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
Pricing SaaS for Growth: James Wilton on AI, Packaging, and Capturing Value
The episode explores the critical aspects of SaaS pricing strategies with James Wilton from Monevate, shedding light on the need for dynamic pricing models tailored to evolving market demands. It addresses common mistakes, the transformative impact of AI, and practical steps to improve pricing approaches within SaaS businesses.
Podcast Overview:
• Discussion on disruptive pricing models and their relevance in SaaS
• The significance of AI in reshaping pricing formats
• Common mistakes companies make with pricing strategies
• Effective communication techniques when implementing price changes
• The importance of strategic packaging in SaaS pricing
• Insights from James's new book, "Capturing Value"
Welcome everybody to another episode of SaaS Stories. Today I'm joined by James Wilton from Monovate, all the way from New York. Welcome, james.
Speaker 2:Good to be here, Joanna. Thanks for having me.
Speaker 1:Tell me a little bit about Monovate. How did you get started? What is Monovate? And tell me about your journey into the world of SaaS. Where did it begin?
Speaker 2:Yeah, absolutely so. Monovate is a pricing strategy-focused consulting firm right. We basically work with mostly SaaS companies and help them transform their pricing strategies. It's very common that a SaaS company will have a pricing strategy but they may not have thought about it too deeply when they first built it and they'll probably hit an inflection point where the business isn't the same as it was a few years ago. The market's changed, their objectives have changed and they need to do something different. But you know they don't necessarily know what they should be doing. So one of them will come in and help them figure out how they should be pricing going forward. And yeah, how do they get into this field? I mean, it is a, you know, everybody always asks that because people don't tend to just sort of drift into being a very niche pricing strategist, I guess. But it started for me.
Speaker 2:I started off my career in consulting. I've been in consulting pretty much my entire career, but I started off in general go to market strategy and operations consulting and then I got into pricing midway through my consulting career where I took a role in an internal consulting group for a big company called Relix and this internal consulting group happened to focus on pricing. I wasn't like really trying to make a move into pricing strategy at this point. I had just had a baby and I liked consulting, but I didn't want to be traveling four days a week anymore. So I was like how do I find something which kind of lets me do the work I want to do but maybe makes my work-life balance a little bit better for this period of my life? So this seemed like a really good fit right, because I got to keep doing the consulting work. I got that work-life balance and the teams that have told me you'll probably love pricing once you get into it and as it happens, I did.
Speaker 2:I just I really found that. I know it was like I hadn't really found that area of consulting up until that point. That just got me really excited. I was always happy to do it. But there was just something about pricing right. It was way more strategic than I was expecting it to be, I think, and there was a lot more room for creativity than I was expecting as well. I think you tend to think it's just all numbers. So I just got really into it. I read around a lot, I ended up getting promoted quite quickly and ended up leading that team and by the end of that I decided that actually I wanted to go back into external consulting at this point, but I just wanted to focus on pricing.
Speaker 1:And that's really what I did for the next few years really.
Speaker 2:I first built a pricing strategy practice in a boutique sales and marketing firm called SBI they were a boutique, at the time at least and then I went to McKinsey. I joined McKinsey to lead the pricing service line for Fuel, which was the part of McKinsey that was set up to work with startups and scale ups and other fast growing tech companies. So I really got a chance to work for a whole bunch of fast growing and exciting SaaS companies around that time and that was great. You know, I really love the way that we did the work. I love the people I was working with, working with.
Speaker 2:There are many, many, many things that I liked about that job, but I didn't really like the way that my client's eyes tended to bulge when they saw the fees that we were charged. I think McKinsey it's a great firm. It does lots of great work. They're not really set up to be working with these smaller companies. So there are a lot of companies that I was super interested in working with and we just couldn't make it work because of the the fees, and so really I found in Monavate is saying I want to be able to keep doing the work that I've been doing at the level. I've been doing it, but I want to be a little bit more flexible so that I'm able to work with this broader range of companies and and become the go-to for companies of all shapes and sizes who are looking to do to build better SaaS pricing models.
Speaker 1:Yeah, yeah, what great story and there's so much to unpack there. I have so many questions. But I just want to call out that I think a lot of SaaS founders do struggle with pricing. I mean, I kind of see the you know good, better, best model thrown out there and, you know, let's see what works, and I think a lot of them end up adjusting pricing just to see, you know, are we getting more signups, are we not? I don't know what they're basing it off. So I'm really interested to hear your thoughts. You know what are the foundations of creating pricing and what did you learn at McKinsey?
Speaker 2:Yeah, well, I mean, I came to McKinsey midway through my time really. So I think really what McKinsey brought to me more than anything else, it wasn't really what I learned about pricing. I'd spent a lot of time looking at pricing before then. But McKinsey really has a very rigorous problem solving approach which they put into any project they're doing right, whether it's pricing or operations or whatever it is. Everything involves first principles, problem solving all the way through, and that's kind of it's a necessity, because a lot of the consultants in McKinsey are generalists and they don't come in with the expertise in a particular area, so they have to be able to do that, you know, very structured problem solving to make sure that they're thinking through everything.
Speaker 2:I'm not missing anything. But it also has an incredible benefit because it forces you to think very broadly about the problem and the solutions that you're coming to and pressure testing anything. So I think by the time you've got to the end of that very rigorous and quite, in some cases, quite arduous process right, you're very confident that. You know. Maybe it's not the right answer, because it's very hard to find the right answer in pricing, but the answer that you've got is a very, very good one, based on what it is that you're trying to achieve. So I think there are elements of that that I was doing before I got to McKinsey, but I think McKinsey really took it to another level.
Speaker 1:Yeah, yeah. And so what would be say? The five most disruptive pricing models today? What are you seeing out in the SaaS world? How is everyone tackling this at the moment?
Speaker 2:Yeah, well, that's a great question. I don't know if I'd struggle to hit five. I do actually talk about five of them in my book Capturing Value, like five disruptive models that I do see quite quickly. I don't know if they're like the ones that I would say necessarily are the most disruptive. I talked about those as being five that I was particularly interested in, but I think the ones that I think are probably most disruptive right now would be firstly, it's not really a model, but it's more of a disruptive situation.
Speaker 2:Gen AI is obviously something which has been very disruptive to the world of pricing going forward. I think everybody at the moment is not a very flattering word to say scrambling, but I think they are scrambling to figure out how do we price this right, what is the right pricing model for Gen AI going forward? And I think, because everything about all these Gen AI businesses and these features that come up have been so much and so fast and so much evolution, the pricing models have changed a lot over that time as well. Right, we've seen them start off with very traditional user-based models, which is kind of funny, really, because it's this new wave tech technology and yet everybody defaults to to users the way that it was done. And then there were some elements of really deep usage based pricing model in spending tokens on amounts of usage, which felt very transactional.
Speaker 2:And now I think you are starting to get some things that I think are truly disruptive, like what Zendesk are doing, for example, which is more of an output-based or an outcome-based pricing model.
Speaker 2:So, rather than charging for work or sort of traditional usage, they're charging based on units of what the, the ai, should be achieving, which in their case, is resolving customer um, I guess, um, not disputes, but questions and so forth, charging based on the resolution, and I think that's truly disruptive if you can do it, because then you're really much more directly charging for something that is very, very linked to value and you know talking about capturing value. You're able much more directly charging for something that is very, very linked to value and you know talking about capturing value. You're able to capture a lot more of the value created if you have more of a direct hand and actually generating that value. So potentially, prices go up if you're able to do that successfully. I will say that outcome based pricing is very, very difficult to do historically. So I think there's it'll be interesting to see how these early models go, but certainly very interesting that we are starting to see models like that coming up these days.
Speaker 1:It's very interesting. I hadn't heard the Zendesk story, so that's really interesting. I have to say I'm a little bit nervous at the moment because I'm using a lot of software and their AI tools are pretty free because they're in beta. They're still testing them out. I'm really enjoying using them. They're a game changer and I'm just like these prices must go up pretty soon because they're going to see how good these tools are and they're probably going to increase their prices substantially, which is a little bit scary. How do you think AI is reshaping SaaS pricing models? What opportunities does it present for companies?
Speaker 2:What opportunities does it create in terms of pricing, or what opportunities does pricing AI have? If you see what I mean, the difference between those two questions.
Speaker 1:Yeah, what opportunities does it create? You see what I mean, the difference between those two questions. Yeah, what opportunities does it create, like, I suppose, for companies that are looking to grow through pricing?
Speaker 2:Got you, got you Well. I think the biggest thing in pricing is that everybody's very interested in AI at the moment. Obviously, it's been very, very buzzy no-transcript. You are seeing a lot of SaaS companies launching some form of AI functionality, even if they're not like a pure Gen AI player, they're launching some capabilities or functions which are based on AI and I think that's it's a really good time to be able to bring out those extra tiers, if you like, or extra add-ons, or something which monetizes this extra 10 AI functionality. And actually a lot of the questions that we're getting right now is how do you do this? What is the right way? It's also interesting seeing how many SaaS companies are doing it and getting it wrong as well, not to point fingers because I think it's difficult.
Speaker 2:But I'm seeing a lot of companies out there now bringing out their AI functionality but just saying okay, we've got our AI stuff, we're putting it into our products, we're going to raise our price a whole bunch to cover the cost of you having it and we're going to expect you to pay for it a whole bunch to cover the cost of you having it, and we're going to expect you to pay for it. And really, I mean it's. Although there is a lot of buzz around it, gen ai functionality is still what we would call niche right, which is that there's a lot of value, but to a small number of people. It's not the case yet that everybody is, is not the case that everybody sees the value and that everybody's willing to pay for it. So if you just shove it into your base offering by default, then you're either going to really under monetize it or you're going to end up increasing the price of that to the point when your existing customers are going to get very upset, and that is what's happened in a lot of cases. I mean those examples.
Speaker 2:Probably the most recent notable example is Canva, who increased the price of their I think their major, their major first paid tier by 300%. Yeah, that was like a huge amount. I mean, actually, for the record, I actually think by the amount of value that Canva gave, even without the AI functionality, it was actually worth where they they, where they put the new, the new price level. But when they did it, they, they increased the price, they justified it through AI, and so people push back against the reason, right Cause it's like I don't want to pay more for it just because you put AI in it, because I don't want the AI. If they've actually justified it through other means, they might've been, they might've been okay.
Speaker 2:But yeah, you see, people do do that Because they're trying to avoid this, this problem of the chicken and the egg problem, right Like, if you don't give people access to it, then it's going to stay niche forever because all the people who didn't try it aren't going to try it and so they're never going to get more familiar with it. If you put it into the base, you have to charge a whole bunch for it to cover your costs, so people will get upset. I think what we'll probably see a lot more companies do is start to put a usage gated amount of AI access into their lower tier products so that you can play with it and you can see what it's about, but you can't get real true value for it within that usage limit. You then have to buy into a higher tier of usage or pay for extra usage credits or whatever system that they have to be able to unlock the full value and be able to really get value out of it scale.
Speaker 1:Yeah, yeah, for sure. I remember when Canva did that. I'm actually a very big Canva user. I don't use the AI tools per se, but I use it so much that when they increase their prices, I mean they were already pretty cheap so it kind of didn't matter too much in my world. But I can see how people would get frustrated with something like that and I think the reasoning they gave, yeah, definitely doesn't justify it. But what are some other mistakes you see companies make with pricing? Do you find that maybe they don't increase it for years and then all of a sudden in one year they just go? Exactly what Canva did.
Speaker 2:No, I think that's definitely. I mean, I think putting through those price increases is really challenging and the way that you message the price increase, what you, you know, what you say, is the justification, how much notice that you give, how you walk people from their current price. I mean there's a whole art form really involved in how do you put through a price increase, and it's difficult, it's very easy to get that get. So I think a lot of companies do do struggle with that. I think another thing, actually, on the more strategic end, just in terms of building their, their pricing strategies.
Speaker 2:You know, you find that in these early stage startups, when somebody starts a company, right, they're going to have best in class product people. Going to have best in class product people. They are, you know, almost all the time they're going to start bringing on really good salespeople and marketing people. Relatively early they don't usually bring on pricing people. So they usually get to the point when they've got to launch their products, that they haven't really got a really great understanding of pricing.
Speaker 2:And I think what that does is it means that they start thinking about pricing as being just, you know, sort of a tactical decision that they need to make just like, oh, we need to get a price. Now, let's put it out, rather than thinking of pricing as a strategic discipline that is going to help them achieve their objectives and capture the value that they are, that they are creating. You know so they don't. They don't go through that, through that process and you frequently see these startups I'll often get asked questions like hey, I have a product in this space and I'm serving this type of customer. What's the right way for me to price?
Speaker 1:Yeah.
Speaker 2:And the reality is that there isn't a right way to price in all of these different segments.
Speaker 2:There's maybe a common way to price, there are norms and there are things that people are typically doing, but a big part of the pricing strategy that you build, like the packaging, the architecture should be based on what you're trying to achieve. You know, are you just looking to grow volume right now and worrying about monetization later, or are you really trying to make sure that every single deal that you have is super profitable because that's what your investors want? You know all those decisions single deal that you have is super profitable because that's what your investors want. You know all those, all those decisions. You know you have those different objectives on the same business and you turn into a completely different pricing strategy. So I think going through that process of being really strategic, thinking about what they want to achieve and then making the pricing strategy decisions that align to that is a massive opportunity for a lot of companies. Decisions that align to that is a massive opportunity for a lot of companies.
Speaker 2:Yeah. And then finally, I'd say on the price level as well, you also find that a lot of startups because they come in and maybe they have an MVP and they're trying to disrupt a more established space they tend to think that a good strategy is to price quite low when they start off, which is not necessarily always a bad idea. I know pricing people tend to push back at pricing low, but sometimes it can make sense. But if you come in and you price really low and it's just like your list price, your sticker price is low, and you stay there and customers join you, then you're going to have a really hard time when it does come to the point when you find that your value is higher, to be able to raise it up again versus if you'd made the very sort of simple decision before and said, hey, you know, this is, this is our product.
Speaker 2:We're early, we're building out a lot of the functionality. You know we've got some good stuff in here, but we're building it out. When we have everything built, we're going to be pricing here, but right now, because we're a little bit early, we're going to be discounting a bit more pricing here. You've telegraphed that you're heading for here. So it's not going to be a big surprise to your customers when you head up there. And also, I mean, I think actually the messaging that you know we're building and we're going to be able to get to the point when we're worthy of charging here is probably quite exciting for a lot of customers anyway. So, you know, I think they just not sort of thinking about the long-term play and not setting themselves up to be able to raise prices when they get to the point when they're able to do it yeah, I think what you mentioned there was really important as well, which was communicating with your customers.
Speaker 1:like this is our goal, this is where we want to get to, and these are the reasons why because we're planning on, you know, innovating, giving you a lot more value, um, and things like that. I think communication key, but I think for a lot of the startup founders listening at the moment, thinking like, oh shit, we did price too low, how are we going to go higher? At what stage do you recommend they approach this and any other recommendations on how to approach this, aside from offering good communications with their customers?
Speaker 2:Yeah, well, I think really, I mean looking at your overall price levels, it's probably something that you should do on a yearly basis, really, really. And I mean, even if you haven't done it until this point, I would recommend that you know, the next time you renew all your customers, you should put it, you should put in an annual price escalator within within there. Right, that's just something that says next year the price is going to go up by inflation plus whatever. It is Right. So at least then you keep you keep pace with inflation plus a little bit more, because if you're not at least keeping pace with inflation, you know you're you're actually decreasing your pricing over time, right? Which is which is crazy. I actually worked with a company recently who hadn't increased their price for 12 years.
Speaker 1:Wow.
Speaker 2:And at the time when they launched their product, they were very profitable. Everything was good. By the time we started working with them, they were, they were literally just scraping by and you know just about covering their, their, their costs. And yet all of their customers were very much of the opinion you know, oh how debt. You know you definitely can't raise the nurse, you know where's the value, etc. Etc. But the reality was they weren't.
Speaker 1:They weren't making any money what's the percentage of inflation per year? What should they be uh aiming for? So as an increase just based on inflation?
Speaker 2:well, it fluctuates from time to time. I mean we've had some really high inflation periods recently, so things have been a little bit higher. I think we've been up in the in some cases five, six percent. But I'd say you know, steady state most of the time. Inflation would only be about, you know, two to four percent, I think most of the time. But but I would usually say you know you do inflation and then you aim for a little bit above that as well.
Speaker 2:It's interesting, back before the recent period of high inflation we did some market research in one of our customer segments and asked them how they thought about year over year price increases. Because you know, you tend to think that you know, if you start to increase your prices, even a little bit year over year, your customers are going to revolt and actually found that, um, four percent in most cases, in most 75 percent of customers, four percent year over year price increase was less than they would expect at that time and that was when inflation was down in the sort of you know the threes and so forth. So you know, these sort of small year over year prices, price increases are very expected and you know it's not going to account for big step value changes that you make, but it's going to stop you from getting to kind of a crazy situation where you need to, you need to really really dig yourself out. So I think that's the first thing to think about when you do start to raise prices because you've had a big increase in value because of the things that you, that you offer. Now it's if you can, it's generally better to monetize that through some form of tiering or packaging. You know, sort of let people opt into the higher level functionality rather than just then just charge them for extra right. They might.
Speaker 2:Even if you end up with a, even if you've got a monolithic offering where everything's included, you might be better off saying so, customers, you've been paying this, you can keep paying this if you want, but you're going to have to buy like a lower tier version of our products. We're taking out stuff and like for our really great stuff now which is delivering a lot of value, we're charging up here. So really, if price is, if price is the only thing that is important to you, you can stay paying what you've been paying. You have to pay extra now for the full thing.
Speaker 2:Just given that choice is, um, it feels better to the customer than just being, you know, made to either pay more uh, take it or leave it. That said, of course, there are times when, even with all the patching everything, you just need to increase the price of everything because you've priced it wrong, and that's when you need to start thinking about the, about the messages, and, honestly, we could do a whole podcast just on talking about that, but uh, actually, I really like that strategy because the first thing I thought of was if you were to offer me like you can stay on the same price.
Speaker 1:However, we need to remove some of these things that, um, you know you may have been using. I just the loss of those things makes me think, oh, actually, no, I really value those, I'm happy to pay more, but, um, yeah, I, I wouldn't have thought of that if they had just said we're increasing prices. It's more if, if they had mentioned we're going to remove some of those things, that's when you kind of feel the loss, isn't it?
Speaker 2:exactly it is. It is actually. It's a. It's a strategy that, um, I think reed holden give-gets in his book. Negotiating with Back.
Speaker 2:Cheap, right, budget is the most important thing to them. But there are other buyers who are actually interested in quality or relationship. But they try to convince you that they're a price buyer in order to get a lower price. And if you're coming out there with just a single offering so I just have my one package and they say, I don't want to pay that much for this package, you haven't got anything that you can do other than just hold or lower price. Right Price is the only lever that you can pay with. But if you have two different versions or more packages, you can say well, you say that you're very price sensitive. But if you're price sensitive, then there is this thing down here which is it is lower price, you just have to take out all these, all these things. But if you're interested in these things, you have to pay for them and they're these prices. So it's much easier to defend your price points when you have those different offerings that are, you know, gated by by price and value yeah, for sure.
Speaker 1:Let's talk a little bit about your book. You're about to or you have launched already a book called capturing value Value which is all about pricing for SaaS. Tell me a little bit about it. Why did you write it and what's it all about?
Speaker 2:Because I'm a sucker for punishment.
Speaker 2:It's talking about the writing process, but no, I mean I wrote Capturing Value, for it's quite similar to that piece we were just talking about a while ago, right, which is really that a lot of SaaS companies don't have a pricing expert within them, certainly as they are growing, and what typically happens is, at some point in their evolution, the board or the CEO will tell an executive within the SaaS team hey, you know, by the way, you need to change the pricing strategy.
Speaker 2:Now I'm going to give this to you and that person probably hasn't had any experience ever building a pricing strategy ever before, and sometimes, luckily for companies like me, you know, sometimes they have budget and they bring consultants in to come and do them, do it for them, and that makes a ton of sense to leverage that expertise, but they don't always have that, they don't always have that budget, in which case, now, the responsibility falls on this person who has to do this quite difficult thing, doesn't have any experience in doing it, and so they'll typically then start, you know, looking for data points and things that they can use, and I don't know if you've looked on the internet for pricing content for SaaS, joanna, but it's just, it's a minefield of stuff that is either misleading or wrong and in some cases it's quite difficult to get good advice.
Speaker 2:So really I wanted the right capturing value to be a guide to somebody like that who needs to go and build this pricing strategy and, just you know, doesn't know what they have to think through, what options that they have. So it's very much structured to take you through the entire process, all the things that you should think about, the mindset you should try to get into in each one of these different areas, because I think there is a bit of just you know, understanding how these different pieces work, the options that you have and why you would go in this direction or go in that direction, and then also ending in practical steps which say, if you're actually going to go and do this, take these steps to walk through it. So it's hopefully something which somebody in that position can take and use and build out a pricing strategy that will work.
Speaker 1:Yeah, no, amazing. I'm really glad you wrote this book. As you were telling me that story, I was thinking too. One question I always ask the guests on this show is you know who did you hire first and second and third and why? And no one has ever said pricing strategist. It's always been like developer, marketing, sales, but also I work with a lot of clients in SaaS and I think I had one in particular where they probably had about 40 people in the company before they realized, oh, we need a pricing strategist, and they actually ended up going externally for that role. But yeah, it took a while to get there, so it's definitely something that should probably happen in the early days.
Speaker 2:Yeah, definitely. I mean it's definitely good to have. I mean, I think we tend to think when you're growing quickly, you really need to be revising your pricing strategy probably every two to three years, right? So it is something that needs to be done frequently. You need to be able to know how to do that or be able to get access to people who know how to do that.
Speaker 1:Yeah, the way I kind of think of it is, you know, again coming back to that 4% increase every year. It's the same with things like, you know, your rent, your mortgage, the food that you buy, petrol everything else is going up in price, so why shouldn't this as well? It's completely normal.
Speaker 2:Exactly. Well, actually that's going to bring us to an interesting concept here around the price increases. When we stumbled across this a few years ago, this was really counterintuitive to me, and I think it is to most people. Right, when you're talking about price increases, it is the one place in pricing where you don't want to be talking about value, or at least not leading with value. Because if you're putting through a price increase and you say, hey look, we're going to increase the price now because over the last couple of years we've built this, this and this and there's loads more value, now the customer A was paying the price they were paying for that amount of value previously anyway. So they were kind of anchored to that. So they think that the price that they're paying is fair for the amount of value that they were getting most of the time. And also it's very easy for them to push back and say, well, actually I don't really care about these extra things that you're putting in there, I don't want to pay extra for them, so don't charge, charge me for them.
Speaker 2:It's very easy for that to just feel um predatory, even if it's not intended to be, and like that's not the sentiment, it's easy for the customer to kind of view it in that way, if you're just talking about value, because it can kind of read as we're charging you more because we can. At this, at this point the better thing to do for price increases actually is to anchor in fairness, right, right, and that means sometimes talking about costs. So it's better to say you know what we have to in order for us to continue to provide you guys the service that we've been providing at the level we've been providing it. We have to increase prices now because our costs have gone up, all these things have changed, and that then it starts to feel better because it's like well, you know, you think of, there's this amount of value which is shared between um, between the, the, the willingness to pay of the customer, the value that they, they get out of it and the cost of we have to to serve. This stays the same and our cost goes up, then our share in the overall value that's created here has been squashed, right.
Speaker 2:So it's not fair for us, the vendor that you continue to like, receive the same amount of value out of the equation but we at all are taken away. It makes sense and it's fair to just separate it again and make it. Make it a little more equal. That tends to resonate a lot better, and then you can. You can then back it up with value and you can say to make you feel extra good about the fact that we have to raise our prices based on this, in the last year, we've added this, this and this. You're getting extra value out of it. That is a way that makes way more sense and is far more um readily accepted by by customers, but it's it's literally the only time that you wouldn't want to start talking about value in a pricing conversation yeah, that's so true, isn't it?
Speaker 1:I mean, I totally would have approached it with the value add, but you're right. I think as soon as you say that, people are like, well, I'm not going to use these tools, and whereas if you do it in the reverse order, which is, you know, we're going to increase our prices because cost of goods have gone up and wages have gone up, and so in that case it's like, well, fair enough, that makes sense. What metrics would you measure? You know, say to just to find out if you've had a successful pricing model or a successful pricing model change. What are some of the metrics? Maybe no churn or little churn? Would you expect a little bit of churn? Is that normal?
Speaker 2:Yeah, I mean again, it really comes back to what you're trying to achieve. I think I mean as to whether the pricing strategy change worked. If you're increasing prices, then, yes, churn is one of the big things to look at, right? I mean, definitely, private equity companies talk about this a lot of times, right, like there seems to be pricing headroom. If the company was able to raise prices and they didn't really see churn affected if it didn't really go up or not go up meaningfully. It suggests, maybe, that you know A, it suggests that that was a good price increase, but it also suggests that maybe there's more room for us to increase prices.
Speaker 2:You do have to be a little bit careful with that, for us to increase prices. You do have to be a little bit careful with that, though, because sometimes you get the kind of the pricing or the sales equivalent of quiet quitting. You know if somebody was to raise, let's say, you have some, you're buying some software that is pretty important for you, and a month before you're up to renew your contract, they tell you your price is going up 20%. You know you're with a decision. Then you know, do I? You know, let's say I'm really unhappy about it. I can either, um, I can either pull the plug and then I'm in trouble because I have to find something to replace what I have and it might be difficult and going to evaluate vendors and it takes long. So I may be putting my organization in a difficult place through buying this, or I can keep buying it this year, but I can know in my mind that I'm going to churn next year.
Speaker 2:You know, I'm going to spend my time looking into something else. You just get this kind of delayed reaction. We saw that recently on a project we did for a software provider in the mobility space. Actually, I mean, they had risen, they had pushed their prices up quite considerably, very little churn, everything looked great. We did some research for them within the project and found out that you know we have this chart we do quite frequently of price to value relationship of all for their level of value they were really high price. So it's basically saying you know, if, if you increase price any more, then you are going to start to see real, uh, real difficult things. So they had to, they had to run back from their pricing a little bit yeah, yeah, I have a story myself.
Speaker 1:I'm not going to name the company, of course, but, um, they recently completely changed their pricing model and I think the the bad thing about it was that when you were speaking to the sales rep and account managers at that company, they were confused themselves. So you know, as the client, trying to gauge what this meant for you know, future pricing and not really having that communication back was really quite a concern. But what are some other do's and don'ts when transitioning customers from one pricing model to another? Say, you know you're charging based on users and now you're switching to charging based on seats or something else.
Speaker 2:Yeah, yeah. So anytime you're doing one of those major model changes, I mean that's definitely something you need to spend a bit more, a bit more time and to, at least for your existing customers, you need to do that in a more, in a more gradual way, especially if you're doing something dramatic like going from, say, users to usage or something. So it's completely because, um, you know a you need to, you're, you're, you're communicating, really, that you're providing value in a different way. When you change your model to that extent, before you were saying it's all about how many people you have in the system and now you're saying it's all about how much usage you have there. So it is a fundamentally different, different model. Um, and they might expect their you know the, the numbers to to grow at different rates and so forth. There's a lot of, there's a lot of stuff for them to get comfortable with when you're, when you're doing that. Also, I think if you're moving from something like users to something like usage, um, there's often not going to be a lot of correlation to be between what customers were paying previously and what they're going to be paying now. I mean, I've done a chart like this before, right, when you made a big, big um, a big change. You have like the sort of previous pricing on one axis and then the new pricing on that, and it's like somebody fired a shotgun at the um at the screen.
Speaker 2:Uh, so you get some customers going up huge amounts and some customers going down. So you have to to decide for those customers who are going down, are you going to move them? Because, you could argue, the ethical thing to do is that you should. But of course, companies are usually a lot more tolerant of revenue that goes up than revenue that goes down. So it is a consideration as to whether you bring that up. And for customers who have got a huge pricing increase, there might be some of them who were really small and were really paying tiny amounts relative to what they should be paying, and in that case maybe you can go straight there. But in most cases if you try to increase somebody's prices 200%, they're just going to leave, right. So you have to think more about how do I get them there. Am I going to migrate them over a series of years or am I going to just get a portion of this? You know, you have to think sort of about how, how far you go and how quickly as you, as you move them over.
Speaker 1:Yeah yeah, Definitely a challenging process. What's the most common question you get asked by by your clients that we haven't spoken about?
Speaker 2:It's a great question. Um, I saw one thing we haven't spoken about so far. A lot is is packaging and we talked. We talked a little bit about, you know, building out premium tiers and so forth. I think one thing I think, because good better best is so prevalent right, you mentioned this right at the beginning, right, joanna like everybody defaults to a good better best approach. I think actually something like 70% of all B2B SaaS companies use some variant of good better best, so it's really entrenched. But there are other forms of packaging out there as well.
Speaker 2:So we often get asked about, like, what is the right way of arranging it? Because you know you could do a tiered approach like good better best, or you could do. You tend to see now a lot of these base plus module type approaches. So there is one kind of flat platform fee that you would pay for just kind of access into the basic functionality of a product, but then you kind of say yes, no to a bunch of capability add-ons or modules that you can do there. So that tends to work well when you start adding additional capabilities to your set that serve different customer sets. So it's less likely that those customers with higher willingness to pay are just going to want more functionality.
Speaker 2:It might be that different types of companies want different functionality and that can work pretty well. For that, sometimes you can get into pure modular. So you think of Salesforce right, where they have their marketing stack and then their their um, their sales stack and so forth. They've built so many capabilities now that they end up with these big modules which they actually tier within themselves as well and be able to sort of position all these very different use cases. So more mature companies sometimes end up there.
Speaker 2:And then also you can go all the way to a la carte packaging structures as well, which are much less frequently the right way, to a la carte packaging structures as well, which are much less frequently the right way to go, I think. But you know, but sometimes if you're selling to a very technical buyer or a procurement buyer maybe, who wants to have a huge amount of control over what their product looks like, it might make sense for them to just literally go feature by feature and say yes, no to every single thing. You just have to have the right type of customer to sell it to. But really, I mean figuring out which of those packaging types is right for you is going to be dependent on what you're trying to achieve. Again, I'm banging my objectives drum again what your customers need and what their buying preferences are, how much complexity they can tolerate, et cetera, et cetera, and also just the the complexity and the makeup of your, your product yeah, no, that's very interesting.
Speaker 1:Do you think there's such thing as um pricing led growth? I've spoken to a few people on this podcast about things like product led growth, sales led growth. Um, I'm wondering if pricing can be used to grow. And also, do you still feel like offering that 30-day free trial adds value?
Speaker 2:That's a great question. So pricing-led growth?
Speaker 1:Yeah.
Speaker 2:That's a good one, like Priology or something. I like the idea of it. I do think your pricing strategy can be an advantage. You know, I think you know it's. You know you go back. I think you have to look for real specific examples to do it, but you know you sometimes see companies in specific spaces do something quite disruptive and then their pricing strategy like the way that they price has actually been their special source. I'm trying to think of an actual company example here, but I know you know you go back six, seven years and there were companies where they you know back then you know everything was a flat, like enterprise subscription for everything, right, like it was all very flat and consistent, and a lot of companies like that. But there were also some companies who may be smaller, who didn't want to be locked into these large fees every single month. And that's when you got this. It's when usage pricing really came in and you ended up with these pay as you go models where some players would come in and say we're not going to charge you these big high prices for every single month, we're just going to charge you for what you use. And that became disruptive.
Speaker 2:No-transcript, the photocopier right, which was the first thing originally um, originally all these things were basically you'd buy it to own it and they started charging per print on these things and that was incredibly disruptive and allowed people to. Then they wouldn't. A lot of places wouldn't have been able to afford to bring the photocopier into their office if it was just charged, if they were just coming to own it outright. But because they, because they retained ownership of the um of the photocopier and just charged per paper, they got them in there and, of course, people started using photocopies quite a lot. So they ended up making you know a huge amount of money for that. But that it made the, made the industry take off. I think it's harder to find those examples of like things that truly just shook something up and pricing really became an advantage. But they are out there, sure.
Speaker 1:I think it definitely can be used as an advantage. I think there's nuances on how, so I mean, if anyone else is wondering how best to tackle it, I highly recommend they get your book and learn as much as possible, assuming it's available on Amazon and all good bookstores.
Speaker 2:Absolutely definitely available on Amazon and, yes, should be out at the time of the podcast launch on January 21st.
Speaker 1:Amazing, Perfect James. My last question to you and this is more about coming back to Monavate as well as, maybe, your earlier career in McKinsey but if you could go back in time and give yourself one bit of advice or make one significant change, what would it be?
Speaker 2:That's a great question. It's a. I think what I would love to be able to tell myself although I'm not sure it would have worked out the same way if I did do this is that I I wish that I had founded Monovate earlier, in a in a way, because I I really enjoy doing doing this. I really love the work that I'm doing now. I'm very, you know, very happy with the company that I've created. I love the people I'm working with.
Speaker 2:So I'm very, I'm very happy and fulfilled doing what I'm doing now, and so part of me wishes that I had done that earlier. But I also realized that you know, a lot of the twists and turns that I made along my career that meant it, meant I was able to do this just kind of came up when they. They came up and if you took any one of those pieces of the puzzle out of there, I probably wouldn't have been in a position to be able to to create the company that I created anyway, I suppose. So I guess if there was some way of like still giving me the experiences that I had just like you know, maybe five years earlier, I would, I would have loved to yeah to do that not not drag my feet for so long for sure.
Speaker 1:You kind of got a question sometimes if you know, if changed fate, would I still be in the same position that I am today? I believe everything happens for a reason. But I love the idea of going back and you know, I really love the question because it really does get people thinking about oh, what changes would I make, and then should I as well.
Speaker 2:Exactly that's true, as would, I may and should I as well. Exactly that's true.
Speaker 1:Well, james, thank you so much for being on the podcast. I think we've learned quite a lot about pricing and how to tackle it, and I'm sure a lot of companies listening out there, you know, are going to go out and get your book, because it's definitely a role that no one seems to be filling and one that they should definitely be thinking about. So thank you for all your insights.
Speaker 2:Thank you so much, John. I really enjoyed the conversation.
Speaker 1:Thank you, me too.
