SaaS Interviews with CEOs, Startups, Founders
Pricing and monetization in a downturn (and beyond)
15 May 2023
Chapter 1: What insights can we gain from SaaS founders about pricing strategies?
I'm very excited to share this recording with you guys, which happened at our conference, sasopen.com, with over 100 speakers, all founders of B2B SaaS companies. We have a very high bar for what speakers share on stage, so you're going to enjoy this episode where we dive deep into revenue graphs, real tactics, and real growth metrics.
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. All right, guys. So I'm Steven. I am not a founder.
So I am head of products marketing at Paddle. So my role basically is to connect the information streams between the technical expertise and the UX knowledge of the product team, as well as the communication abilities and the skills of the marketing team. And so the real things we think about are, number one, who do we sell to? How do we talk about that product?
And how do we price and package our product?
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Chapter 2: How does market performance impact B2B and B2C growth?
And so Paddle, we're an all-in-one payments, billing, and subscription management, tax management solution. But I actually come over to Paddle from the acquisition of a company called ProfitWell last year, which went for $200 million. We have a free subscription analytics tool. We also have tools for automated year retention and optimizing your pricing strategy.
So a lot of today's presentation is going to focus on what I've learned in product marketing, but also our work helping other companies with their pricing strategies themselves. And so over the next 20 minutes, we're going to talk about number one, process. How do you actually get momentum on a pricing decision and who do you put in charge of it? Strategy. How do you think about pricing?
What are the fundamentals when you're evaluating your product's roadmap and your current product? And maybe some quick hit tactics. Hopefully, we'll have time. There's a lot to cover here. But you can hopefully win so you can start getting momentum moving to your org. So I mentioned that we have this subscription analytics product.
Chapter 3: What are the fundamentals to consider for effective pricing?
We have 30,000 subscription companies. A lot of them are SaaS. We have 20% to 25% of a SaaS market, depending on how you count it. So we have a pretty good macroeconomic view into how people are spending their time and how these different companies are growing. And, you know, I have good news and bad news.
It's probably not a surprise, so let's start with the bad news, is the market's not doing great right now, right? So we actually constructed an aggregated subscription index of how these different companies are growing, segmented based off of, you know, how each vertical is going. And we basically saw that, you know, growth in the B2C market basically flatlined starting late last year.
Understandably, this month, this state is three months out of date. But when you look at the B2B side, B2C is often very much a leading indicator for B2B. So if you're assuming that bad trend is going to apply to B2B at some point, then that's pretty worrying. And what's interesting is that starting, say, July, August last year, we actually started to see growth slow down a lot in the B2B space.
I've seen an early cut of the fresh data. We actually saw a bit of an uptick in this in January and February of this year, but this is all before all the Silicon Valley Bank stuff, so who knows what that's going to impact things. So how can we go after this, right?
Chapter 4: How can companies create momentum for pricing decisions?
And the good news is there's some fundamentals that you can focus on that will set you up for success, both right now, but also will enable you to iterate much more quickly in the future, ideally when your product improves or when market conditions improve. So let's talk about those fundamentals. So how do you think about your pricing, right?
And the first thing I want you to know is this is not a one-time deal. You do not look at this once and then move on. It's a process. It's iterative, and you keep doing it. A lot of you probably already talked to customers and have some pricing out there. But what I'm going to take you through is a systematic approach of thinking about it.
And hopefully, if you can implement this, you guys can actually get some low-hanging fruit at the beginning of this process. So we get access to all this data, and we've talked to thousands of founders in our time. And whenever we ask founders what their main focuses for increasing top line revenue are, they generally fall in three different kind of levers.
There's customer acquisition, sales and marketing, getting new customers in the door. There's pricing and packaging, figuring out what you're going to sell to your customers and how much you're going to get from them for that. And then there's expansion revenue, selling them more products or the flip side, which is obviously churn.
Chapter 5: What role does a pricing committee play in a SaaS company?
And inevitably, we hear that people are spending almost all the time on that sales and marketing stuff, especially at the founder stage, right? Spending almost all their time, they mostly guest on the pricing work, and they're not really working to gather data on it. And why is this bad? Like I said, we gathered data on what we're spending time on.
And we basically found that there's way more impact on spending a bit more time on monetization, a bit more time on retention, compared to spending time on acquisition. So you can imagine this basically as a founder. Spend a couple more hours. What's the impact of spending a couple more hours a month on your pricing? It's going to be enormous. A lot of people leave retention on the table as well.
That's going to be pretty big. So what I'm basically suggesting to you is just take a couple hours out of a week, shift that from working with your BDR team or your marketing team, and shift it over to thinking about your pricing and how much value your users are getting out of your product. So how do we do this internally? One thing we recommend is create a pricing committee.
And we often see that this is a big barrier because if no one owns pricing, then you never get any momentum.
Chapter 6: How do you establish a systematic research process for pricing?
And if everyone owns pricing, everyone has complaints, everyone gets into arguments, you never get any momentum out of it. So not having a pricing committee of a designated people to work on this is an enormous barrier. Who should be on this pricing committee?
Well, it should be leaders who can kind of surface feedback from different parts of your organization and also see kind of a forest of trees, get an overlay of the land. So someone product, someone from sales, someone from marketing, probably someone from finance in a capital allocation budgeting role as well.
And a lot of the time we also suggest that you add someone as a project manager on this. You know, obviously, you know, founders' time is, you know, pretty precious. So if you have, you know, obviously me from products marketing, I'm biased. I think someone in product marketing could hold this since this is traditionally a remit.
But if you have a product manager, this is a very good idea for them to hold as well since obviously they know the product, they should know the persona. And obviously, you know, hitting deadlines and project management is part of a remit. And lastly, you should have a main decision maker, someone who puts their foot down and then decides what the group is going to go towards to break a time.
Very often, it's going to be the CEO or CTO. So talked a little bit about this, but what does this pricing coordinator look like? Well, they should be housing all the data and all the version control and all the documentation around the decisions made.
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Chapter 7: What are value metrics and how do they influence pricing?
They should be taking that feedback and pushing through the politics, navigating that. And obviously, they should be focusing on the project management, making sure deadlines are actually set and hit. So, you know, next is what I mentioned is establish a research process.
I'm going to get into the strategy a bit here, but at a high level, what this basically means is talk to the customer, but I imagine you guys are already doing that, but specifically set up a system for not just talking to customers, but asking a well-defined set of questions, knowing what hypotheses you're looking to test, and collecting this data systematically.
So let's talk about the actual strategy here, right? So when I think about pricing, I actually break this down to kind of almost three constituent layers here. Number one is map your buyer segments and personas, know who you're selling to. It's match these people to the parts of a product that they value most. so you can actually figure out how much value you're getting.
And then lastly, of course, actually measure value. And you'll notice that pricing is literally one third of this. Two thirds of this is just the legwork to get there. I'm going to focus a lot on the legwork, because if you get that stuff right, then hitting the pricing point becomes easier, and it becomes something that you can iterate upon over time.
So talking about buyer personas and segments, buyers obviously have a central tenet of your business, and many of you probably have a bunch of different personas, a bunch of different target segments.
And so, like I said, the task is to figure out, can we get enough information on these folks such that we can actually match them to the parts of a product that they like and figure out how much value they're getting so you can price based off of that value.
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Chapter 8: What are the best practices for communicating pricing changes to customers?
And so when we construct personas, we don't just focus on the qualitative, right? You probably have a persona that looks like this, very qualitative. What is this person's age, their firmographics, their seniority, stuff like that. I'm sure all of you probably have something that's at this level, but it's not enough.
And the reason is it's all qualitative, and certainly qualitative is necessary, but you need to have more. So what we normally do and what we actually do at Price Intelligently with our pricing software is we help you design experiments based off how to collect this data. We help to collect the data for you and then parse through that to get the analysis. Now, I know a lot of you are early stage.
And when that comes, what I would suggest is, obviously, I would love for you to come work with us and do this robustly. But if you're very early stage, you're already interviewing customers. Interview 10, 20, 50 customers, however many you need. Start from there, because doing that is going to be much better than doing nothing.
And so hopefully you get a start, and then maybe later on we end up working together, right? And so eventually we end up ideally something like this, right? Valued metrics. What parts of the products do I value most and what elements do I care most about? Which variables?
We also, you know, I mentioned we have a subscription analytics product and we attach a lot of these characteristics to that as well. So what is the lifetime value of every customer? What is their willingness to pay? How much are they willing to acquire? And that's important for not...
just knowing how much you value them, but it also helps to construct what we might actually call an anti-persona. There's a lot of customers that you can probably technically service, but they're gonna distract you, they're not your core focus, the unit economics isn't there. So a lot of the time, you might have personas that you can technically serve,
but they're going to distract focus from your team. And so a lot of the time, it might actually serve to simply say, hey, we can serve these people, but we're not going to focus on them. Maybe we'll take inbound. We're not going to go after them on outbound. So let's start talking about how we match these people to how much value they're getting.
And the first thing is what we call a value metric. You can define this as the unit of measurement you actually use to set your prices, or more theoretically, it's the unit of exchange that you put out in the world. A lot of people here probably price based off of per user. You're basically saying that number of users using this product is how much value we're getting out of this.
Some people price based off of company size, right? The bigger the company, the more value we're going to get out of our product. Depends on your particular company. There's a lot of companies where that works, but not always. So one example I'd like to point to you, since everyone probably knows this, is HubSpot, right?
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