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How to Fix your Broken Pricing Model

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Is your pricing model broken? OpenView's Kyle Poyar breaks down the top 5 pricing mistakes (and how to fix them).

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How to Fix your Broken Pricing Model

  1. 1. Kyle Poyar SaaStock 2018 How to fix your broken pricing model Proprietary and Confidential ©2018 Copyright OpenView Venture Partners. All Rights Reserved. OPENVIEW
  2. 2. “We picked the price out of thin air” Every SaaS founder, ever
  3. 3. 4 6% Our pricing model aligns perfectly with the value the product delivers Source: openview.vc/saas-pricing-study
  4. 4. Where are you in your journey? Early Expansion Growth Maturity
  5. 5. Founders who struggle to raise capital are… 3x More likely to say they monetized too late 2x More likely to say they picked the wrong business model 40% More likely to say their burn rate was too high Pricing can make or break your business Source: First Round Capital 2017 State of Startups
  6. 6. We help SaaS startups fix their pricing
  7. 7. 88 Top 5 pricing mistakes 1. You’re too cheap 2. You picked the wrong value metric 3. You make it hard to buy 4. Your upsell path is broken 5. Your pricing is static
  8. 8. You’re too cheap. 1
  9. 9. B2B buyers are not price sensitive.
  10. 10. Impact of pricing changes on revenue growth You have a 2% chance of hurting ARR Source: saasbenchmarks.com 2% 14% 42% 17% 25% Decrease 0-9% increase 10-24% increase 25-49% increase 50%+ increase
  11. 11. Impact of pricing changes on revenue growth And a 98% chance of growing ARR Source: saasbenchmarks.com 2% 14% 42% 17% 25% Decrease 0-9% increase 10-24% increase 25-49% increase 50%+ increase
  12. 12. Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved. 13 How to raise prices without losing customers 1 Validate your course of action. 2 Communicate why you’re raising prices. 3 Use the pricing change as a marketing tactic. 4 Give customers a choice. 5 Have an plan for existing loyal customers.
  13. 13. 2 You picked the wrong value metric.
  14. 14. 25% 26% 44% 45% 28% 23% 8% 15% 17% 23% 32% 15% 0% 20% 40% 60% 80% 100% Infrastructure Vertical app Horizontal app User or seat-based Usage-based Company size Other Source: saasbenchmarks.com Are seats the right metric for you?
  15. 15. The right value metric can help you differentiate against competitors and generate more revenue.
  16. 16. VTS: One-size-fits-all worked for nobody Before – Per Building Problem One-size-fits-all left money on the table
  17. 17. VTS: New value metric increased revenue After – Per Square Foot Solution Price aligned with customer value
  18. 18. 3 You make it hard to buy.
  19. 19. 15 Months 10 Months 7 Months Slow (<30%) Moderate (30-99%) FAST (>100%) Self-reported CAC payback (Months) Source: saasbenchmarks.com Fastest growers seamlessly land new customers
  20. 20. 23
  21. 21. Clearly states their value proposition
  22. 22. Crystal clear about benefits, not just features
  23. 23. Puts lingering fears to rest
  24. 24. 0 50 100 150 200 Subscription PAYG Jan-14 Jan-15 Jan-16 Jan-17 Sell to your customers the way they want to buy
  25. 25. 4 Your upsell path is broken.
  26. 26. 82% 84% 89%90% 97% 109% Slow (<30%) Moderate (30-99%) FAST (>100%) Avg logo retention Avg net $ retention AnnualRetention Source: saasbenchmarks.com Fastest growers see net negative churn
  27. 27. Feature packaging and usage- based pricing help you achieve net negative churn.
  28. 28. Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved. 32 There are five types of feature packages Increasing complexity All-in package Category packages Segmented packages Good-Better-Best packages Modular packages One offer with everything included Packages with all features in a product category Packages tailored to segments or use cases Packages with increasing features and services Customized, build-your-own packages
  29. 29. Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved. 33 Good-Better-Best is most popular (for good reason) Increasing complexity All-in package Category packages Segmented packages Good-Better-Best packages Modular packages One offer with everything included Packages with all features in a product category Packages tailored to segments or use cases Packages with increasing features and services Customized, build-your-own packages 70% of SaaS companies
  30. 30. Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved. 34
  31. 31. 35 HubSpot: Usage-based pricing enables faster expansion Before Fixed packages (2011) Low upgrade rate Revenue retention: 75% After Contact-based pricing (2014) High upgrade rate Revenue retention: 100% Source: https://labs.openviewpartners.com/how-to-overhaul-pricing-in-3-steps/
  32. 32. 5 Your pricing is static.
  33. 33. Pricing should evolve as your company evolves
  34. 34. The single most valuable lesson I’ve learned is that you have to be ready to constantly iterate on both your pricing and packaging. Successful companies are those that think of pricing in the same way they think about product development – their pricing is in a constant state of evolution. Monika Saha General Manager, Finance Product Line Zuora It’s never 100% done.
  35. 35. What now?
  36. 36. Pricing & packaging is super important.
  37. 37. But most people don’t take it seriously No, 45% Yes, cursory research, 48% Yes, in-depth research, 8% No, 64%Yes, 1 round, 15% Yes, 2+ rounds, 22% Have you done pricing research? Have you done price testing? Source: openview.vc/saas-pricing-study
  38. 38. The price is not material enough to be a factor in the decision. It is not even a blip on the radar. “ ”
  39. 39. 43Proprietary and Confidential ©2018 Copyright OpenView Venture Partners. All Rights Reserved. There are lots of ways to ask about pricing Direct methods Van Westendorp Price perception Gabor Granger pricing Indirect methods Conjoint measurement A/B tests Pricing research methods Reaction to product loss
  40. 40. Who should own pricing?
  41. 41. 55% No one in the company owns pricing Source: openview.vc/saas-pricing-study
  42. 42. 36% A piece of someone’s responsibility is pricing Source: openview.vc/saas-pricing-study
  43. 43. 9% We have a dedicated resource for pricing Source: openview.vc/saas-pricing-study
  44. 44. Who should own pricing? Marketing Finance Sales Operations Product
  45. 45. Who should own pricing? Great for positioning and messaging Already own TOFU & website Best grasp of product and roadmap Already doing customer development May overly focus on features vs. value Analytical and data-driven Best handle on costs and profit Tend to take a cost plus vs. value-based approach Closest to the customer Constantly hearing about needs and pain points May be too close – want too many options Best grasp of the data Great at processes and technology Less customer-focused Marketing Product Finance Sales Operations
  46. 46. SaaS Pricing Takeaways 1. Don’t be too cheap 2. The right value metric helps you differentiate & sell more 3. Sell to customers the way they want to buy 4. Usage-based pricing & feature packaging drives net negative churn 5. Experiment and iterate on pricing
  47. 47. See this deck: openview.vc/ov-saastock-pricing Kyle Poyar | kyle@ov.vc Thank You! Proprietary and Confidential ©2018 Copyright OpenView Venture Partners. All Rights Reserved.

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