Pricing can be a huge leverage for your revenue if you find the right strategy for your business.
But … it’s a hard and adventureous journey to find the right parameter for your pricing. Value-based pricing seems to be a desirable strategy. Our journey, which started quite some years ago, is still ongoing. We invested a lot of time in finding the right metrics and are still working on it. Listen to what we’ve done so far.
The podcast will touch the following topics:
- Pricing strategies
- Problems with pricing
- How to understand your customers’ value from pricing with user research
- Start experimenting
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I hope you enjoy this episode of my podcast.
- Ulrik – https://www.linkedin.com/in/ulriklehrskovschmidt/
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Transcription of the podcast:
this is the grow what the f** podcast a growth podcast of hog klaus-m.
hi my name is klaus-m. schremser and i’m head of growth of usersnap, a user feedback platform that helps companies collect actionable customer end user feedback to build better more successful products and services we provide solutions for feedback around the product development life cycle from feature requests to mps and from visual bug tracking to user acceptance testing i’m a serial entrepreneur and i launched my first website in 1994 in the last 20 plus years i co-founded three companies within the martech industry, two of them got acquired and in the third one, usersnap, i’m currently working as of today and in this podcast i want to talk about successes but more about failures and learnings as a co-founder and head of growth
hi and welcome to my to another episode of the grow what the [ __ ] podcast this is the third episode and my name is klaus m i’m the head of crows of usersnap and this time we’re talking about how to get your pricing right so as you might know our company is a b2b sas product and it’s cloud-based feedback a cloud-based feedback platform for customer and user feedback pricing as probably for most of you um is very important for us as it might scale our annual revenue hopefully but when i looked back in time and i wanted to also analyze the pricing before i joined the company which was two years ago and the company is a little bit older i found that there is not a lot of data based on the few price changes which were done so our pricing our assumption here is is not really data based as probably many of of the pricings of other products too and very similar to our competitors yeah this is where it’s easy to look at at the websites of our competitors see how they might price their product and then try to find a cheaper price or a little bit different price so it’s not so easy for customers to compare but you always have this feeling that you know if you would just change this little thing on the pricing page you might suddenly make the millions you are hoping for and you could earn them easily and it’s uh just a just a little bit more time on the pricing this was also our problem and this is where our journey started and i want to talk a little bit about our pricing journey from the last two years so as i said when we when we started our our investigation on how we can change our pricing and and make it fit fitted match it better to the value of our customers which the customers get out of our product um we we you know we were there are several problems you’re looking at so first of all you’re very often you’re hearing about customers of competitors and potential customers telling you yeah i will probably choose the competitor because they’re cheaper and okay so this is one problem the other is what exactly is the value your potential or your customers are getting out of the product and how can you measure it yeah um you want to change the pricing and have a leverage but you don’t want you know to drop in your mrr or in your customer base there are also psychological triggers when it comes to pricing and then your you don’t know should you use them so pricing is kind of a labyrinth and you’re not sure if you really want to enter that
as i said i looked back in time in really in the archive org way back engine and looked at the pricing pages we had over the years and what i found out is they were quite similar to what we have right now so we never really changed it it was in the beginning a little bit with a freemium uh but this was a very short period and probably had um as most companies have or in the styles when i’m talking most companies i mean in the sas industry we have around four um plans there are three plans which are self-service and one plan which is enterprise and this makes it also hard um to stand out for customers so this is why we also wanted to investigate and learn what could we change and make it easier for customers on the one hand but also more profitable for us
so when it comes to pricing i mentioned that before it’s kind of a little bit looking also for the holy grail how to scale your mrr this is why you don’t want to just you know make one pricing page and then let it run but this is i think a constant topic where you want to investigate and learn and and experiment and find out how you can scale um the mrr because your product is changing your company is changing and so should your pricing at least this is my in my opinion yeah so what we defined in two years ago was an objective of you know get the pricing right okay that’s not so specific now but which increases the mrr and the customer pay base
this like brought us to our first step and before i want to go into what we did as a first analysis to to tackle that we read through some reports in the industry about pricing especially for sales companies and not only patrick campbell from pricing pricing price intelligently um but also others like invest p um they were talking about that when they did research um like most of the companies who who worked on their pricing stat strategy regularly they had a very positive result on their mrr and this was one thing and i have a statistic here which also says that the average sas company spends just six hours determining their pricing strategy which is on the other hand a very um very controversial step because on the one hand almost like all companies say when they change their pricing regularly it has a very positive effect on the results on the other hand companies don’t spend a lot of time obviously um on pricing so this is something which is very um interesting and maybe i mean i can only see it from our side from outside it was probably always due to the fact that pricing is complex and it involves a lot of people it involves the product technical changes and you always are afraid that you might hurt your existing customer base that might drop in emra are loose customers etc or they might downgrade and so on so this gave us a positive impact uh or or positive push that obviously changes regular changes in your pricing will drive up your revenue so back then we dug deeper into what kind of pricing are there what kind of pricing strategies and i want to just mention five main pricing strategies so the one is cost plus pricing so you have your costs and then you add up um you add up your your profit you want to make or competitive pricing which is often done you look at the competitors and you go a little bit above if you want to become a premium brand or below if you want to be the low cost brand um and then there is one pricing strategy which is called value-based pricing and i think this is the one where most sas companies want to aim for so the value your customer gets this is what they pay for it can be usage and so on so there is more differentiation into that but i think this is the one where you want to see your customers grow also upsell later on grow with your product and the usage and the value they get from your product there are two others which is price skimming and penetration pricing price skimming is when you like start with a very high price and then you lower it later on when when the market changes and uh or you go very cheap into the com into a competitive existing market and then you raise it when you can show that your product is worth it but i think we will pretty much stick with uh value-based pricing here there are kind of psychological triggers and approaches which is kind of like for example fencing an interesting approach on if you have different target audiences or target customers and you have want to have different value metrics different pricing strategies then you can put them you know into a fence and offer for example for one audience so we have three main target personas and for all of them we thought about like currently we have one generic pricing and we know that it’s not it doesn’t fit them all yeah um so this is an interesting uh approach which you can like later on i i linked uh on the on my website i linked and a very cool um pricing this almost like an educational training from ulrich and he’s talking about fencing i think it’s better if he explains it and gives you a tip there because i think he’s a real expert on that there is also like hooks which is also used in sales for example if you’re mentioning uh to a customer would you pay between would you pay more like 2 000 or 20 000 the customer it’s hard for them to talk below 2 000 so you already hooked some price in and this is also what many pages do when you set the price there then it hooks in the mind of your customers where your pricing might be placed which also makes it hard when you have a pricing on your website which is for sales service and then you want to upsell to enterprise uh which is way higher but they already looked at your website and you have to think okay why when you’re charging 149 per month why do i pay 5 000 yeah this is a difficult interesting topic i’m we’re still working on that how you can hook um customers who need uh get a more value but they look at the cheap prices and think why don’t i get this product um yeah so there are other things which are have to be looked at when it comes to pricing in which we also like um uh like thought about when we when we tackled our pricing strategy which is like do you give a free trial which we do do we give a freemium model or have a freemium model where you offer a free forever plan which we don’t have but we had it or do you remove all pricing all prices from the website because you want to go into the enterprise solutions so these are all things you can talk and think about when it goes to pricing strategy
and i highly recommend to look also for some b2b pricing experts there there are a lot uh here and i i link some of them on my website it’s interesting to learn but one thing i i also learned in the last two years is one problem i have is is even if there is a lot of knowledge out there your company and your pricing and your product is still special and unique and this is why it’s so hard that you cannot just take this you know average pricing strategy you have to sit down and and think and try out and experiment so this is at least my learning um that you might have some like general approaches which you can easily adopt but when it goes to more specific um problems then you have to sit down and learn how it works for you for you for your company for your product and for your customers i want to mention one book which i read it to be honest it didn’t help me so much currently it’s monetizing innovation but i think this is also because i’m already overwhelmed with a lot of information we gathered in the last two years maybe if you’re a little bit newer to the topic then it helps you more they have quite cool questions for surveys um so monetizing innovation also tells you that you should build the product around the price which is an interesting approach um but also sometimes you know it’s it’s hard when you’re pricing is probably not the only task you’re working on or the the only um challenge you have in your company so it is uh nice but always hard you know to to change the general um approach of your company if you just read a book uh but still i think there is there are valuable um information in there so i want to talk a bit about what we implemented in the last two years so as i said we started in um a pricing i would say journey it’s not even a project so we started with analyzing on by setting first a goal and our business goal was that we want to have a pricing which attracts more customers so one of our goals is to have more customers and also to to a certain extent scale in the enterprise level so we have a self-service platform with a self-service pricing kind of credit card payment but we also want to have the possibility to scale into an enterprise lab another part of the goal was the value of our customers is to offer a pricing model that is affordable and easy to understand easy to understand is quite a challenge i found out i thought everything might be easy but then i did some user research and gave me a new look on certain things and some other requirements which like were it should work for all of our use cases so we have for different target personas we have different use cases they all have a different value metrics um it should of course not decrease our current mrr and it should be a strategic fit what i mean by that is that it we have some company strategies and the pricing must also fit into that so when we said that then we did a very long analysis um there there was a quiet i think the page takes several minutes to scroll through um and what we did is is we first looked at you know the strategic fit um also into certain competitors how do they price what are their value metrics we had then we collected certain hypotheses on you know there are all the time someone comes up with oh if we just add this feature to this plan then this would happen so we collected quite some of them and then we tried to find out which of them um are can help us in the future we also defined pricing dimensions so it’s we wanted to figure out you know what could be value metrics if if you list for each product or in each target group um if you list all the features they are using um you will get quite a long list and it will be it’s interesting to figure out okay what can be a value matrix what can you scale over time what brings the customer more value over time um and then you have a few points where you can dive into and figure out if this is helping your value-based pricing strategy of course you also looked at the current customer structure and what they are using you know what what features um are they using this goes then into analytics to have a very clear or a very extensive analytics platform and figure out what features are used how often by whom um yeah we also analyzed okay which plans are bought from whom and how much do they use what and yeah this came then to some model options what can we do and some scaling factors for each customer segment which goes into the value metrics so we did this long analysis and
this first step led to in the first moment it led to to not so many changes so we start we were stuck with our existing um with our existing pricing especially as we are in the transition from one let’s say we are in the qa we were in the qa market and now we are transitioning to the cx market or adding it to our as our main market which brings the interesting problem of that you have two huge use cases which are priced or as assumed from the customers they are seen differently from what is what brings value so this kind of brought us in the situation that in the first month we didn’t do anything but then we said okay we have to start somewhere i think this is always you know if you don’t know how to start do baby steps so what we did we had to first adopt adapt our produ our product because the pricing you know you doesn’t work that you just change the pricing page you have to also change the the product that it has the same flexibility so this was our first problem kind of this took us quite some time we had to change it to a different technological approach and also migrated our payment then to stripe to have more flexibility in the pricing and also the payment afterwards and then we did the last year we did a little change which had a which had a big effect um and this was our smallest plan we moved it down to nine dollars per month it was uh 29 before and we just moved it down to nine dollars why because we our hypothesis was if we on board more customers it’s kind of an extended trial phase so they just pay nine dollars and then they will over time they will get more uh value and then they will increase in in in their subscription fee and yeah then this experiment ran for quite some time and the interesting results were that our monthly new customer rate so the new customers coming in it doubled because we unlocked a certain segment which was with 29 it was not was probably too too expensive or they didn’t want to try it out for too long and this unlocked and increased our customer base a lot yeah but it came with the effect that our mrr growth rate slowed down a bit um this was something we had to tackle
then we started you know i think this is a an approach you will hear quite often from from me so when we go into a new topic um after we gain some clarity on what we want to achieve then we reach out to some experts yeah we always try to learn first from already experienced people you don’t have to make all the mistakes on your own so we reached out to to a guy called ulrich and and he he talked to us and and and we tried to learn how it works but to be honest uh he also proposed us or he suggested us a uh or give us a proposal for a workshop which we didn’t do then uh because in the first step we wanted to see what what will happen when we sit down and think about that so we spent more than six hours uh average time on the pricing strategy which was mentioned before in the report and so this is what we did beginning of this year yeah we had a very cool workshop about the pricing and we you know we dug into the existing data we had and uh yeah we aimed for we were aiming for value-based pricing and also fencing and at the end i think we had a very very um interesting and and and also it looked very promising um pricing strategy but it also meant that we had to change a lot and this like was a huge step of of changing your pricing um and the result of that was that in the first step we we we came to a total halt um so we went into a total stagnation uh and i guess this was because then you know after this huge um brave step to to change everything to value-based metric and remove maybe even feature um steps you know between plans we we realized that a huge step can also harm your customer base and your current mrr quite a lot so our i mean our like one of our basic approaches in the companies um
you know start do little steps and iterate on them and this was not a little step this was a huge step and so i think this brought us into the stagnation but then we restarted and we trained more like a constant experimentation attitude i called it yeah so an attitude for let’s have regular experiments and build on them you know not changing everything in the first place but go steps and be clear on what is your goal what are your hypotheses what do you want to do and then measure and learn and this is what we did so this is where we are let’s say in the last month we were in the last month and are still there so what we did is we did a lot of um customer and potential customer interviews and service and we asked like potential customers from our target audience we asked them about the pricing page we let them you know scroll through and give us feedback also what similar products they bought and why and what was the pricing what are they willing to pay and we are also in a lot of user research now on existing customers see what are the main drivers for value for them to understand the value metrics understand what features are they using and for what and also their let’s say price points they are willing to pay for certain um value so you can test and this is where the book helped me the monetizing innovation to how to ask specific um questions and find um the let’s see the ranges where the price is too low the price is fair the price is expensive or the price is um let’s say um it’s so expensive that that it’s almost uh uh yeah that the customer is not willing in any case is to pay it yeah um so this is where we are currently working on yeah so we’re doing a lot of research
we initiated a little experiment with after the research um and this is like we changed the pricing page we cleared that up we validated it that it’s clear enough that you understand it and then we tested the price elasticity for the basic plan so we want to see how can we go up and see if we still have the same customer adoption new custom adoption rate the result is the pricing page is clearer we still have the same rate and yeah the mr was also not harmed which is a good sign and now our next step is that we want to validate the value matrix of our product where we’re doing further on customer interviews this is where we’re currently at and we are testing also in these interviews if they are willing to upgrade their account with certain elements from the product which are which are assumed as the value or where you can scale with um the usage and this is where we’re currently at um so in my in the in the slides i’m putting on my website you can also find then some links to the resources which i used and there is also this very very cool uh educational um video from ulrich so i highly suggest that you uh did you listen to that yes he’s a b2b sas pricing expert but you know to to share with you what are the learnings because here i don’t have a wonderful um end result for you and tell you you know our revenue scaled 300 times um we are not there we we still work on that but it is a very satisfying feeling that you’re constantly working on your pricing every two months i’m we are um starting a new pricing experiment i will share with you in a moment why and often i’m sharing are there any secret growth hacks for that and today i have to say there are none from my perspective i’m happy if you have some if you share it with our audience and me but so far i have none so very quickly about the learning so far pricing is hard yeah pricing is a labyrinth it’s so unclear what you should tackle that what changes um your your your mrr what changes your revenue what changes your customer base it’s super complex and it’s you it’s always combined with the link to the fear that you might harm your existing business i can only suggest to talk to do user research and to talk to your customers and potential customers this was always a source of of of knowledge a source of understanding and learning and we are constantly doing that i think that there are as i said there might be some main approaches so far which can work for way which you can adopt if you at the start but i think if you’re already some years into your business there are no um specific approaches you can just implement and then your your um your revenue or your customer base grows i think everything is very unique for your company and that you have to figure out what works what not what is the value metric for your company what features um should you put into specific plans or not should you remove them at all and and so on and so forth and for us pricing changes need at least two months to have a certain reaction this is also due to our um uh free um to our free trial so 15 days free trial and people who are already in this plan we keep them so we don’t change existing customers to our existing free trials people trying out our product when they switch in a pricing experiment they stay let’s say in the old um in the old
audience in the old uh experimentation group so for us every change there takes at least two months to see results and changes yeah yeah from currently let’s say our successes here are that we could double the the new customer rate per month which was nice it weakened a little bit the mrr growth but this is what we currently um steering back and changing back um and we adopt it to a constant experimentation culture and run now experiments every two months and this will hopefully this will hopefully um lead us to to new um to new knowledge and i’m happy to share it with you so what i would ask you today is you know what is your epiphany when it comes to pricing or what are your learnings what are your thoughts and i would be very happy if you share them with me and our audience here yeah as always i want to quickly remind you that you can grow you and your business can grow with the magic power of feedback so don’t forget to sometimes ask others some peers what they think about your um about your behaviors and your actions how they see you and do the same for your company yeah ask for feedback this will unlock uh wonders and you will experience the magic power of feedback
thank you very much for listening to this podcast episode of the grow waterfall podcast yeah i would be very happy to hear some feedback if you have some if you have some ideas please share it with me and have a wonderful day bye bye