#320 Mastering SaaS Pricing: Dan Balcauski on Strategic Positioning and Customer-Centric Value

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Mehmet: Hello and welcome back to a new episode of the CTO Show with Mehmet. Today I'm very pleased joining me , from Texas, Dan Balcauski. Dan, thank you very much for being with me on the show today. As I was explaining to you before, the way I [00:01:00] love to do it is I keep it to my guests to introduce themselves because I have a theory.

Mehmet: No one can introduce himself or herself better than themselves. So the floor is yours, Dan. 

Dan: Uh, with that amount of pressure. Well, it's good to be here, Mehmet. I appreciate the opportunity to come and speak with you and your audience. My name is Dan Balcauski. I run a consulting firm called Product Tranquility based in Austin, Texas, and we help high volume B2B SaaS CEOs.

Dan: Devise pricing and packaging for new and existing products. I've been in tech my entire career. I'm happy to give a more extended bio, but that's the short summary of it. 

Mehmet: Thank you very much for the introduction, Dan. Actually, you know, this is the first time, and I think it's one of the topics. Personally, I didn't discuss with anyone on the podcast yet.

Mehmet: And when I checked it out also, so majority of the time we talked about the bits and bytes. We talked about many other things around the product, but we never touched [00:02:00] the pricing actually. And this is why I thought it would be very beneficial for the audience to talk about pricing. Uh, of course, like maybe I remember one time.

Mehmet: You know, I had a guest, I had Sean Tepper who had a B2C, uh, FinTech application. We, we, we discussed just like about, you know, doing free trials or non free free trials, but we didn't touch on the pricing. So now recently I've seen that a lot of people discuss this and people say, Hey, you're doing it wrong.

Mehmet: You're doing it right. Um, so probably, and with all your experience, you must have. At least figure out what do people usually get wrong about pricing because I believe, you know, talking about the wrong things first might at least, you know, eliminate the things that we should not do. So tell me please [00:03:00] about the things that people usually do wrong when it comes to pricing.

Dan: Well, I would, We could easily spend the entire episode of me listing the things that people do wrong. So I'll start with one that I think is probably the most prevalent and we could dive in on that. And, uh, if you get tired of that one, I've got a whole list of others that we could go through. Ultimately, when it comes to SaaS pricing, most executives think that what you charge determines your success.

Dan: In fact, who and how you charge determines your success. In other words, when I give advice to. leader CEOs, I advise them to spend most of your time on what the price tag goes on and much less or little time on what number goes on the price tag itself.

Mehmet: That's a, you know, very, very interesting. I would say very, very interesting. Um, [00:04:00] so do you think there should be a model to use for pricing. And let's, let's like narrow it down because, you know, here we are on the CTO show and, you know, majority of the time, um, when we have people who are building, uh, a product or a service, usually it's a, it's a SAS service, right?

Mehmet: So let's narrow it down to, to the SAS basically, because this is where, uh, everyone is, is trying to, to be in today. So, you know, What do you think the overall model, uh, you should, I mean, they should use for, for SAS pricing? 

Dan: Well, uh, you know, over time I've developed a model having seen a lot of significant challenges that SAS companies run into when they try to tackle pricing.

Dan: They have an unclear target customer profile. They don't understand what customers are serving. They have a [00:05:00] poor undeveloped understanding of how they create value for their customers. They're unclear about their products, unique differentiation. And they have a, what I would say, a general underappreciation for the depth of decisions that go into a strong pricing and packaging approach.

Dan: As I sort of hinted at in my previous answer, we tend to think about pricing as a decision mainly around the price level. So should our product be 20 a seat or a hundred dollars a seat or 29 95? Should our prices end in fives or nines? Should we have three offers or, you know, one offer? There are many factors that come into these decisions.

Dan: So this situation, you know, that I observed again and again, led me to create my services model for SAS pricing. And services stands for the four components of the model, S, V, C, and S. I promise this was a happy accident. I didn't plan it that way. The four components. that make up that SVC and SR segments, customer segments, value, competition, and [00:06:00] strategy.

Dan: We need to really understand our customer segments. First, the customer segments that exist in the marketplace because context customers are in is critical because they'll dictate the constraints they're facing and which value drivers they view as most important. In the second part of the model, you know, each customer segment Will rank order value drivers differently, which will cause them to value your product differently.

Dan: And in the third part, we consider competition because different segments have different competitive alternatives available to them. Now, what would they use if your company did not exist? So we can think of these first three elements, segments, value competition as inputs to our overall pricing process, because your pricing power really comes from the differentiated value you create for a particular.

Dan: Segment beyond the competitive alternatives available to you. And so there's a lot in that statement. And. The market sets the price for undifferentiated value. So really any pricing and packaging decision really comes from a core understanding of how you create [00:07:00] differentiated value above and beyond for your desired customer segment.

Dan: The competitive alternatives available to them. So those three elements filter down and what I call strategy and then strategy I use in the Michael Porter sense of the word. So strategy is about tradeoffs. Ultimately, you know, companies would like to be everything to everyone. And I think there's a symptom of this I see very often of, you know, talking to a, 20 million ARR company.

Dan: And it'd be like, well, Amazon does this. Well, Google does this be very cautious. The lessons you learn from S and P 500 companies, when you are not an S and P 500 company. Um, yeah, ultimately like you have to make very narrow decisions in order to apply leverage, if this is the heart of strategy, like what customer segments will you serve given the available segments are in the market?

Dan: Like, where are you as a company best suited to play and win? Who are you going to target? And how do you position yourselves in the customer's minds to clarify that differential value? [00:08:00] So that then allows us to make all the necessary trade offs among different elements of SAS packaging. We can go into in more depth if you want, but those would be things like your price metrics, your price model, offer configurations, et cetera.

Dan: And then these inputs will also help inform our choice of a price level, the, the number we set to help us achieve our business objectives. And just to make that a little bit more concrete for folks, right? It's, um, let's take, uh, You know, an example that probably everyone can relate to, like Apple, you know, Apple has been incredibly successful with the iPhone.

Dan: Um, they've got a very, uh, premium product. Uh, they have not gone down and tried to capture large parts of the market. If you were measuring them by market share, they are. A minority stakeholder of the smartphone market, but they by far capture the majority of the profits. And so they've made a very strong strategic decision from a company level that is then also supported by their [00:09:00] product strategy and their pricing strategy working in concert.

Dan: So they have decided not to go over, uh, over the low end and therefore they're able to extract. You know, the most amount of profits of any player in the smartphone business out of that market and, you know, helping them to, uh, I don't know what is, I don't know, it, it goes, bounces between two and 3 trillion market cap on any given day.

Dan: Uh, but I think it's a example everyone can relate to because, you know, I think going back to this idea of like, well, we want to be everything to everyone. It's like, well, look at the most successful companies in the world, like an apple. And it's like, they, they are not doing that. They've made very explicit decisions.

Dan: And then. align their pricing and packaging approaches to the overall company strategy of how they're going to play and win. 

Mehmet: Just out of curiosity, Dan, because you gave some examples here, does that apply in both B2B and B2C space? 

Dan: So I will give a caveat that in [00:10:00] general, I only work with B2B companies.

Dan: There are a lot of patterns that. Are similar between the two, but you know, at, at the ground floor of any pricing discussion is going to be microeconomics. You know, people have limited scarce resources. They, they are trying to spend it to maximize their own personal utility. They've got a set of competitive alternatives, but as soon as you get into different industries, right.

Dan: If I'm trying to do pricing for two sided marketplace, like Uber, Airbnb, or for airlines or for hotel rooms or for, um, You know, any or B2B software, there's, you're going to break into very different techniques and domains quickly. So I think there are a lot of mistakes that people make trying to translate B2C concepts to especially B2C software to B2B that don't apply.

Dan: Most of my advice, I'll just give a caveat for the listener is [00:11:00] going to be. You're focused on, on B2B. Your mileage may vary as you try to apply these methods to, you know, non B2B software, uh, domains. 

Mehmet: Absolutely. That makes sense. You know, like it's because the, the, the segment that, because you were talking about the segments also as well.

Mehmet: So segmentation is in B2B is completely different than segmentation in, in B2C. So that. Absolutely makes sense. Um, so then you, you mentioned some, some, some terms, you know, when, when you are explaining the, the model, um, and I know you talk about, you know, the three C's of pricing. So walk me through these three C's a little bit about, you know, the, the pricing.

Mehmet: Yeah. 

Dan: So, uh, marketers, we love our, our, you know, five, You know, five P's and three C's and all the handy acronyms. So in pricing, we talk about three C's and these are what I call your pricing orientation. So pricing orientation [00:12:00] is really answering the question of how is pricing done around here? It's a organizational bias.

Dan: And we all have biases, right? I mean, we can't be completely unbiased in terms of what is the information that we look at when we're trying to make sets of decisions around this area. So just real quickly, I'll just enumerate what the three C's are. And then we can go back and kind of talk about them in a little bit more detail.

Dan: So the three C's in general are referred to as cost based pricing, competition based pricing, and customer value based pricing. The last one usually just referred to as value based pricing. But if we did that, then we wouldn't have our. Three C's, uh, moniker. And you know, we wouldn't like that as marketers.

Dan: So the way I like to think about these is as a progression or a ladder in as much as can't just jump to, well, we want to do value based pricing because we heard that that's the ultimate way to do pricing and [00:13:00] packaging value based pricing has its. Advantages for sure. You really do need to understand what your costs are and then you understand your competition.

Dan: And then you need to understand your, understand customer value. And so we think about cost based pricing. It's, it's usually the place where companies start. Anyway, because it tends to feel very simple and relatively clear cut. Uh, the data that you need to establish cost based pricing is easily found within your company, and even when you're doing more advanced pricing.

Dan: You know, quote, unquote, advanced pricing orientations. It always helps because it helps set a price floor below which pricing is unprofitable. Like you don't want to be in business selling 20 bills for 10. You're not going to be in business very long. And so we really, you know, should have a good understanding of what our unit economics are, what it costs us to acquire a customer, what we need in order to [00:14:00] be a gross margin positive on our sales.

Dan: However, you know, we quickly run into a bunch of problems. If we stay in this domain too long, um, it's really helpful, you know, pricing advice, like any advice, uh, is dependent a lot on the stage that you're in. And so, you know, again, if you're in a. Early stage company and you know, pricing is probably not the most important lever that you're worried about.

Dan: You're really worried about like, are we actually solving a problem that people care about? Do we have a way to find and distribute our product to customers? Right. There's a lot of issues with product market fit that are not pricing specifically related, you know? So, so at this point you probably do want to just have an understanding of what your unit economics are so that you're, you've got at least some amount of sustainability going forward, but you're not trying to absolutely optimize, but you run into a.

Dan: A blockade at some point because it really customers don't care about your costs. I don't know about you, but [00:15:00] I've never gone and bought a piece of business software for my company and asked, well, what is your AWS bill every month? Or how many engineering hours did it cost to create this piece of software?

Dan: Like, I don't care. Um, I only care about what the software does to me. Um, and although. I find cost based pricing is really highly loved by the finance types because you've put everything in a spreadsheet and it looks all very scientific. Um, however, it's actually qualitative because although the output.

Dan: Is a quantity, uh, you know, the price, um, you've, you've got a variable in there, which is your markup, your, your intended gross margin. So, you know, that's like, Oh, we want an 80 percent gross margin. So I'm going to take my, you know, cost of goods sold and, you know, multiply that by five. And so now I've got an 80 percent gross margin, you know, That was just your subjective judgment.

Dan: Like no, there was no Jerome Powell or [00:16:00] no pricing. God came down and said, you as a company, sir, deserve an 80 percent gross margin. Like you just made that up. Um, and so it's, it's effectively qualitative, but it looks very scientific. Um, so once you get, you know, beyond, you know, sort of pure cost based pricing, then the next stage is competition.

Dan: And so like cost based pricing, I think, you know, it's something that is relatively simple to understand and execute data tends to be not as readily available. It is a cost based pricing, which is again, what, it's probably the thing that people look at secondarily. Um, But, you know, in a lot of markets with more transparent pricing data can be relatively easy to collect.

Dan: And so if you're dealing with, for example, large horizontal markets, uh, where, um, you've got established, uh, other established companies, I think of something like the project management tool space with like monday. com or Asana or Atlassian Trello, you know, and a lot of those have public pricing, you know, um, You know, and it can be a good step in helping to [00:17:00] determine sort of baseline pricing will help you, you know, define and price the differential, differential value your product provides.

Dan: So that's good, right? Because ultimately your customers are not, you know, living in a vacuum. They've obviously probably heard or are looking at your competition. And so this is a, this is an additional good thing to be considering. I think this is where maybe companies get stuck. And because people ask, well, what's the problem with that?

Dan: We, we just look at our, what our competitors are doing and et cetera. Like then we go on our way. I, we didn't dive deep into my background and bio, but I've been in tech 20 years. And a good amount of that time was both on the engineering side and then the product management, product strategy side. I learned a lesson really early in my product management journey, which.

Dan: You know, we, as product managers are responsible for, you know, defining the roadmap and making sure we, you know, kept an eye on competitors and were able to, you know, create enablement content for, for [00:18:00] sales to understand why we were, you know, better than the competition, et cetera. And so it was very easy to get wowed by a competitor's new product feature release.

Dan: Like, Oh my God, they shipped all these features. This is crazy. But what you do when you take that approach is you make an implicit assumption that the product managers of that other company actually did their jobs and that and or. They didn't just get steamrolled by the CEO who said, Hey, I had, uh, around a golf with a couple of customers.

Dan: And these are the things they said are important and we need to ship them all. And so the product roadmap just got hijacked by whatever the last conversation was the CEO had. And so they shipped a bunch of those features. So when you look at a competitor's price, you're falling into the same trap of like, wait, did they do their homework?

Dan: Do they have any idea what they're doing? [00:19:00] It looks reasonable, but you know, I don't know. Um, and there's really only three ways to grow a SAS business acquisition, monetization or retention. And so, yeah, I'm, I'm a lone man on a hilltop. A lot of times, you know, shaking my fist in the air saying, why is it more attention being paid to monetization?

Dan: But if I think about that, it's like, you've only got three major growth levers in your business and you're going to outsource a major one of those to your competition. Like, I don't know any. CEO who would say, yeah, like, let me give my competitors full control of my marketing strategy. Let me give him full control of my product strategy.

Dan: But for some reason, when it comes to price, it's like, oh, well, the other competitors are doing that. Like, let's just do that. I think the other thing to keep in mind when we think about just blindly adopting competitions approach. Is that one of my, one of my favorite things to say to clients is I don't have any silver bullets when it comes to pricing, but I got a [00:20:00] lot of lead bullets, um, because there's pricing is a lot about trade offs and so.

Dan: As a company, as it comes to this strategy aspect of it, we're going to have to make very crucial decisions around who we're trying to go after and why, given the strategic assets we have as a company. And there's a certain risk profile that that entails, like we're willing to give trade up some of the market for.

Dan: For another part. And so when I go just blindly adopt my competitors, pricing and packaging, just you're blindly assuming a lot of risk that you really don't understand how those decisions are made. Um, and so, you know, I I'm being a little long winded here, so I'll wrap it up and just go to value based pricing quickly.

Dan: You know, so, so we understand that, you know, maybe cost based and competition based have their problems. So why not just, you know, go all the way to value based pricing? Well, value based pricing, you know, [00:21:00] research does show that it, it is sort of the pinnacle of, of, of pricing approach, you know, at this point, we're really trying to understand how our products.

Dan: Make a tangible difference to customers in their business, but it does require sort of an internal organizational reorientation towards customer values. So it's, it's really a true sort of go to market model value based pricing less. So, um, yeah, because ultimately like we can't expect our pricing team to go in, fill out some ROI spreadsheets, say we create this much customer value.

Dan: And then give that to our front end customer success teams or support reps or salespeople because you know, customers are going to be like, well, that's interesting, but prove it to me. Right. And they're going to be like, ah, well, I don't, I don't know how to do that. And so they're going to fall back and like, well, how would you like a 30 percent discount?

Dan: Um, and so it really is, uh, needs full sort of operational management. And [00:22:00] also it does require a lot of in depth research or requires a certain maturity of your product. Um, because you do need to build up over time, those customer case studies, those proof points, uh, you know, there's Forrester has a total economic impact study that sometimes, uh, companies will pay for, you know, uh, engage with, where they'll go off on their own and, and, and build up this, you know, an ROI, uh, case, you know, for you.

Dan: So it is, it is much more difficult to implement. Um, and so the way I like to think about it is value based pricing is a, is a North star to be, you know, your guide, uh, but never to be breached. So that's a very long winded answer to your short question. 

Mehmet: No worries. No, it's, you know, like, uh, a lot of points resonated, uh, with me also as well, like as someone who, who was on the field for some, uh, product that they were released and, you know, To your point, the value based pricing, although I love it, you know, both from, if [00:23:00] I think as a customer or I think from the other side, but yeah, to your point, they always say, yeah, prove it to me.

Mehmet: And the other thing that I've seen personally going wrong is doing wrong assumption when, you know, putting these ROIs, just to give you a quick example. So, um, You might assume that you're saving on manpower, let's say, uh, because your solution save or shrink the time to do a task. And, you know, I've seen people putting the wrong dollar sign next to this.

Mehmet: You know, amount of work that needs to be done because it depends on the experience of the, of the people who are going to do it. And sometimes I've seen people exaggerating, putting like 150 per hour save. Okay. But who told you that they be paid 150 per hour to do this job? Right. So I, I, I hundred percent understand.

Mehmet: And you know, what I've seen working well personally is it's a work in progress. [00:24:00] Um, and if you try to go directly to the value base, I've seen, unfortunately, some products discontinued. I've seen this. I lived this. I can, I can tell you, I can't, you know, say more, but yeah, this happened. Uh, hundred percent.

Mehmet: And I raised the red flag, by the way, I said, guys, I think there's something wrong with the packaging, but nevertheless. Yeah. 

Dan: And I will say, right, like, I totally agree with you. And I will say too, even if you're not going to fully wrap your pricing around a value based model. It's never too early to really have those conversations with your existing customers, right?

Dan: To understand how you're driving value, right? Like that should be, I would build that DNA in the company early, right? So that when you are at a point of maturity, like also it helps you understand if you're actually making an impact, it's one thing to say, Oh, we made a sale. And like, you know, we have good usage metrics, but really at the end of the day, [00:25:00] understanding what your customers are.

Dan: Value metric is how they're going to judge the success of your product. Are you helping them increase profit, increase revenue, you know, increase number of MQLs, number of opportunities in the pipeline, whatever, however they're measuring your product management team, your marketing team, your sales team, your customer success team should be having those conversations and be like, look, is this having an impact?

Dan: How can we tell if we're not? Even if you're not gonna wrap your pricing about it, those are very good inputs back into the rest of the organization of like, what are we missing where we're not actually driving those outcomes for customers? Cause I think that, that is just a good door star, whether or not you're going to fully do an ROI calculation on your in base pricing on it.

Mehmet: Absolutely. Now you, I think, uh, Dan, you touched base on some variables. Uh, that they should take into account. So, so you mentioned, for example, about, uh, what we call the cost of acquisition, probably, uh, maybe they [00:26:00] should be focusing on like what other metrics they, they usually, they should take care when, when planning this, uh, uh, you know, this pricing strategy.

Dan: Well, I think the first thing is that. You know, I've, I suffered from this early on, right? I took economics in undergraduate and in graduate school. And you know, the economists, when you're sitting in econ 101 or 102, we'll tell you, well, you know, we've got these things called supply and demand curves, and you know, the marketer just sets the price by placing it at the intersection of the demand curve where marginal revenues are equal to marginal costs.

Dan: And it looks so simple. So it's like, why, why do we need to worry about it? Um, rarely works this way in the real world. Um, what is described by the demand curve is this. Idea of [00:27:00] elasticity. And what I've found is that especially in, uh, B2B software markets, elasticity is like the Sasquatch. Everyone has heard of them, but no one has actually seen him in real life.

Dan: So I think, you know, no matter the method you choose, there are a couple critical things, a couple of critical variables, listen to your customers. understand how your products help customers achieve their outcomes and how that translates into customers willingness to pay. So any pricing exercise is ultimately going to be a balance of a couple of different things.

Dan: It's going to balance costs, customer value, competitors, and your strategic goals. So what are you trying to achieve as a company? What are your objectives? Um, and so You know, we need to be able to take those in and maybe we're going to have very strong signal on some things and not strong signal on others.

Dan: I was hinting [00:28:00] before about, you know, in the three C's question where, you know, I've, I've been in conversations with, you know, relatively early stage CEOs, you know, 10 million in revenue saying, Hey, we want to do value based pricing and I go, Hey, great. I appreciate the enthusiasm. Love it. Let's talk about what your marginal costs are.

Dan: Like what's your cost to serve customers? What's your cost of goods sold? Oh, we don't have that information. It's like, well, well, let's figure out what that is because what we're really trying to do, you know, If we had more time, I might go through a little bit of a, well, actually script. Um, I've got a water bottle here.

Dan: Mehmet, uh, it's a Nalgene water bottle. It's about 32 ounces. Uh, I don't know what that is in the metric system. I apologize. Cause we're Americans. Um, so, so it's a, it's a water bottle. It's nice. They're indestructible. Um, you could roll over it with a car and it won't break. How much, how much would you pay for this water bottle?

Dan: Uh, 5, [00:29:00] 5. Okay. Um, is that your final answer? Yeah. Yes. Okay. So, um, so surprisingly you could, most people would ask the question will actually say, well, I don't know, between five and 10 or five or 6. That gives them sort of rate. Um, and what we tend to find is that again, I think the, the This idea of pricing as this intersection of supply demand curves, and there's an exact right price.

Dan: We're really always trying to consider a range and those other variables that we're taking into account, costs, competitors, customer value, customer willingness to pay are helping us define what we're looking for. Are reasonable ranges are, you know, so we've got some, uh, there was a, uh, for example, uh, there were used to be going back to apple.

Dan: I think I might get the exact number wrong, but they had a motto inside the company. I think it was, I think it was 58 or [00:30:00] die. Uh, and what that meant was all new products had to have 58 percent gross margin. So, and, uh, The pricing expert who I got this tidbit from, it was a really good book. Um, he, they actually went back and calculated the original cost of goods sold for the original iPhone.

Dan: And, you know, Steve jobs is master marketer and, and, you know, whatever the price, and he determined it was like, it was exactly a 58 percent gross margin. So like they, you know, they were, they were at a premium price, but it was like, it was like he, well, they weren't going to violate, you know, the low end of their, of their gross margin requirements.

Dan: But that doesn't, but that only sets, you know, a floor, right. You know, customer was to pay was obviously, you know, higher than that. They had, you know, for the first few generations of the iPhone. And even still today, you got people lining up on day one, right. Which, which means that you could probably raise the price and trim those lines down by a bit.

Dan: Right. So the customer, but they do that for a whole bunch of other reasons. Right. So we're, we're always playing [00:31:00] with this range and trying to decide, you know, one way to think about pricing is, you know, No transaction in a market economy happens without value being created for both the buyer and the seller.

Dan: And then it's just a matter of price is really how we distribute that value between us. So, you know, if you say 5. I'm assuming that 5, you would get at least 5 worth of value out of that water ball. No, I didn't, I didn't make you sign a contract that said, whatever you're going to say is, is what, uh, we get into, into pricing studies and how you, how you deal with, you know, some of that, what people say is not, uh, what they do is sometimes different.

Dan: And I think that gets overplayed, but we'll put that to, to the side. But if you do not believe that this product. Water bottle create at least 5 worth of value. Then you, you would have said something lower because the value that is created by the product [00:32:00] by definition has to be great. It has to be greater than your, your willingness to pay.

Dan: And it's just a, it's a, it's just a rule of, of, of economic theory. So we're always going to be dealing with those sets of variables and then trying to figure out, okay, given our company objectives, where is the place that we want to play in order to set those appropriately. 

Mehmet: You know, uh, you gave again, the example from Apple and I think these guys nailed it, uh, you know, with every product that they have ever released.

Mehmet: Um, so, well, maybe not the original Mac. They, they, they struggled with some of those. Uh, yeah, there are some exceptions. Yeah. With the, with the, with the. Yeah. Let's not talk about that. So, um, now you mentioned something which is interesting and I will relate this to the question. So you, you asked, you know, founders about the data and if they don't have the data and so on, but now assuming that the data is in front of us, right?

Mehmet: So [00:33:00] I would get a, like, it's a, be a stuffed question, uh, or, or, uh, crowded question, let me call it this way. So when do you think is a good time? First to review the pricing. I mean, uh, maybe it should be lowered. Maybe we should like a little bit increase it. Uh, so, and, and what, what would be the right time to do that?

Mehmet: And what would be the good strategy? Because usually in SaaS, all what we see usually is increase in the pricing. Now, of course, and honestly, we know there's customers, they don't like pricing. You know, to pay more. So what would be like, also the good, the good ways to justify, you know, this tuning of the pricing?

Dan: Well, you've, you've asked a lot of very deep questions all in one there. Um, so I would say the first answer is every 42 days. The answer is 42. Um, is when you should be revaluing pricing. I'm kidding. Of course. Uh, I believe, you know, whenever I get asked this question, [00:34:00] I'm pretty sure people want, like, they're expecting like, well, we should, you know, uh, exactly every month, exactly.

Dan: You know, I think the important part, go back to what I said before around. You know, there's really only three ways to grow your SAS business acquisition, monetization, and retention. How often are you evaluating KPIs on those programs? Our customer churn metrics, how many leads we acquired, what our pipeline looks like.

Dan: If those are your three growth levers, should is monetization something that's like, Oh yeah, we did that three years ago. It's good. Is that seem in line with how you're treating the two other growth levers? Two out of three. It's like, it's like one, we probably have, you know, a dashboard that the C suite team looks at in every Monday morning meeting to understand how our marketing programs are [00:35:00] functioning.

Dan: Uh, but pricing, we haven't had a conversation about in four years because we did it then and it's been okay. Uh, right. Uh, it seems a little backwards. So look, if I'm having a conversation with the CEO, I'm going to ask him a few different questions. I'm this high level strategy. Are you meeting your goals is pricing, getting away in those goals.

Dan: And when I say pricing, getting in the way of those goals, again, that can be an overloaded term because if they came into the conversation. You know, like we hinted at at the beginning of what do people get wrong about pricing is they think it's just the price level, you know, they're probably not on the day to day thinking about the price, but they are thinking about things like, what is my sales cycle?

Dan: What is my win rate? What is my, um, uh, you know, profitability, right? They're thinking about those elements and all of those are related to their pricing. So if you're having trouble with any of those metrics, like pricing is, is probably, you know, playing some amount of [00:36:00] factor. Um, if you've. recently implemented a pricing change or an increase?

Dan: Did it succeed? Why or why not? Have you done any win loss analysis? Like why do you lose deals? Like what did, what factor did price play in losing those deals compared to other factors? You know, so in general, you know, going back, I made the comment, you know, little joke earlier about 42 days. What we seen is that I can give some good guardrails.

Dan: I would say if you haven't done a price study or change in the last two years, you are due, uh, you should be like, you need to bump that up the priority list for this quarter or next quarter to get, to get something kicked off because. Beyond two years, you know, you are not in the same market. Your competitors have changed.

Dan: Your product is value has changed. Um, the customers you're going [00:37:00] after today are probably different than the ones you're going after two years ago. So all those factors, at least merit a real revaluation. If you haven't done one in two years on the flip side, um, You know, the low end is going to be really determined by what your sales cycles look like.

Dan: Um, if you've got 30, 60 day sales cycles, you know, maybe 60 day. Pricing evaluations are worthwhile. If you've got nine month sales cycles, maybe annual evaluation. So the low end is really, I think, more contained by, you know, what your sales cycles look like, but at least once every two years. Um, and. You know, I would think there's a couple of signals, you know, I would probably look at as well, or encourage folks to look at those would be things like competitive win rate, like what are your, uh, number of one opportunities over the total [00:38:00] opportunities?

Dan: You know, you lost a particular competitor. Um, you know, there's really no substitute for, you know, in depth sort of wind loss analysis to, uh, establish those because oftentimes the data that you'll get from there, even with the best efforts of the sales team is difficult to come by and can suffer from some either data hygiene issues, or, you know, you just, you lose a hundred percent of deals you're not in, you know, to competitors.

Dan: So it's, so it's very difficult to sort of know truly what that under underlying denominator is. Um, what are your percent of deals lost to pricing? Um, a good rule of thumb is that, you know, if you're well priced, you should lose about a third of your deals based on pricing. Again, if you're not tracking your lost reason codes at your CRM, you should be doing that.

Dan: I would not trust those as. The entire truth, they were a good starting point. Um, again, recommending some good, you know, wind loss, um, and, and more digging to figure out what's going on there. Um, and then looking [00:39:00] at your sort of overall discounting percentage can help you inform if your price is too high or too low.

Dan: Um, and then you're going to want to sort of slice and dice that by, you know, deal size and, uh, Price bands, you know, different sort of customer sizes, et cetera, to sort of figure out if there's an issue, 

Mehmet: you know, I'm sure. And I have a couple of, uh, people who works in, in field sales that would be listening to you and they will love what you just said, because, you know, sometimes, uh, personally, you know, I, I used to fight, you know, regarding the, the pricing.

Mehmet: And I was one of the rare people when we, we used to have the field for the win loss analysis. And if You know, competition was cheaper, but I was explaining in details, you know, what, what kind of packaging or what kind of strategy or pricing strategy, let's say, especially if you are with the competition, like head to head, like there's really, of course, you might have a couple of technical advantages over the [00:40:00] competition, but the price, you know, was the What the reason to lose so I was making sure that I put all the information I have and Talk to people about it So you just translated the voice of many people who are in the field sales today then so thank you for doing this now I can guarantee you that we need to do maybe two or three more episodes just about pricing.

Mehmet: I can promise you this, because personally, I believe it's one of the main factors that will make a startup make it or lose it. In my opinion, because if they managed to get the right pricing, they can manage to go over many of the other things that they might be lacking. Because, you know, this is very important.

Mehmet: This is one of the main strategies, especially because you mentioned, they're going to go and do the sales, the marketing and all this other stuff. [00:41:00] So Dan, today, what you have shared with us is really very informative, very deep, I hope that the audience will benefit out of it. And this is why we do all this.

Mehmet: But before I let you go, any final word you want to tell us and where people can find more about you? 

Dan: Well, I really enjoyed our conversation today. And I would be happy to do a few more episodes if that would be valuable for your audience. So definitely audience, let us know if, uh, if that's of interest.

Dan: Um, I will. Make one last comment. Well, I'll make two, I'll make two comments. Uh, so one is, you know, on your final note on, you know, loss due to price. There is always two sides of that story. Hopefully it's come through implicitly and if not, I'll make it explicit right now. Price is inherently linked to value.

Dan: And so whenever we [00:42:00] see, oh, we lost because our price was too low, the flip side of that reason, or our price was too high. The flip side of that is because maybe we didn't explain how high our value was effectively. And so that goes back to my previous point of really understanding having that, that.

Dan: organizational commitment from your product management team, your product marketing team, your customer success team to really understand how your product makes a difference for your customers and then arming your frontline salespeople to really tell a compelling value story and communicate your value because B to B software it's hard.

Dan: Like we talk about selling is hard. Buying is hard. Like it's confusing. And we want to be able to tell the best story we can to support that value. And so often, you know, just as often, if the price is too high, it's because we didn't do a good job of selling why our value is high enough to support it.

Dan: Right. Um, and then, you know, the, the other, the other element of [00:43:00] that, it just comes out of, People think of pricing as an event. I really believe it's a process. Yeah, price, a price is a thing. Pricing is a, is a process. And like any process, it needs to get owned in a company. It needs to get revisited regularly.

Dan: It has, it has established inputs and outputs and the better, you know, you as a, as a leader, a Can do in your organization to actually explicitly delineate what those inputs and outputs are, how, how decisions are made around this area, the better outcomes you'll have. You look, everyone will start badly, uh, and, uh, you'll get better.

Dan: Uh, but you know, it's just like, you know, we have, we have, uh, engineers every day doing a process. You've got marketing people doing a process, you know, pricing is the same thing. So, uh, you know, and, uh, if folks want to learn more about me, I try to post regularly at my website, product tranquility.com.

Dan: Always happy to connect with folks on LinkedIn at Dan Balcauski. Just let me know you heard me on the podcast so I can separate it from the rest of the LinkedIn spam . [00:44:00] 

Mehmet: Good. Thank you very much, Dan, for sharing this and yeah, as you, as I mentioned, this is for the audience. Please, please, please let us know if you need us, me, and dad to do another one.

Mehmet: In my opinion, we need to, because this is, as I mentioned at the beginning in the introduction, an underrated topic. One of the I'm not saying it's the only one but one of the main And major factors that as a startup founder would let you make it or fail it So dan, thank you again for joining me today on this episode.

Mehmet: I really enjoyed also Talking to you today and this is for the audience This is how usually I end my podcast if you just discovered this podcast by luck. Thank you for passing by I hope you enjoyed it. If you did, so please don't forget to subscribe and follow us You And recommend us also to your friends and colleagues.

Mehmet: And if you are one of the loyal followers who keep coming and sending me all their suggestions and remarks and notes, thank you for doing so. [00:45:00] Please don't hesitate to send me anything that comes to your mind, whether it's some suggestion, a feedback, a guest you want to recommend on the show. I really appreciate that.

Mehmet: And thank you very much for tuning in. We'll be again very soon. Thank you. Bye bye.