charge by users.
Speaker 2:But the problem is it's really at the far end of the, it's at the front end of the value chain. So and you'll hear this in sales conversations or from people basically saying, well, oh, we'll just roll it out for this one department for now. We'll see how it goes. Or, you know, do we really need have this one person or these couple of people that don't really need full access? They need to, you know, to get in and look around. They're not really a full user. So any of those kinds of objections you're hearing is usually a smell that you're not charging by the right metric. So getting to the right metric is, I would say, at least 80% of the battle, because if you can get to a place that makes sense to your customer, it's uh, they feel it feels fair and familiar to them, they can predict it and it's tied reasonably close to value and you can figure out how to start to extract value around, like how to charge for that. Everything else will line up Like it really is, I would.
Speaker 2:So I'd say the most critical thing to do at an early stage is figure out how to charge for your offering based on the value your customer gets. Now, value is a bit of a true value-based pricing is like one-on-one and you figure out exactly how you're going to impact them and you charge them exactly what it's worth. That's not what I'm talking about. I'm talking about how can we get to a place where the process that I take to get to the thing that you're really trying to offer me, um, I need to be able to measure that and so, um, I recommend people sort of just even map the user journey, you know, uh, through the software, figure out all the different things you can count, you know, just count it. Okay, I can count the number of users here. I can count the number of documents here. I can count the number of gigabytes here I can count the number of documents here I can count the number of gigabytes. Here I can count the number of transactions, whatever it happens to be.
Speaker 2:Don't, don't edit yourself, just just figure them all out and then start to look at them through the lenses of like, okay, which ones are tied to value, which ones feel fair and familiar and which ones are predictable. And once you have that, then you can start to figure out okay, now what do we do? How do we charge for it? So after that, if you're really just starting out, take all your stuff, put it in one package, figure out what the value metric is, at least size the package based on the value metric. So that could mean, okay, up to a thousand of x, is this much, and then you can charge in buckets afterwards. At least gets you sized appropriately, um, but that's where I would start, and then I would monitor the heck out of the software in terms of use. Usage.
Speaker 2:Yeah, you need to understand how the customers are using it, how they get to value, and then you can start to pick apart packages later on. Um, but yeah, focus on the core job to be done that you're trying to achieve that your customer's trying to hire you for, and try and line up how you charge for it. Um, based on that one value metric, and if you can't figure that out, you don't know how they get to value yet. Go with one package, charge for it and just talk to your customers over and over and over again and just understand how they get to value so that you can start to have that metric mean something in your pricing model.
Speaker 1:Yeah, yeah, you know, it's really good data to collect and have, and I think that's where a lot of them go wrong, because, you know, in the world of sales and marketing, we all have the customer journey mapping and the user journey mapping, but as soon as they become a customer, I feel like that's where everyone just kind of gives up and stops monitoring the data.
Speaker 1:I recently heard a really good quote and I'm going to ruin this because I've forgotten who it's from, but it's data is the new oil, is what they said, and I couldn't agree more with that. But it's really just about who can take this data and figure out how to use it to their advantage and who just has it sitting in their CRM, messy as hell, doesn't know how to read it. I think that's where you know it'll make a huge difference. How would you approach pricing differently for the enterprise level, b2b, saas companies? Because at the moment, they're all offering really customized pricing models for every single client. I feel like every single client's on a different pricing model, so what foundational strategies would work for them? Where are they going wrong that they can improve on?
Speaker 2:Yeah, yeah, I think what I see a lot in enterprise sales at least, is people walking into deals with their discounts in their hand, ready to go, and that's a real challenge. So I would say one of the first things you should do in enterprise sales, especially if you have people sort of closing deals, what I call closing incentives, you know, incentives to get the deal done, incentives to get the deal done I'd be tearing apart and trying to understand how the discounts are being handed out and try and narrow in on a discount policy that makes sense. That alone will lift your revenue and get you into a better situation of understanding where the real objections are and where people are not seeing the connection to value for what they're paying. And I think that's one of the big things I see in enterprise. And so how I would approach it would be very, very similar. I would still try and really deeply understand how my customers get to value, and in enterprise it could be different things. It could mean that, depending on the breadth of the software, it could also mean that they get value in different ways for different parts of the software. So if you think about ERP systems which are kind of like a modular, like a platform plus extensions kind of packaging approach. It could very well be that there's individual value metrics for each of those extensions, so that's something that's like.
Speaker 2:One of the things I would encourage enterprises to think about is that it doesn't have to be one size fits all. Right, there can be models for parts of your software, um, but it does need to be consistent, I guess, is what I'm saying. So if you do have people walking in the door and I've had this happen I had a really great client They've been around for a long time, multi-generational software company, believe it or not Um, they uh had people paying per user and per widget, say, they had both models and really the customer was just choosing whichever one was cheaper for them, you know. So it wasn't actually good. So they had this huge mix of people some people on per user and some people on per widget and never the two shall meet and the revenue was all over the place. Their sales motion was all over the place because they didn't know how to standardize it, and one of the very first things we did when we started working together was like stop selling by user and we're only going to sell by widget. And they're like, yeah, but we won't be able to close small deals. I'm like that's fine, probably not the best customers for us. Anyway, let's focus on where we're going to do it. So even just those kinds of changes can make a big difference.
Speaker 2:So I would say, in the enterprise side, it's really you know again, understanding your value, figuring out how a customer gets to value early on. Usually in enterprise software it's about the setup right. It might take a long time to get to value and you need to be there with them the whole time, so you need to basically price that as well. You need to be able to put a value on implementation. That's very, really important and most enterprise software companies do it.
Speaker 2:So the way I look at it, as a kind of form for levers, you can pull an enterprise deal, you've got your implementation fees, you probably have a platform for you of some kind, you may have a value metric or a pricing metric that can scale over time, and you probably have add-ons or other modules, and so all of those are are levers you can pull inside the deal, and they all have varying impacts on your ability to grow. So the one I wouldn't discount is the one the value metric that goes up with usage. I would stay away from that at. You know, and the very first one I would discount is probably implementation fee, right, because it's one of the. It is a cost, customer acquisition, cost recovery move usually. So we're probably willing to spend a bit more to get the customer in that realm, and then you can sort of go then platform fee and then add-ons and then finally, if you have to, you can discount your value metric.
Speaker 1:So that's kind of how I think about the enterprise world.
Speaker 1:That's really interesting because you're right, a lot of time goes into handholding and implementation and teaching them how to use the product, so that absolutely needs to go into the overall cost. I love what you said about discounting because I can name. I'm not going to name exactly who these SaaS companies are, but I can guarantee that every time the end of year is coming up or the end of quarter, or even the cyber sales, I know I'm going to get a really good discount with them. So that's typically how I time my purchase of those softwares and I kind of train my clients to do the same thing. So I mean, this just sounds like a mistake that they're making with these predictable discounts. I should say Are there any other common pricing mistakes you see SaaS companies make?
Speaker 2:Yeah, probably the biggest one is not changing their pricing at all.
Speaker 2:I would say that's a huge mistake. Companies are a lot like people they run on oxygen. Oxygen just happens to take the form of cash and our you know costs are going up and it takes money to reinvest in the product and all that kind of stuff. So if you're not actually raising your prices, you're essentially lowering them over time for many reasons, you know, and you're also probably doing a pretty big disservice to your customer by not being able to reinvest and add even more value than you're already adding. And then, on top of that, there's the fact that you are adding value all the time to your product Like we're never done in SaaS. You know the product's never finished, and so that means that we're adding a bunch of value and not claiming it. So that's probably one of the biggest mistakes I see. And then, in concert with that, is if they do change it, so they do finally get the will to change it. They don't change it for everybody, they only change it for their new customers.
Speaker 2:And I think if you're going to grandfather everybody in, like you're just cutting off your nose to spite your face, like it's not, it's not that helpful. Yes, it's difficult, yes, it's time consuming, yes, you have to have a plan, and there's a lot of fear and a lot of anxiety around messing with the relationship with your customer. And the relationship with your customer is usually defined in this contract, which usually has a price tag associated with it. So you're kind of tinkering. You know you're in there tinkering with that, that relationship, and most people don't want to do that, um, and so I think that's probably the second biggest mistake that people make is in pricing is that they don't do that. Um, yeah, those are the big, big ones.
Speaker 1:Yeah, no, that's actually, yeah, really good point, because, I mean, inflation has gone through the roof in recent years. So if you're not putting up your prices, um, definitely as a business you'd probably be struggling because wages for employees have gone up, cost of goods has gone up, everything's gone up, so you have to increase your prices. Maybe if they just communicated better to their customers why we're raising our prices, such as we want to be able to invest more into this SaaS, to service you better, to give you more support, et cetera, et cetera so really just adding more transparency and really just news around what we're going to do with the extra money, maybe that would help. What are some other ways they can demonstrate value to their customers?
Speaker 2:value to their customers.
Speaker 2:Well, in, I guess, like there's the the classic sort of in the communication way of like around, uh, in price increases, you know you definitely need to make sure that you're showing all of the value that you've added over time.
Speaker 2:Um, the uh ability for customers to understand, like, look, most customers want you to win, right, they don't, nobody wants a price increase, but they want you to win if that makes sense, you know. So they want because they want to know that they've made the right bet. And so if you're constantly improving the software and you're constantly communicating that to me, it reinforces the value proposition that I already had, like this was the right choice. And so it's just constantly reinforcing the value that you're delivering to me by telling me all the value you're adding. And so I think people should be shouting that stuff from the rooftops all the time, and whether that's large marketing style blasts about new features and things like that, or it's surfacing emails or notifications on a weekly basis basically saying hey, you know, did you know that you used Grammarly 58 times this week and we, your most common mistake was the comma splice, you know, like though that's, that's resurfacing the value constantly to your customer.
Speaker 1:I think it's really really important.
Speaker 2:So and I'm not sure if that was a full answer to your question I think it's really really important.
Speaker 1:So I'm not sure if that was a full answer to your question, but is that what you're kind of looking for? Yeah, you have, you have I actually I use Grammarly as well, so that's why I was laughing at that. No, I love when a SaaS tells me how much I've been using the software, because it surprises me most of the time. I don't know how often I'm using it. So when it comes back and says, hey, this is kind of what you've been doing, I'm like oh, actually I really need this. So it does reinforce the value and the need for it. So no, definitely answered that question. There's just some other things I can think of. I've got a Fitbit and that's always telling me how I did in that week, which I really appreciate, because I can't remember day to day how good I was with my steps.
Speaker 2:So I mean, I'm even worse.
Speaker 2:Yeah no, there's exactly that and I think it's yeah. I mean, you know, if we, if we keep in mind that our customers want us to win and that our job is to deliver value to them, but also our job is to capture the value we deliver, like that is the exchange, and if we constantly think about that with everything we do, so if we're building product and you're building a feature in your product, if you are not asking yourself as one of the first questions how am I going to monetize this? We're missing the mark, because we have to understand how we're going to capture the value that we create. Now it could be that you're building it for retention and it needs to go in your top tier plan because you know that there's a gap and your competitors have it, and okay, that's monetization. That's still monetization If it's a add-on that you know that 20, 30% of your customers are absolutely going to love and everybody else doesn't care about.
Speaker 2:Cool, it's an add on and you charge for it. Like there you have to be thinking about. Every product decision you make has to have a monetization lens. I always say product is pricing and pricing is product. The two things cannot be separated. And so which equates to value. Our product delivers value, and so that loop basically surface what value they're getting all the time. Tell them about all the new things you're adding. Every time you add something else, figure out how to charge for it, and just keep doing that loop and you should win generally.
Speaker 1:Yeah, yeah, great advice. Let's talk about scaling for a second, because I think when most companies think about scaling, they look at sales-led growth, they look at product-led growth, they look at marketing, for example. They look at customer-led growth. These are all terms that I've heard in the world of SaaS. I'm going to throw one in there pricing-led growth. Is there such a thing, and how can SaaS companies use pricing to scale?
Speaker 2:Yeah, I mean. There is not a lever in your business that you can execute on that will deliver results like pricing.
Speaker 1:And.
Speaker 2:I know that sounds grandiose, but it's true. Like you could raise your prices 10% tomorrow, probably, and no one would care. Like you could raise your prices 10% tomorrow, probably, and no one would care.
Speaker 1:Yeah.
Speaker 2:But you've raised your prices, you've raised the top line by 10%. If, all things being equal, if you didn't have to do anything else, that 10% falls directly to the bottom line. So automatically, you're making 10% more money every month. So there's not too much that you can't. Like it's super powerful.
Speaker 2:Versus like, oh, we're going to run a marketing campaign and we're going to spend a bunch of ad money and we're going to hope that we get some return on it. Okay, that's great, it's really important stuff to do, but it is not as straight line to revenue as something like pricing. So how do you leverage pricing to scale? And I think this is a really good question we touched on a little bit earlier, and it's this idea that once we get a customer, we want them to be a customer for life. Right, that's the dream, but we're in SaaS and we know that churn is part of the model. So that basically means that for every 10 customers I get, I'm going to lose some percentage of those customers on a yearly basis, say, and so if you look at your gross revenue retention, it's going to be less than a hundred percent, because it has to be right, like it just has to be less than a hundred percent, because the customers you have today are not going to be the customers you have tomorrow. So if you looked at that same cohort, there's going to be a couple of people less. So therefore it's going to be less money on a yearly basis.
Speaker 2:Now, if you want to use pricing to scale, what we have to really look at is net revenue retention. We really need to understand how expansion and new customers and upgrades, downgrades, all of that kind of stuff goes in to get us to defeat the fact that churn is real, and so we need to figure out how to do that. And pricing can help and usually it can help in terms of figuring out the best ways to capture more revenue from your existing customers. And we talked about hybrid models earlier, and this is one of those ways. So a traditional, good, better, best plan kind of basically, is built in that, hey, people are going to start in the base plan and then eventually they're going to get to the point where they outgrow that and then they're going to move to the middle plan and then eventually they might even move to our best plan. Anybody who's ever implemented one of these things over time understands that that is not the case that usually people will find a package and they will stay there. They will just stay there because it's comfortable.
Speaker 2:It's what they know they're getting all the value they need, their needs don't change that often, it's fine. So what we have to figure out is how can we actually get more money from them inside that package? And I think that's really where this usage element can come in and that's really where you can start to beat the system, so to speak, and get into the NRR. That's well over 100%. You want people expanding. Now a lot of people say that's fine, I charge per seat and as they add more people, you know they, they expand. Absolutely true, except if we look at what's happened in the last two years, how many layoffs have there been? How many people have downsized? You know, if you're charging per head count and the head counts going down, naturally that's going to affect you, because people no longer need, they don't have as many people so so they're going to cut seats.
Speaker 2:And now, all of a sudden, we built our software to be a barometer for the market, and we don't want that. We want to be able to make money from no matter how many people are using it. We still want to be able to make money when we deliver value, and my guess is a lot of B2B SaaS companies are based around efficiency, right. Otherwise, what are we doing? We're saving time and making money. Those are the two things we do, so if we do our job well.
Speaker 2:Naturally, there should be less people using the system, right?
Speaker 2:Because we're making it more efficient for them. So how do we tie the efficiency to the value? So all this and to say is that, you know, pricing plays such a large role, and pricing is probably not even the right word for it. It's really about monetization. It's like, how do we extract value? And the surefire way to do that with pricing is to get into a position where you can figure out what the thing is. That can be a barometer, not for the market but for the usage inside your software, and be able to extract more value that way.
Speaker 2:And that could be any number of things. For Dropbox, it's the amount of storage, for example, and any number of things for. Dropbox, it's the amount of storage, for example, you know, and for other people it could be the number of documents you create or the number of Miro boards you create, for example. So there's lots of different ways to slice it, but you need to figure that out and that's how you can use pricing to scale.
Speaker 1:Really good point. Yeah, I think you're right. A lot of customers, they don't want to change, they're kind of happy being where they are. And I also agree that if you raise the price, say every year, by five to 10%, I don't think they would really consider that you know something bad. I think it's quite normal for us to expect a price raise every year. I mean, not sure about Canada, but here in Australia interest rates keep going up, rents get increased every year, you know food's costing a lot more petrol, everything's kind of going up year on year. If you look at the last you know, say 70, 80 years. So it's to be expected. And you're right. You're not essentially doing anything different. You're not raising your costs. Maybe you do have to, you know, promote your employees and so therefore that justifies the price increase.
Speaker 2:But yeah, that is essentially a very good way to scale.
Speaker 2:Yeah, and I mean, you also end up training your customers to expect the increase right, because once you, get into the habit of actually saying hey, here's all the things we've added for you this year and, by the way, to keep sustaining this level of growth and the things that we want to do for you, our prices are going to have to go up and this year, you know, you're being affected by 5%. Your old plan is this, your new plan is this. Like you're just training them to expect the increase and if we leave it too long, then every time it's like pulling that bandaid off every time it feels so painful.
Speaker 2:So I think you're right. It's absolutely about, at the very minimum, people should be raising their prices five to 10% every year, the minimum.
Speaker 1:Maybe being upfront about it at the very beginning as well.
Speaker 1:So like this is our prices now, but we raised them by X percent every year, or you know, and then kind of explaining why they do that Cause you know it's in reinvesting back into the software. A company I work a lot with, a SaaS company, recently overhauled their pricing model and it did cause a little bit of controversy with a lot of their clients. They changed from feature or license-based they still have that but they added an extra layer which is usage-based. So they're now charging less or more, depending on how many users you have in the platform as well. And for a lot of the clients I work with where they don't have that many users, obviously the price came down, so they were very happy, but everyone else where the price went up, obviously there was a little bit of controversy there. What suggestions do you have for SaaS companies looking to overhaul their pricing? How can they approach this in a bit more of a subtle way and, as you said, like ripping the bandaid off? Maybe you know doing it the slow way.
Speaker 2:Yeah, it's a good. It's a good, it's a great question because it's probably the thing I hear the most in terms of the big fears that teams have is okay, we're going to change this model, so we're not just increasing our prices, we're changing the model, and now we need to migrate existing customers. Maybe sometimes they decide not to but they want to migrate existing customers to these new plans, and I think I may know the company you're talking about, or if not, it's a trend, but Canva did something like this recently and it was a lot of backlash.
Speaker 2:And so the way to do this, unsurprisingly, is about communication and communicating often and treating people like they. You don't need to be hiding anything from anybody. You need to be extremely transparent. You need to talk about why you're doing it and how it's going to roll out. And so if I were to look at the Canva example, for example, they were charging I don't know for their team plan, a flat fee, and then they had five it was up to five team members, I think and now they switched it to basically having to pay for each team member. Okay, and in some cases, it was a 300% price increase.
Speaker 2:Wow, okay. So that's ridiculous on the surface. It's just ridiculous, right. So it's really hard to say to someone hey, by the way, thanks for being a customer for eight years, your price is going up 300%, even if that price was $12.95 a month and now it's going to be $36.95 a month, which to most of us is immaterial in business.
Speaker 2:At least You're going to look at that and go. Whatever that's fine or whatever the price increase was, but 300% is still 300%. So the ways to combat that stuff is like communicate early, communicate often. And also you need to segment your customers across impact when you go to do these types of moves, because customers that are newer, for example, is probably not that big of an increase, right, because they're probably caught up, they're probably on latest pricing, you know all that kind of stuff and it's really only a problem for some of these other grandfather customers. So I look at a few things. I look at the tenure, I look at how long they've been a customer, I look at what percentage of an increase they're actually going to get and I also look at the monetary value of that increase, like how much is? How many dollars is it actually?
Speaker 2:Cause sometimes, like, those percentages can play funny tricks on you you know, like a hundred percent increase on someone who's paying you a hundred thousand dollars versus a hundred percent increase on someone who's paying you $10.
Speaker 2:Those are different, those are different conversations, so you split it up and then what I like to do is, you know, formulate a plan about how we're going to treat each one of these segments. And that basically means it's like what incentive are we going to come in? Because we know that this, like we have to have empathy, like we have to have empathy for our customer and understanding how they're going to feel when someone says to them hey, by the way, your price is going up 300%. It doesn't matter how good your software is, someone is, they're not going to be happy about it. So you have to have empathy. Put yourself in their shoes and say would I accept this pricing change? The answer is probably no, but what can I do to make it easier? Okay, you've been a loyal customer for the last five years. We love that. Thank you so much. Our new pricing looks like this Now we know that that's a big jump. So over the next three years here's what we propose and you slide them into it, or whatever happens to be you offer them the incentives and the discounts and the gives to try and ease the blow, because it has to happen Now. In my experience, if you do this well, very few people churn. It's way less than anybody thinks.
Speaker 2:I did this recently with a client. They introduced a usage element that they had never had before. They were a an appointment booking software, essentially for clinicians. Say right Of a type and um, they never charged, they never had appointment limits at all, and so it was all just like as much as you can eat, no problem, here's how much it costs. And it was all feature differentiated.
Speaker 2:So we introduced this idea of appointment limits, and so then you had to go through and look at okay, how many of these people are booking what appointments and what plan do they fit in now, based on appointment limits, some of them were getting massive price increases. So over a period of eight months, everybody transitioned and we split it up into the least impacted to the most impacted, and then we started testing each group to figure out what the right moves were. But I'm happy to report now it is so as of, I think two weeks ago they were at a hundred percent. Everybody's moved over and there was one month that had a small percentage of churn increase. It went up by about a percentage point for one month and that's it and everything else has stayed pretty well the same.
Speaker 2:And this is something I see over and over and over again is that naturally, people are going to want to churn if you hit them with a 300% price increase just at a spike.
Speaker 2:But if you can actually communicate with them and talk to them about what the change means and how it's going to impact them and when it's going to impact them. They may not like it, but they will accept it and that's the goal. It's not about nobody likes a price change, no one Period. I remember going to a restaurant recently and there was a menu on the table and before I even looked at it, the server said to me oh, the prices on that menu are wrong. You have to use the QR code and look at it on your phone and immediately.
Speaker 1:I felt like I was being robbed.
Speaker 2:Immediately, I felt like I was losing something, even though I had never even looked at the menu or ever bought anything yet, and so no one likes a price increase, perceived or otherwise. So yeah, I don't know if that answers your question, but that's, that's the magic is is is the go-to-market segmentation. Clear communication plans. Have your support teams know exactly what to say to every single objection. Have a plan in place. Do not wing it. If you wing it, you're going to be in trouble.
Speaker 2:And that's probably the biggest thing I would say, after being involved in way too many go-to-market exercises for pricing.
Speaker 1:Yeah, no, that's really good advice. Thank you, bill. I think not only have you answered my questions, I think you've given us a lot more and I think, for anyone listening today, I'm sure they've gained a lot of value and they have hopefully some strategies up their sleeve on how they would approach pricing and price increases and, most of all, communicating with their clients and just being transparent.
Speaker 2:My last question for you one lesson you wish you'd learned earlier in your founder journey yeah, um, for me, one of the biggest lessons I learned was well, this is going to sound a little cheeky, but first one is don't take vc money. Second one is um, uh, talk to your talk, like, talk to your customers constantly. Like that's probably the thing I did not learn quick enough. I built so much, we built so much product without talking to enough customers that we.
Speaker 2:We missed the mark on a lot of things and if we had just talked to our customers, I know I could have allocated the, the scarce resources we had, a lot better to deliver a lot more value and got a lot more traction early on. So I think that's probably the biggest mistake I made, at least was, you know, validating in a vacuum. You know you're validating with, like, not your friends, but at least people who are in the industry. It's probably not the best way. You really need to get out there and talk to the customers. I remember the you know, get out of the building kind of thing. It's like go talk to the people and, um and do it in a way that doesn't, you know, just bias the conversation.
Speaker 2:My favorite way to do that is jobs to be done, interviews. So anybody listening jobs to be done, interviews of all your customers is probably the fastest way to figure out what they really care about, um, and therefore you can then remap your product roadmap around what they care about.
Speaker 1:I really love that advice. We've actually. So I'm in marketing for SaaS and something we've recently introduced for a lot of our clients is because we start off with a workshop where we're talking to customer success, sales marketing and we're really just trying to get as much insights about their customers as possible. What happens generally a lot of it's really good data, good knowledge, and it does help us create a good strategy when it comes to marketing. But there's always something, there's always a learning to be had, and it's always like three to six months down the track that we wish we had earlier. So something we've started to do now is to say can you give us three customers of yours that we can also talk to, because sales, marketing and customer success knows this much? But actually getting that knowledge and insights from their customers is what really helps craft the campaigns in a way that they can be more successful earlier on. So I love that advice. I think it's bang on.
Speaker 2:Yeah, you know, and a hundred percent I agree with you on that. It's we do the exact same thing. You know, we look at all their subscription data, we look at all the internal data, we look at as much usage data as they have, we look at their CRM, look at all those things. And then we interview 10 customers and then even better than that? We'll, we'll.
Speaker 2:We send a survey to everyone, all of their customers, which really scares the founders, but it is is always works out. So. But yeah, same type of thing. It's because what we don't know, like the institutional knowledge, is just that it's, it's baked in the problem space. They've been in it for so long. We need to, we need to get that other perspective. I totally agree with you, and I'm sure that that goes over really really well, saves you a lot of headache down the road for sure.
Speaker 1:Sure, yeah, bill, thank you so much for your time. You've been very generous with it. I know it's late in Canada right now, so I really appreciate all the knowledge and insights you've given us today. It was great, great having you on the show. Thank you so much.
Speaker 2:Oh, thank you, it's been a pleasure. I'm really excited to see it all come together.
Speaker 1:Absolutely.
