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Ashley Minogue
Kyle Poyar
Unlocking Scale
Through Pricing
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 2
Pricing is your most powerful lever
2%
5%
10%
12%
22%
R&D costs (-5%)
SG&A costs (-5%)
COGS (-5%)
Revenues (+5%)
Price (+5%)
IMPACT ON EBIT FROM A 5% IMPROVEMENT IN…
Source: Hinterhuber (2004). Towards value-based pricing – An integrative framework for decision making. Industrial Marketing Management 33 765-778.
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 3
Yet, pricing is
a blind spot.
55%
“No one in the company
owns pricing”
36%
“A piece of someone’s
responsibility is pricing”
9%
“We have a dedicated resource
for pricing”
Pricing is even more important in a
product led world.
You can’t rely just on sales to
communicate value.
9
0%
23%
68%
25%
40%
15%
41%
30%
12%
34%
7%
5%
0% 20% 40% 60% 80% 100%
Field sales
Inside sales
No touch / self-service
<$5k $5-25k $25-100k >$100k
Source: 2018 OpenView SaaS Metrics Survey, N=420.
Dominant Sales Channel
ACV Distribution
Product led growth pricing isn’t just for small deals
These companies
employ a bottom-up
sales model to efficiently
sell larger deals.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 11
1. Freemium
2. Enable bottom-up sales
3. PQLs
3 elements of pricing to consider in a
product-led world
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 12
Freemium
1
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 13
17%
28%
29%
47%
83%
72%
71%
53%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Freemium
Product-qualified leads
Customer referral programs
Free trial
% of Respondents
Adoption of product led growth strategies
Source: 2018 OpenView SaaS Metrics Survey, N=420.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 14
Freemium is not always impactful
New ACV from Freemium Leads
Source: http://tomtunguz.com/images/2015-PC-Survey.pdf
So when does freemium
actually work?
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 16
• You have a massive market
• Your product becomes more valuable the more its used
• You have enough product differentiation to make freemium a
“positive” experience without giving away everything
• You have a low cost to serve
Signals that your business is right for freemium
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 17
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 18
WHY IT WORKS:
• Calendly has a massive TAM with
use cases spanning sales, recruiting,
entrepreneurs, etc.
• Solution is robust enough to offer
clear rationale to upgrade (i.e.
new event types, reporting, etc.)
• Freemium drives lead gen – free
version has Calendly branding and
user analytics inform what’s important.
Success case study: freemium as a catalyst for growth
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 19
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 20
WHY IT DIDN’T WORK:
• Free users quickly surpassed
paying users which led to
performance and database issues.
• Furthermore, support resources
became spread thin impacting the
level of service for both free and paid
users.
Failure case study: freemium comes with risk
Source: https://baremetrics.com/blog/freemium-saas-implode
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 21
Are you thinking…
“Freemium isn’t right for
me, but I still want to
take advantage of the
benefits of free. “
Get creative.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 24
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 25
Website grader offered value for free (without
giving away their product)
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 26
And it served as a successful lead generation tool
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 28
JumpCloud differentiates with free full-feature
solution for first 10 users
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 29
Enable bottom-up sales
2
Design your pricing to be a
bottom-up machine.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 31
• Build champions to sell your product internally
• Capitalize on paid lead generation
• Skip procurement or IT
Rationale for a bottoms up sale
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 33
3
3
Individual employees
download the mobile app for
free and start using it. Then
they promote it internally
to the decision maker and
the decision maker reaches
out to us basically already
sold by their employees. And
then we have order takers on
our side to help them get to
the buying process.
D AV ID B AR R E TT
F O U N D E R & CE O
E X PE N S IF Y
“
“
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 35
Blog focuses on individual sales reps who
become paid lead gen for large accounts
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 36
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 37
Pipefy offers packages for teams as small as 5 users
and offers templates to get started
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 38
Best practices for designing a bottom up sales
• Entry price point needs to be low enough to put it on a credit
card and can bypass approval
• Pricing needs to be a landing point that allows for expansion as
usage increases
• Package features need to be robust enough to appeal to an
enterprise when they want to expand
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 39
PQLs
3
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 40
The old world
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 41
Product led world
PQL
A prospect that signed up and
demonstrated buying intent based
on product interest, usage, and
fits your target customer criteria.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 43
Developed 3 different types of PQLs
for Freemium CRM:
• Hand Raise PQL: Offer assistance in product
with a particular task and users could interact
with the CTA to reach out to HubSpot.
• Usage PQL: Triggered a CTA based on product
usage (i.e. using all of your email templates)
with an option to upgrade.
• Upgrade PQL: Showed features only available
to paid users, they would send users to an
upgrade page.
HubSpot developed PQL funnel to drive meaningful
revenue from free users
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 45
LinkedIn also uses product engagement data to
upgrade free users
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 46
So what now?
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 47
Don’t be afraid to experiment
Experimentation is a huge part of our growth
infrastructure. In 2012 we were running 2-3
experiments per month. These days we’re doing 80
per month. We’re constantly running experiments.
This is driving more than $100M in incremental
revenue every year.
TODD JACKSON
Former VP of Product
Dropbox
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 48
Approaches to price experimentation ranges in
intensity and certaintyIncreasinglevelofintensityandcertainty
Approach Description When it works best
Expert
judgment
Rely on internal expertise and analysis of
existing data (e.g. discounting, win-loss
reasons)
• Limited time and resources
• Have (relatively) clear signals from
existing data
Qualitative
interviews (focus
groups, interviews)
In-depth interviews with customers and
prospects to understand needs, value and
willingness to pay
• New product introductions
• Small number of customers who
are highly engaged
Quantitative
concept testing
Short online survey to customers and
prospects, including direct questions around
value and price expectations
• Large number of customers across
different segments
• Some time or resource constraints
Quantitative:
Simulations &
trade-off exercises
Longer, more robust online survey to
customers and prospects, including
advanced trade-off exercises like conjoint
• Strategically important decisions
• Large number of customers across
different segments
Market testing
(pilots, A/B testing)
Test new pricing online or with sales reps
and measure performance versus the
current pricing
• Have a clear idea on what to test
• Need to measure the exact
financial impact
Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 49
What I’ve heard from real-life customers
The price is not material enough to be a factor in
the decision. It is not even a blip on the radar.
I’m curious to see how they will monetize… It’s
inexpensive now, I don’t see how they could
be making any money.
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 50
Most common pricing research methods
Direct methods
§ Simulates purchasing decisions and forces respondent
to make tradeoffs between products or sets of attributes
§ Provides information for the calculation of price-
response functions
§ Directly asks respondent about their interest in a product
and purchase likelihood at different price points
§ Establishes willingness-to-pay for one product
Van Westendorp pricing
Price perception
Gabor Granger pricing
Indirect methods
Conjoint Measurement
(ACA, DCM, CBC, MaxDiff, ACBC)
A/B Tests and Shopping Carts
Pricing research methods
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 51
Sample method: Van Westendorp
0%
20%
40%
60%
80%
100%
$0 $500 $1,000 $1,500 $2,000
%ofrespondents
Indifferent
price: $300
Acceptable
Expensive
VAN WESTENDORP RESULTS AMONG PROSPECTS
$500
$1,000
HOW THE
QUESTION
IS ASKED:
Thinking about a software
solution from Company A,
what price per month
would you find…
• ACCEPTABLE, a great
buy for the money $___
• EXPENSIVE, you would
think twice about
buying it $___
• TOO EXPENSIVE, so
expensive you would
not consider buying it
$__
Price per month
Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 52
14%
42%
17%
12%
12%
2%
DISTRIBUTION OF RESPONDENTS
40% of the time,
pricing changes
positively increased
ARR by more than 25%
Impact of pricing changes on ARR growth
Source: 2018 OpenView SaaS Metrics Survey, N=420.
Decrease in ARR
0-9% increase in ARR
10-24% increase in ARR
25-49% increase in ARR
50-99% increase in ARR
100%+ increase in ARR
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Unlocking Scale Through Pricing

  • 1. Ashley Minogue Kyle Poyar Unlocking Scale Through Pricing
  • 2. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 2 Pricing is your most powerful lever 2% 5% 10% 12% 22% R&D costs (-5%) SG&A costs (-5%) COGS (-5%) Revenues (+5%) Price (+5%) IMPACT ON EBIT FROM A 5% IMPROVEMENT IN… Source: Hinterhuber (2004). Towards value-based pricing – An integrative framework for decision making. Industrial Marketing Management 33 765-778.
  • 3. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 3 Yet, pricing is a blind spot.
  • 4. 55% “No one in the company owns pricing”
  • 5. 36% “A piece of someone’s responsibility is pricing”
  • 6. 9% “We have a dedicated resource for pricing”
  • 7. Pricing is even more important in a product led world. You can’t rely just on sales to communicate value.
  • 8.
  • 9. 9
  • 10. 0% 23% 68% 25% 40% 15% 41% 30% 12% 34% 7% 5% 0% 20% 40% 60% 80% 100% Field sales Inside sales No touch / self-service <$5k $5-25k $25-100k >$100k Source: 2018 OpenView SaaS Metrics Survey, N=420. Dominant Sales Channel ACV Distribution Product led growth pricing isn’t just for small deals These companies employ a bottom-up sales model to efficiently sell larger deals.
  • 11. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 11 1. Freemium 2. Enable bottom-up sales 3. PQLs 3 elements of pricing to consider in a product-led world
  • 12. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 12 Freemium 1
  • 13. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 13 17% 28% 29% 47% 83% 72% 71% 53% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Freemium Product-qualified leads Customer referral programs Free trial % of Respondents Adoption of product led growth strategies Source: 2018 OpenView SaaS Metrics Survey, N=420.
  • 14. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 14 Freemium is not always impactful New ACV from Freemium Leads Source: http://tomtunguz.com/images/2015-PC-Survey.pdf
  • 15. So when does freemium actually work?
  • 16. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 16 • You have a massive market • Your product becomes more valuable the more its used • You have enough product differentiation to make freemium a “positive” experience without giving away everything • You have a low cost to serve Signals that your business is right for freemium
  • 17. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 17
  • 18. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 18 WHY IT WORKS: • Calendly has a massive TAM with use cases spanning sales, recruiting, entrepreneurs, etc. • Solution is robust enough to offer clear rationale to upgrade (i.e. new event types, reporting, etc.) • Freemium drives lead gen – free version has Calendly branding and user analytics inform what’s important. Success case study: freemium as a catalyst for growth
  • 19. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 19
  • 20. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 20 WHY IT DIDN’T WORK: • Free users quickly surpassed paying users which led to performance and database issues. • Furthermore, support resources became spread thin impacting the level of service for both free and paid users. Failure case study: freemium comes with risk Source: https://baremetrics.com/blog/freemium-saas-implode
  • 21. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 21 Are you thinking…
  • 22. “Freemium isn’t right for me, but I still want to take advantage of the benefits of free. “
  • 24. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 24
  • 25. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 25 Website grader offered value for free (without giving away their product)
  • 26. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 26 And it served as a successful lead generation tool
  • 27.
  • 28. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 28 JumpCloud differentiates with free full-feature solution for first 10 users
  • 29. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 29 Enable bottom-up sales 2
  • 30. Design your pricing to be a bottom-up machine.
  • 31. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 31 • Build champions to sell your product internally • Capitalize on paid lead generation • Skip procurement or IT Rationale for a bottoms up sale
  • 32.
  • 33. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 33 3 3 Individual employees download the mobile app for free and start using it. Then they promote it internally to the decision maker and the decision maker reaches out to us basically already sold by their employees. And then we have order takers on our side to help them get to the buying process. D AV ID B AR R E TT F O U N D E R & CE O E X PE N S IF Y “ “
  • 34.
  • 35. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 35 Blog focuses on individual sales reps who become paid lead gen for large accounts
  • 36. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 36
  • 37. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 37 Pipefy offers packages for teams as small as 5 users and offers templates to get started
  • 38. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 38 Best practices for designing a bottom up sales • Entry price point needs to be low enough to put it on a credit card and can bypass approval • Pricing needs to be a landing point that allows for expansion as usage increases • Package features need to be robust enough to appeal to an enterprise when they want to expand
  • 39. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 39 PQLs 3
  • 40. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 40 The old world
  • 41. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 41 Product led world
  • 42. PQL A prospect that signed up and demonstrated buying intent based on product interest, usage, and fits your target customer criteria. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved.
  • 43. Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 43 Developed 3 different types of PQLs for Freemium CRM: • Hand Raise PQL: Offer assistance in product with a particular task and users could interact with the CTA to reach out to HubSpot. • Usage PQL: Triggered a CTA based on product usage (i.e. using all of your email templates) with an option to upgrade. • Upgrade PQL: Showed features only available to paid users, they would send users to an upgrade page. HubSpot developed PQL funnel to drive meaningful revenue from free users
  • 44.
  • 45. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 45 LinkedIn also uses product engagement data to upgrade free users
  • 46. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 46 So what now?
  • 47. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 47 Don’t be afraid to experiment Experimentation is a huge part of our growth infrastructure. In 2012 we were running 2-3 experiments per month. These days we’re doing 80 per month. We’re constantly running experiments. This is driving more than $100M in incremental revenue every year. TODD JACKSON Former VP of Product Dropbox
  • 48. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 48 Approaches to price experimentation ranges in intensity and certaintyIncreasinglevelofintensityandcertainty Approach Description When it works best Expert judgment Rely on internal expertise and analysis of existing data (e.g. discounting, win-loss reasons) • Limited time and resources • Have (relatively) clear signals from existing data Qualitative interviews (focus groups, interviews) In-depth interviews with customers and prospects to understand needs, value and willingness to pay • New product introductions • Small number of customers who are highly engaged Quantitative concept testing Short online survey to customers and prospects, including direct questions around value and price expectations • Large number of customers across different segments • Some time or resource constraints Quantitative: Simulations & trade-off exercises Longer, more robust online survey to customers and prospects, including advanced trade-off exercises like conjoint • Strategically important decisions • Large number of customers across different segments Market testing (pilots, A/B testing) Test new pricing online or with sales reps and measure performance versus the current pricing • Have a clear idea on what to test • Need to measure the exact financial impact
  • 49. Proprietary and Confidential ©2016 OpenView Investments, LLC. All Rights Reserved 49 What I’ve heard from real-life customers The price is not material enough to be a factor in the decision. It is not even a blip on the radar. I’m curious to see how they will monetize… It’s inexpensive now, I don’t see how they could be making any money.
  • 50. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 50 Most common pricing research methods Direct methods § Simulates purchasing decisions and forces respondent to make tradeoffs between products or sets of attributes § Provides information for the calculation of price- response functions § Directly asks respondent about their interest in a product and purchase likelihood at different price points § Establishes willingness-to-pay for one product Van Westendorp pricing Price perception Gabor Granger pricing Indirect methods Conjoint Measurement (ACA, DCM, CBC, MaxDiff, ACBC) A/B Tests and Shopping Carts Pricing research methods
  • 51. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 51 Sample method: Van Westendorp 0% 20% 40% 60% 80% 100% $0 $500 $1,000 $1,500 $2,000 %ofrespondents Indifferent price: $300 Acceptable Expensive VAN WESTENDORP RESULTS AMONG PROSPECTS $500 $1,000 HOW THE QUESTION IS ASKED: Thinking about a software solution from Company A, what price per month would you find… • ACCEPTABLE, a great buy for the money $___ • EXPENSIVE, you would think twice about buying it $___ • TOO EXPENSIVE, so expensive you would not consider buying it $__ Price per month
  • 52. Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 52 14% 42% 17% 12% 12% 2% DISTRIBUTION OF RESPONDENTS 40% of the time, pricing changes positively increased ARR by more than 25% Impact of pricing changes on ARR growth Source: 2018 OpenView SaaS Metrics Survey, N=420. Decrease in ARR 0-9% increase in ARR 10-24% increase in ARR 25-49% increase in ARR 50-99% increase in ARR 100%+ increase in ARR
  • 53. Follow us on Twitter @OpenViewVenture Thank You!