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.