This year’s Business of Software conference featured an experimental Unconference session where attendees could choose topics to discuss and debate. I led a discussion about moving beyond simple subscriptions. It definitely struck a nerve with the attendees and the conversations that ensued centered around a few emerging themes facing all businesses.
5 pricing topics executives at the Business of Software conference want to tackle this year
1)Pricing Models – How to price (the pros and cons of different pricing models). We started with the basics, and attendees at my session first debated all-in-one pricing versus offering a more complex product portfolio. We explored concepts like “is there room for charging for add ons? Is it better to establish a relationship with a low-cost offering and then build share-of-wallet over time?” There are no right answers to these questions, but I do recommend that your pricing model reflects how your business operates. Is it structured, staffed, etc to handle complex pricing and terms? Are your customers used to buying in a certain way? Do you have a billing architecture that removes friction in the quoting to cash process and are you removing internal and external friction?
2) Price optimization. Attendees wanted to hear how others were programmatically optimizing their prices. While many people used qualitative methods to gauge price sensitivity in their sales and retention process, I encouraged people to look at the data within their organization to understand how tweaks to pricing impact pipeline velocity, product take rates, speed of onboarding, etc. One area of consensus was the need to have accurate and timely reporting (business intelligence) to uncover the operational trends related to pricing.
3) Revenue Metrics – What are the right metrics? Depending on the type of business, B2B, B2C, B2B2C, B2G (government), or B2E (education), sales processes differ greatly. A formal team, or an application that automates purchasing and subscription management, need to be monitoring the right numbers. Here people talked about fewer, more memorable metrics that businesses can rally behind and continually reflect upon. For instance, in a low-price, high volume business, churn and LTV become crucial. Also, identifying customers who add additional services during the customer lifecycle become key. One under-appreciated aspect of pricing and metrics is the marginal cost to activate and onboard a new customer. It’s not just about the sales/marketing expense and engineering costs. If you are burning time to support low-paying customers, you need to think about your overall business model.
4) Multi-dimensional pricing – This was among the most interesting topics covered during our Unconference session. Companies are beginning to explore more performance-based models that encourage adoption and additional spend based on performance. For instance, mutli-tiered usage pricing models are gaining popularity; as a company consumes more of your SaaS service, customers that gain value are willing to pay more. Some companies are even pricing based on a percentage of lift to top line revenue. In this scenario, both the buyer and seller need to agree on KPIs.
5 ) Renewals – line of sight. Having clear line of sight into your recurring revenue and renewals enables you to get ahead, plan, strategize, and ensure you reduce churn, potentially expand, and maximize recurring revenue.
Overall, it was exciting to facilitate a cross-organization discussion about how to tackle pricing. The quality of conversation was impressive and I hope we collectively planted some seeds that will flourish over time. In the end, a business needs not only the right pricing model, but also the right infrastructure, and organization to execute on delivering value via that pricing model. To resolve any of the 5 themes discussed, you need to have the right people, using the right tools (now for the shameless plug…like a SaaS billing and revenue automation platform), to build meaningful relationships with your customers. See you at the next BoS.
Frequently asked questions
What are the key pricing models discussed at the BoS Unconference?
The BoS Unconference explored various pricing models, including all-in-one pricing versus complex product portfolios, and the potential for charging for add-ons. The discussion emphasized aligning pricing models with business operations and customer purchasing habits.
How can businesses optimize their pricing strategies?
Price optimization was a major topic at the BoS Unconference. Attendees were encouraged to use data-driven approaches to understand how pricing adjustments impact sales metrics like pipeline velocity and onboarding speed, supported by accurate and timely business intelligence.
What revenue metrics are crucial for different business types?
The conference highlighted the importance of selecting the right revenue metrics based on business type (B2B, B2C, etc.). Key metrics include churn, lifetime value (LTV), and the marginal cost of customer activation, which are essential for monitoring and improving business performance.
What is multi-dimensional pricing and how is it beneficial?
Multi-dimensional pricing, discussed at the BoS Unconference, involves performance-based models that encourage customer adoption and spending. This approach includes multi-tiered usage pricing and pricing based on a percentage of revenue lift, aligning costs with customer value.
How can businesses effectively manage renewals to maximize recurring revenue?
Effective management of renewals was a focus at the conference, emphasizing the need for clear visibility into recurring revenue streams. This allows businesses to strategize, reduce churn, and potentially expand their customer base, thereby maximizing recurring revenue.
