Pricing as a growth lever (With Kyle Poyar, Operating Partner @ OpenView)

There's a growth lever you should know about: Pricing.

We geeked out on pricing with Kyle Poyar, Operating Partner at OpenView to lay out how you can grow through pricing.

In the episode, we got into 👇

• (00:00) - Introduction
• (10:41) - The scary growth lever
• (17:42) - The steps to change pricing
• (25:02) - Where do you anchor pricing?
• (27:07) - How do you stick the landing?
• (30:55) - What about the customers?
• (36:26) - Avoid these mistakes
• (39:50) - Pricing on the website?

Check out growth unhinged here.

Creators & Guests

Host

Mikkel Plaehn

Marketing leader & b2b saas nerd

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

Guest

Kyle Poyar

Operating Partner @ OpenView | Growth Unhinged 🚀

What is The Revenue Formula?

This podcast is about scaling tech startups.

Hosted by Toni Hohlbein & Mikkel Plaehn, together they look at the full funnel.

With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.

If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.

[00:00:00] Mikkel: Hey, everyone. This is Mikkel You are listening to The Revenue Formula In today's episode, we're talking about using pricing and packaging as a growth lever with Kyle Poyar, who's an operating partner at OpenView and also writes Growth Unhinged. Enjoy!
[00:00:20] So do you have anything? I have something, but I wonder. Did you blow it already? No, no. I just wonder how appropriate it actually is. Uh, should we talk a bit about pants today?
[00:00:30] Oh, yeah, we should
[00:00:31] Toni: talk about pants today. I see. I see where this is. You wanna? Do you wanna? Should I? So funny, funny story, Mikkel. Um, since obviously, we're here in Denmark and Copenhagen, and the weather is usually pretty terrible, but everyone still bikes to work. I did the same thing. I was at the doorstep today, I put on my rain pants, and I bike here and everything is great.
[00:00:52] And keep in mind, I had an in person Like an hour after I arrived here, with a 1 billion dollar company, yeah, and I arrived here, Take down my rain pads, and for some reason there was a leak In the absolute wrong spot of the pad laughter Which resulted in, um, which resulted in me, uh, putting them over the The radiator and walking around half naked.
[00:01:17] I'm not sure if we can actually use that.
[00:01:21] Mikkel: I don't think how, yeah, I mean, the thing is, I also have a pant story, by the way. Okay. So I wanted to make sure it was not just throwing you, we have a saying, there's always plenty of room under the bus. Yeah, that's right. Um, so I was, uh, getting ready for work one morning and, uh, my daughter, she decided to throw up all over me.
[00:01:39] I had to take off the shirt. It gets better and better and better. And I had to obviously to take off the shirt and we're in the rut, like the morning rush. It's always, always so stressful and, uh, show up at work. And then, uh, I looked down at my feet and I noticed also in a very unfortunate spot that I probably also should have switched the pants.
[00:02:00] Okay.
[00:02:00] Toni: You know what? You know what? I think our guest is starting to be a bit awkward around this. So you know what? Let's, let's stop this for a second. Kyle, you still there? So we have, we have Kyle here today. Kyle, nice, nice to have you on the, on the show.
[00:02:14] Kyle: Yeah, nice to have you as well. I probably have a pant story as well, but I don't know if we want to cover that quite yet.
[00:02:20] Mikkel: evasive maneuver. Yeah, go right there. I love it. Um, so, uh, pleasure to have you on the show. Uh, for those who don't know you, you're, uh, Kyle Poyar at, this sounds so weird when I'm saying that you're Kyle Poyar, uh, operating partner at OpenView. Mm-Hmm. . And you write a pretty cool substack, I have to say. growth unhinged.
[00:02:38] Yep. Uh, you should definitely check it out if you haven't. So I think. What is it like, once a week you're doing almost a playbook reveal of a company that's growing fast and laying out the steps they've taken?
[00:02:49] Kyle: Uh, that's a better tagline than I have, so yeah, let's go with that.
[00:02:54] Mikkel: I can, I can send it to
[00:02:55] Kyle: yeah, I like it. Uh, yeah, I'm learning something from this call. It, it, it, but yeah, exactly, it's a, uh, weekly newsletter where I explore the unexpected around how some of the fastest companies are growing. And so, every week I try to either take a case study of how a company went from zero to...
[00:03:13] Great outcome or deep dive into one specific area of growth and try to bring in more of a practical example of, you know, what companies are taking an innovative approach to automated outbound, right? Was my piece today or email onboarding or, you know, any specific angle around growth that is super practical for, you know, whether it's a founder audience or just an operator audience looking for creative ways to grow their business.
[00:03:44] Mikkel: Yeah, I think that's at least why I really enjoy, enjoy that one. And I know also as operating partner, I'm sure you're helping a lot of the portfolio companies as well in, you know, all of these areas you also basically cover, um, on Growth on Hinge. Like what, what's your, your specialty here? Just to position kind of you as an expert on your knowledge.
[00:04:03] Kyle: Well, uh, so I, yeah, as an operating partner, we get called into really just about any challenge that a startup in our portfolio faces around growing the business. So it could be an acquisition problem, retention problem, or. That's what's fun about the role, is working with a bunch of different companies on a bunch of different challenges.
[00:04:25] But my bread and butter, and my, I guess, calling card, is pricing and packaging. Which is an area that's super important for just about everyone. I know it's talked about a lot in startups, but there's not a ton of people that have... Uh, dedicated experience, like doing the work around pricing and packaging.
[00:04:46] I started my career at Simon Kuchar, which is the largest consulting firm working on the topic. Was there for about six years. Uh, it was, it was a great, great ride. And, uh, worked directly with Madhavan Ramanujam, who wrote the book Monetizing Innovation. And then now in our portfolio, I've worked with more than 25 of our portfolio companies around some sort of change to their pricing and packaging model.
[00:05:10] Toni: So let's just say it's fair to say that you're an expert on pricing. Should we, should we conclude on that?
[00:05:14] Mikkel: End of show.
[00:05:15] Kyle: Ha ha ha ha, I would win the prices right.
[00:05:19] Toni: Yeah.
[00:05:21] Mikkel: And I think it's funny. One of the things you said around, um, uh, owning basically pricing. I think you, I saw a stat you had buried somewhere. It was like in 55 percent of organizations, no one actually owns pricing. Is that, is that true? Is that really a thing?
[00:05:37] Kyle: Well, and what that really means is it's the CEO or the founder, uh, ultimately that owns Pricing and Packaging. But, exactly, there's no one in the org chart that is thinking about Pricing and Packaging, collecting data on things like willingness to pay, or ways to improve it. And so, there's a lot of discussion because it affects really everyone as a very cross functional challenge.
[00:06:02] But you don't have like a... Uh, Head of Pricing, like you do have a Head of Demand Gen, right, or a Head of Rev Ops. That's not really a thing until a company gets to maybe 50 million in ARR is when they tend to hire their first dedicated person. So beforehand, it's a shared responsibility. It's something that, you know, no one takes on until it actually becomes a problem and then you may be resourced against it then.
[00:06:26] Uh, and many companies are missing out by not, uh, taking it more seriously.
[00:06:32] Toni: Yeah. So maybe, maybe we start there actually kind of to, to level set and, you know, create a bit of a baseline here. So why is pricing actually such an important thing? Right. So I think there's. Oh, you know, obviously pricing, pricing is important because, you know, that's how you make revenue in the end of the day, but, you know, many people listening might be like, Hey, you know, I get pricing is important, but our pricing that we have works, you know, why should we change that?
[00:06:54] And so forth. Right. Um, can you comment a little bit, you know, on, on that, you know, why pricing is such an important thing to, to focus on and, and maybe as a follow up almost, why is it that's, I feel it's one of the overlooked pieces actually in your funnel many, many times. Um, you know, why, why that actually happens.
[00:07:12] Kyle: Yeah, absolutely. Well, I guess, like, strategically, thinking about maybe a tech audience and a SaaS audience in particular, uh, in the early stages for a company, Pricing is actually critical to finding product market fit, and we talk a ton about product market fit in the startup community, but ultimately you're looking for a problem area that is, uh, so important to customers that they're willing to pay for it, and they're willing to pay enough for it that you can build a large and enduring business around it, right?
[00:07:43] You can build a go to market strategy to attract those customers, and there's enough revenue opportunity that you can build a big business out of it. So pricing becomes critical to just having the foundation for success. And then, uh, the other area that comes to mind for me in these early stages is there's like ultimate flexibility for a technology company of how you price.
[00:08:04] You don't need to be beholden to your cost basis. In fact, for a lot of tech companies, they might have 80 90 percent gross margins, right? So cost based pricing doesn't make a whole lot of sense. And the biggest cost tends to be your sales and marketing to go attract more customers, right? And so, uh, You can sort of scale that up or down, uh, in a lot of ways.
[00:08:27] And so, with that comes, I guess, the opportunity of... There's so many creative monetization routes that you can explore. Uh, but then that also means most people are actually typically under exploring the opportunity to monetize relative, uh, to what's out, what's possible. And they resort to, like, the tried and true things that are things that they see competitors doing.
[00:08:51] Things known in their industry that are easy for them to be billing based on because most folks don't have a kind of flexible billing system. And so, uh, there's this sort of promised land of what's possible versus the reality and there's a big gap there. And so yeah, we can certainly talk more about that.
[00:09:08] But then just to get more practical for folks, especially for folks maybe operating a business with 10, million in ARR. Pricing is just one of the most powerful growth levers for your business. So when you think about all the things you can do over the next year to increase revenue growth by, let's call it 10 or 20 percent.
[00:09:28] Over your baseline, uh, pricing is one of the few things that you can do relatively quickly, uh, doesn't require adding new headcount, and it works like a scary high percentage of the time, right, it's, uh, there's certainly cases where pricing changes have backfired, but in my experience about it. 80 to 90 percent or more of the time, pricing changes lead to faster revenue growth.
[00:09:53] And so it's one of those things that like, if you haven't thought about it, you come to regret it. And the final thing I'd just add, and I know I'm probably sounding like a broken record, is that many businesses in tech are very innovative. They're like constantly shipping new features, new products. With Gen AI, just about everyone added some sort of Gen AI capability to the roadmap.
[00:10:15] And if you don't have a way to monetize those innovations, it's really hard to afford continuing to develop at that pace, because you're not funding this innovation. And that's where, to me, if a tech company hasn't touched pricing in the last year, but they've released all these great things, like, there's an increasingly big, both opportunity and a gap, um, of how they're monetizing versus where they should go.
[00:10:41] Toni: What, what would you say are the, so when I think about pricing changes, kind of when I was kind of, you know, running as a CRO doing pricing changes was always a really big lever and, but also scary one, right? It's like, oh, you could, you could get this one wrong. and, um, and then you get into this, paralysis by analysis or the other way around kind of situation where it's like, oh, let's.
[00:11:02] You know, the CEO is like, let's see, okay, are you really sure, you know, had to have more information, you know, give me more data. And all of those are at the end of the day, just delay tactics, because also he or she is scared. So what are the top, you know, false friends reasons why, um, why, why people are, you know, not actually executing those pricing changes?
[00:11:23] What is, what is holding most people back?
[00:11:25] Kyle: Hmm. So, uh, yeah, a few things come to mind. Uh, and, yeah, I mean, it's, well, just to address your point, by the way. Like, I think... Pricing changes do always seem scary, and we look at like Unity, for example, recently, and the backlash they've had over pricing, and you see stories of the times when pricing changes go wrong, you almost never hear stories of times when pricing changes go right, because companies aren't advertising those, right, you don't hear about all the money people made from raising prices, uh, and so I think part of it is just a lack of information, but anyway, uh, Tackling your point, so one thing is really, a CEO sees a pricing proposal that might seem incrementally better, but it's unclear if that's the best thing, and all of the options explored, because what I see a lot of the times is that it's not.
[00:12:19] You know, people don't know what they don't know, um, and so for a, for a CEO, they feel like it's hard for them to provide feedback, because it's, uh, it's unclear if their team has been thorough in both the analysis and the thought process, and they're not the expert themselves, so it's hard for them to weigh in too, and so I think like one, I guess, false flag is just, uh, lack of either confidence or expertise, leading for people that not really be confident in these changes, or not to trust the team that is working with them.
[00:12:56] Another is, I'll see often, uh, that pricing changes, especially bigger swing ones, come with needing to resource against that from a product and engineering standpoint. You might need to build, like, packages. Uh, into the system, you might need to have feature flags if you don't have them quite yet. Build usage limitations, change your billing infrastructure.
[00:13:16] And so, uh, if you're a high growth, innovative startup and you could allocate your product engineering team to building net new features that add value or these sort of like internal operational things to change pricing, like your bias is going to be The new shiny objects, right? And so I tend to see that's another one of these like excuses for not changing pricing is not wanting to, uh, sidetrack the engineering team.
[00:13:42] And I think the final thing I would add is like, there's this trade off in people's minds around acquisition versus monetization and a lot of early stage companies, especially back in 2021, by the way, said. Well, I don't want to actually monetize right now, or I don't want to over monetize, because that's going to hurt acquisition, and right now we're just trying to make a splash, get as many people using this product as possible, and like, we'll worry about monetization later, and in the times of 0 percent interest rates and, uh, the abundant, you know, availability of capital, that was possible, uh, but I think the world's changed, and so that's no longer a great, uh, excuse, Right?
[00:14:22] And I also think that, uh, that's a trade off that people make up in their minds, and in many cases I've seen there's not actually a trade off in reality between acquisition and monetization if you're approaching monetization the right way. And so I think that that's something that, uh, people should, should, uh, pressure test if that's actually the case in their own business.
[00:14:44] Toni: I actually think the point that, I think it was the second point. I think all of them are super valid, don't get me wrong. I think the second point I can, uh, relate to like a lot, it's this. Uh, really engineering a product being suddenly the bottleneck and change, right? It's the, Hey, we have some of those great ideas.
[00:15:00] We want to do this kind of pricing and this kind of monetization, but now it needs to be lived and actually, you know, operated like this in the product to a degree, and this is, you know, me speaking from a CRO perspective, not from a CEO perspective, but to a degree. You're offloading, um, you know, things that, uh, generate, you know, revenue on the CAC side.
[00:15:20] So on the customer acquisition cost side to the, to the R& D side, which may or may not be a great idea, by the way. So especially from a COO's perspective is a pretty cool way to say like, Hey, this is, this is how product can deliver immediate impact to us today by actually delivering some of those product pieces in order to deliver different packages, um, and then seeing almost a magical lift, right?
[00:15:42] Because. Your first, your very first statement was almost like, Hey, it's one of the cheapest way to kind of get more revenue and get that stuff up, right. From a sales and marketing perspective, for sure, but probably not always from a product perspective. Right. So it's like, if you, if you put those two things next to one another, it can be a really cool way for RevOps or CROs to think about, okay.
[00:16:01] Um, can we transfer some of the cost over and then see the benefit immediately on the, on the revenue side? I hope made sense, kind of my, my kind of scrambled kind of point here, but that's kind of how I'm thinking about it.
[00:16:11] Kyle: Yeah, no, I, I hear you on that. I, my, my... Responses. It's like one is you don't actually always need to make big product changes to, uh, Allow for these pricing and packaging changes. And I'll actually see a number of companies test new pricing before they have things like the feature gates or billing set up in an automated way.
[00:16:34] And they want to get confident that, like, it works, it makes some real money, and then they'll allocate the product and engineering resources accordingly. And, you know, while that can come back to haunt you. In a couple years like it it actually is a I found a pretty effective way to de risk these changes and then to fund some of these Pricing improvements and the other thing is like we have A lot of innovation in terms of like pricing technology and underlying infrastructure that folks can use to automate pricing and packaging changes Uh, without relying on their own engineering resources.
[00:17:15] And those, uh, technologies, many of them are companies in seed stage or series A, series B. Uh, they're new to the market and they're very underpriced. And so I'm hoping that some of this wave of innovation makes it just much easier for folks to make the changes that are right for the business without worrying about this like big cost or roadmap sort of bloat that comes with it.
[00:17:42] Mikkel: So one of the things that you said earlier was, you know, for many companies, they, they go for the tried and true. Deploy the pricing and packaging. They don't have the dedicated resource to basically help build out, you know, how should the pricing evolve over time? So if we kind of focus on that segment for a second, how, if they understand now the value of actively working with pricing and packaging, how would you potentially advise them to go about it?
[00:18:09] Because we just talked about. The whole. R& D side is a factor and there are so many things you basically need to push forward internally to make it also succeed at the end of the day. There might be a CSM that has to break the news to a customer, right? So how, how should a company go about basically deciding either to, you know, change the pricing and packaging or lift the prices?
[00:18:31] Kyle: Yeah, I mean, the first thing to me is, uh, getting pretty clear around the current state and your goals as a business. So are you trying to drive revenue? Profitability, Acquisition, like what's most important. Uh, Multiproduct Adoption, right? Uh, and then how is the pricing working for you today? So what are your win rates when you lose a deal?
[00:18:57] How frequently is it because of pricing? How frequently are you discounting or feeling like you need to discount in order to win a deal? Are customers buying Package A or Package B? If they buy Package A, do they upgrade to Package B? You should really get a lay of the land for how your pricing is working today, and is it working as you would intend for it to work as a business?
[00:19:20] And that's something that most folks don't have the best handle on. And when I'll work with portfolio companies, we'll sometimes look at, um, Packages, and you'll see like a good, better, best package. And good is a relatively cheap offering that's a great way to get people in the door, right? And the idea normally is that that helps you land new customers who could then expand into other packages.
[00:19:43] But I'll sometimes see the good package is like so watered down, uh, or attracts like such the bad customer in the first place, that... The churn rates are really high and the expansion isn't there. So it's not doing its job and you should just actually get rid of that package entirely, right? But most folks are not looking close enough at pricing and packaging KPIs to be able to make incrementally better decisions.
[00:20:07] So, uh, start there, get a handle on your goals, current state. And I'd also do some evaluation around the alternatives for your customers. And so that's, uh, you could think of that as competitive pricing research. But for many innovative companies, there's not necessarily an apples to apples company that does exactly what you do.
[00:20:27] And the alternative for your customers is probably not buying a competitive solution, it's probably not buying any solution and kind of getting by as is. And so if you can get a better understanding for what's the essentially current cost for your customers of doing this themselves, how do they think about doing it, how much headcount does it involve?
[00:20:48] What's the benefit of adopting technology like yours? Like, what's the actual ROI or economic value that you're able to provide? And that's a really great, also, North Star, to be able to help you communicate any changes because you know that it's still going to be helpful for the customer aligned with what they're trying to achieve.
[00:21:06] So I start there and then there's a lot of like potential next steps based on what you learn. Uh, but in many cases you could either say, Hey look, these are some quick changes that we can roll out this quarter that are low risk that, uh, really drive near term KPIs. But then there's probably also opportunity that you'll find for like bigger strategic projects to, for instance, totally explore a new value metric or a new pricing model like we're going usage based instead of subscription, right?
[00:21:36] Like those are bigger things that require a lot more work, but, uh, this upfront, uh, work can really take as little as one to two weeks, uh, and then allow you to determine if you should take that next step or not.
[00:21:51] Toni: Quick follow on question on this year, actually. What's your, what's your perspective on consultants? There's a bunch of pricing consultants out there, and especially when you're a scared CRO, scared CEO, scared, you know, VP of CS, would you recommend the use of, uh, of getting consultants in? Or what's, uh, what has been your experience with that? I mean,
[00:22:11] Kyle: Uh, well, I'm speaking as an ex consultant. Uh,
[00:22:14] Mikkel: exactly.
[00:22:17] Kyle: uh,
[00:22:17] Toni: me like five seconds. I could see the
[00:22:18] Mikkel: train going. I know. Is it light at the end of the tunnel?
[00:22:22] it's a train.
[00:22:22] Kyle: Uh, but I mean, yeah, honestly, there's value that consultants can provide in terms of, like, they have playbooks, they have frameworks for doing this, they have a ton of analysts who can, uh, take work off of your plate, right? Uh, but to me, if you're a company that has, say, less than 20 million in ARR, uh, I would not outsource to a consultant.
[00:22:45] Uh, and I think in general, most companies should... Should be thinking about building a muscle internally that can do this again and again. Because you're not going to make like one big pricing and packaging change, and then you're set. This is something that actually should become a pretty strategic capability in your business.
[00:23:05] And it's actually like more affordable in many ways to just build the capability versus outsource to a consultant. And so I think that to me, uh, My bias is Build the capability internally, and then if you need help outsourcing, like, some sort of data analysis, surveying work, other things, there's a lot of great help that you can get from third parties, but you shouldn't just totally rely on those third parties to go away, get you the answer, and then everything's solved.
[00:23:36] Like, you need to be owning it yourself, and having a point of view yourself. Uh, so that's my, kind of, first big takeaway. And then I think like the big thing that a lot of companies need help with is, uh, having someone who has a lot of expertise and has seen examples of like the good and the bad, they can just like pressure test how they're thinking about things.
[00:23:58] Expand their universe of ideas or like just give guidance on Analyses to run or like what what to tell the team. And so I'm seeing more Interesting third party advisors that don't act like consultants like they don't run a Big project with three analysts and charge you a million dollars. But there are people that maybe give you a couple hours a week, uh, or, you know, five to 10 hours a month.
[00:24:25] And those people can just make you a lot more confident that you, uh, went about it the right way and that, uh, you're going to launch something that's going to be, uh, impactful for the business. And I think that's something that, you know, you see those kinds of advisor types of roles pop up. All over the growth landscape and I find that those functions can just really accelerate learnings for companies knowing that you're not going to overnight have people that have 15 years of experience doing this exact thing on your team, but you can leverage the experience of people who already have that and work with a bunch of companies.
[00:25:02] Toni: If you, if you do have it in house and let's just say the CEO, um, you know, doesn't own it, or obviously doesn't actively work on it, what are the titles or what's the department, what's the team where you usually would anchor pricing?
[00:25:16] Kyle: Uh, well it's not really a usually, it could literally live anywhere. I've seen it in product, in marketing, in sales, in ops, in finance. Uh, it literally can live anywhere. Key things to me are like, having someone own it is more important than exactly who owns it. But that someone should be, uh, data driven.
[00:25:42] Able to work cross functionally to get input from a bunch of different people. Thinks from the mindset of the customer. Uh, because it's really important to be able to... Position and Pitch Pricing in a way that customers are aligned with. Uh, and so, in the best organizations, it tends to be in product marketing.
[00:26:02] It's kind of the function that's like most equipped to be able to run pricing and packaging projects. Say it's either that function, and monetizing new products. Maybe it just lives in product management. And then the third place is like a... BizOpps type of function that's good at running like strategic cross functional projects.
[00:26:25] But you tend to have this owner who's the quarterback on pricing. They recommend pricing changes, they do the analysis, they do the research. And then you want a steering committee where you have leaders from different functions that can weigh in. Uh, and that can also sign off on any pricing proposals.
[00:26:42] And that's a group that like, if that group is not all aligned and bought into these changes, they're going to fail because sales isn't going to know how to pitch them the right way. Uh, there's going to be a coordination problem across the team. You're also going to be missing insight from different stakeholders who have really important perspectives.
[00:27:00] And so, have someone own it, treat them as a quarterback, and then have a steering committee involved.
[00:27:07] Mikkel: So how do you, how do you make sure you make sure you then stick the landing afterwards as well, right? So it's a great thing you have the steering committee involved because work needs to happen after, but I'm thinking about the sales team in this case, right? And, um, what happens ever so often is they have some.
[00:27:23] leeway to offer a discount. And if you're increasing the price 10 percent and they just, increase the discount, it doesn't really do too much for the business at, at the end of the day. So how, how do you navigate the kind of the implementation afterwards to make sure you also get the benefit out of it at the end of the day?
[00:27:40] Kyle: Yep, that's a good, good, uh, question. So to me the, often the first thing that I'll see companies, uh, do is pilot new pricing changes. Especially if you, If you publish pricing on the website, it's fully self serve, right? That's kind of a different model, but we'll set that to the side. But if it's a sales rep driven process and negotiated pricing in some way, you might want to look at taking a couple of forward thinking reps who are generally folks who have tenure, who consistently hit quota, and are open to new models, or maybe even been asking for new models because they see the benefit.
[00:28:19] And those are often people that everyone else on the team looks up to and wants to emulate. If you work with them on a pilot, you'll, uh, understand objections, right, that come up from customers. You'll maybe collect some gong recordings of how, like, what good looks like in terms of pitching. You'll be able to refine things like your proposal documents or your talk tracks.
[00:28:40] Um, and you'll ideally have some success stories of, hey, look, We sold this deal for 20 percent more than we would usually have sold this deal. It closed in this fast of a sales cycle. And ideally there are enough of those proof points where other reps are like, Hey look, I think I can actually hit my quota faster if I had access to this pricing.
[00:28:59] And instead of something that you have to like push out to the team, it ends up becoming something that like, you're having to say no to people who want in on it. And all of a sudden it really changes the dynamic. And so I think that piloting process is really kind of underutilized at companies and just gets such great feedback for rolling out pricing.
[00:29:20] So I like to start there and then move the rest of the team. And, at that point, it's usually an easier battle, but, uh, if you find that there's not the adoption, or maybe there's a lot of, like, systematic picking apart of, uh, pricing changes, that's often, you know, someone in, whether it's a sales enablement role or a RevOps role that goes and works with the individuals or the managers involved on a case by case basis.
[00:29:49] There's a number of interventions that you can do, uh, I actually like to start by just understanding. Their side of the story, and what the, you know, why the sales rep is acting in a certain way. Uh, but then there's interventions, like, I've seen companies that have this, um, This challenge of sales reps just resorting to discounts that might make, uh, price part of the sales rep compensation, where there's a certain level of discount actually hurts their ability to hit quota, or gets, um, it sort of comes back to, how much money the rep makes at the end of the day, right?
[00:30:24] So if you sell a deal at list price, that maybe gets a multiplier. If you sell at a 10 percent discount... That's maybe the standard quota attainment. If you sell at a 20 percent or more discount, you're going to have something taken off, um, or penalized against it. But that's just one intervention, and that's not needed in most companies.
[00:30:43] And so, I think if you set up the rollout in the right way, like I described, you often don't need to go to these interventions, but, uh, there's a number of things that you can do depending on what you learn.
[00:30:55] Toni: And if we kind of flip over to the other side of the bowtie, so to speak, right. We talked about the new biz and the acquisition there. Um, and again, let's, let's stay in this mid market. There's a salesperson involved that sometimes then is a CSM or account manager involved on the, on the existing customer side.
[00:31:11] Do you have any pitfalls to watch out for or tips to kind of give our customers on executing the price increase there? Because that's really the big lever to pull, right? Kind of sure, new business is kind of great, but if you're able to roll out the price increase on your existing customer base, that's a lot of money in some cases.
[00:31:29] Kyle: Yeah, it's a good call. Uh, so, it, the opportunity from pricing changes varies a lot depending on the stage of the company. For an early stage, like, hyper growth company that has less than a million ARR, migrating existing customers to new pricing doesn't have nearly the impact of rolling out pricing to new customers.
[00:31:50] Just because... The majority of your revenue is coming from acquisition as opposed to expansion and renewals. But once you get to call the 15 20 million plus ARR mark, that starts to flip and a lot more of your revenue comes from existing customer with retention and expansion. I mean, much less comes from new acquisition.
[00:32:10] And so that's when you really do start looking at that existing customer migration strategy as just much more. Uh, what I, what I think about for it, for this mid market company example is that, uh, you don't want to migrate customers to new pricing multiple times, like over the course of a year or two years.
[00:32:31] So you need to first be really confident with, with what you're doing before you migrate folks. I think the worst cases I've seen have been folks that, uh, launched something. If there wasn't a great response to it, they tried something else, they launched it, and customers just keep feeling whiplash and don't feel a whole lot of trust in that vendor.
[00:32:52] And that's, you know, one of the worst kind of things that can happen to the business. So make sure you're really confident in what you're doing. And you can get confident by testing with these new cohorts of customers and these forward thinking reps. I think for your... Existing customers, a lot of them are going to be on annual plans or almost all of them are going to be on either annual plans or multi year plans, and you're not really likely changing their packaging and their pricing.
[00:33:17] Midway through an existing contract, there's a certain time period ahead of their next, ahead of their renewal cycle where you start to raise it, right, and bring it up. And so I think for many companies, you actually have a great test environment where you're not necessarily communicating to 100 percent of all of your customers at once, but you have waves of renewal conversations.
[00:33:40] And so you can really... Hone the motion for that first wave before making a big deal about it before putting it on your website that it's happening. Like the communication can really happen one to one and that one to one communication with your customers just allows them to understand where you're coming from. Understand the choices involved for them. Understand why you're doing it, and I think it just smooths the response. Other things that come to mind for me are there's always going to be Some exceptions, or like the need for exceptions in these changes, especially if you do a bigger pricing change, like the changing the metric around your pricing, you might look at, um, well, an analysis I recommend most people do is a before and after analysis where they look at how much customers pay on the old pricing, what would be the recommended plan and price in the new world, and what's the delta there.
[00:34:36] And you can start to overlay that with the customer health score that you might have of, this customer is at risk of churning and we're looking at a 100 percent price increase. Well, that's probably an exception that you make, right? So the first thing is, do that scoring and there's maybe some people that you pre designate for exceptions.
[00:34:54] Uh, but either way you understand, like, what's the potential impact and you have probably different migration scenarios. For those different customer targets. And then for others, I tend to personally like having, uh, customers have some sort of sense of choice. And so, uh, it might mean keeping their existing plan, for the next year, but not getting access to any of the new features that you're rolling out with.
[00:35:20] But they can kind of have that consistent price for at least 12 more months, or opting in to migrate to these new packages. It could mean, maybe they could actually... Keep their price by downgrading to a lower tier package, but they lose some things. Or they could upgrade to the next tier for just a little bit more money.
[00:35:39] Like, I think it's always great for a CSM to have a recommended plan for the customer, but then also a fallback option so the customer always feels like they have a choice. And like, Netflix is a good example of this. When they rolled out... Some of their early pricing changes, they would usually also have a fallback where someone could keep their same price or keep an affordable plan, right?
[00:36:01] But that plan might be an ad supported plan or might be limited to one active device at any point in time. But for customers, it makes them feel less strong armed because they're kind of opting in to the pricing change in order to kind of get more value out of the product.
[00:36:19] Toni: I think the optionality is a, is a, is a really good call out. Actually, I can, um. I haven't thought about it like this.
[00:36:26] Mikkel: So just, um, we've talked a bit about some of the things, let's say the best practices, really, and, and some really good, tips on the approach. I also think sometimes you can attempt to be smart and do that or just avoid being stupid, Because there are a lot of stupid mistakes you can make with the pricing. And you mentioned Unity here, uh, probably someone who is about to change their pricing is Airtable as they're going enterprise, right? Given your position, you've probably seen a lot of mistakes. You've probably also helped people avoid mistakes.
[00:36:57] What are some of the things really to watch out for if you're going to start to work on changing your pricing and packaging? Just so, you know, just so we don't sell this promised land of, yeah, you're going to grow way faster if you work on pricing. And then a lot of folks, they start doing it and, you know, it goes the opposite direction.
[00:37:14] Kyle: Yeah, well, uh, I guess one is, it's very hard to change the underlying model of your pricing for existing customers. It's much easier to change the price point themselves or like the package itself, right? But the underlying model just gets way more complicated and so That would be something that I if I wanted to change it I'd want to do it early on in life cycle of a company where there's much less risk involved or But just being mindful that if you say change from a seat based pricing model to a usage based consumption model, that's going to be totally overwhelming to many of your customers.
[00:38:00] And that's going to be, you know, it's doable. And there's a number of companies that have had success with it. But that's something that has a lot more risk involved and needs a ton more preparation to get right. Relative to like, hey, we're increasing prices by 15%. If you look at just about everyone has done that in the last couple years.
[00:38:20] Inflation's a thing. Customers understand it. They might try to negotiate with you and ask for a discount, but like, that's very unlikely to, to cause a backlash. I think it, like with the Unity example, the challenge was, uh, they're charging on a totally new metric that they've never charged based on before.
[00:38:39] Many of their customers see it as gouging, um, and they feel like there was a bait and switch because over like the 15 years before that, it had never been part of the pricing model. So they made certain plans around their business that are no longer, um, things that they can expect going forward. And so it just was extremely challenging for customers to wrap their head around it.
[00:38:59] Uh, other things that come to mind for me is like, give your customers, for bigger changes, give your customers some... Lead time to be able to budget for it and, and, uh, be able to prepare themselves. And so for many companies, they're actually open to higher prices or, or new pricing. Uh, but if they went in and asked their boss for a certain amount of budget and had it approved, and then all of a sudden the renewal notice is for something totally different from what they expected, that makes them look really bad in their organizations.
[00:39:32] Uh, And so, just understand where your customers are coming from, and in many cases, they are totally open to working with you. Um, but you have to be, uh, ideally, somewhat transparent, communicate in advance, and be patient with them as they navigate things.
[00:39:50] Toni: So we're, we're soon coming up on time. So maybe this is one of the last questions, actually. Um, Pricing on the website, yes or no? It's like, it's the all time evergreen, always on question. So what's your, what's your perspective on that?
[00:40:05] Kyle: Uh, if you're a PLG business, I think it's a requirement, right? People aren't going to sign up for a free trial or freemium product unless they... I feel like they're not going to be paying like a million dollars after that product expires. Uh, I actually was, it reminds me, I'm planning a trip to Costa Rica and a shuttle service uh, asked me to add my credit card information to book a shuttle but they didn't tell me what the price would be.
[00:40:31] Like, I'm not going to do that, right? Uh, and so, self, uh, transparent pricing is a no brainer if PLG is part of your strategy. I think the other thing for me is, uh, Depends on deal size, so I tend to find if your deal size is under about 10k per year or 1000 a month, Transparent pricing is relatively commonplace, relatively expected.
[00:40:54] And it's a high volume, high velocity sale, and so in some ways you might just want to take objections that might come up and just get them out of the way. So reps aren't dealing with objections, but they're dealing with much more qualified. Customers and you also take some of the negotiation out of it because pricing just feels like hey This is how pricing works like works this way for everyone it can lead to better quality deal conversations and faster sales cycles. But if if your average deal size Or even starting deal sizes above 10k.
[00:41:26] There's very little expectation for transparency. And so where my head goes to for that is, if you're going to win on price because you're like way cheaper than alternatives, for whatever reason, maybe you have a technological advantage or you have a totally new customer friendly pricing model, it's in your best interest to actually Put pricing on your website because it's part of your talk track of how you're different, how you're better.
[00:41:51] But for most SaaS businesses, they don't fall into that camp. And so, that's something where there's not a whole lot of value to doing it. I think maybe that'll change as pricing gets more transparent through third party Services like Vendr, uh, but I think for now, there's a number of inputs that go into, you know, what's the right package and price for a customer, and, uh, you need to have a conversation to get some of those inputs, and to also help the customer understand what you offer, and so, uh, it's not a requirement, and not something that I am like..
[00:42:28] You know, you're dead if you don't have transparent pricing. We're not at that point. So hopefully that helps folks understand the nuances of what can seem online like a very black and white conversation.
[00:42:42] Mikkel: Do you want to wrap it, Mikkel? Yeah, so, I guess the last, uh, last piece is when this episode airs, it's going to be close to, uh, well, honestly, I think many people, they are planning right now and, uh, you're gonna ship something that's going to be really helpful for those folks really soon, right?
[00:43:00] Kyle: I hope so. Uh, so, uh, in my role, I've gotten questions all the time of, Hey, uh, what's a good growth rate for a company of my size? What, how much money should I expect to burn in order to fund that growth? What's the right headcount, you know, for, to think about for next year? How should headcount sort of vary across marketing versus sales versus other functions?
[00:43:25] Like, there's so many of these questions that come to people's minds. And, uh, it's very hard to have objective data for private companies. There's plenty of public company data, right? But most folks, if you're a 20 million, 10 million ARR, That's just not you. And so we've surveyed a hundred, or seven hundred SAS companies around all things financial metrics, go to market metrics, operational metrics, and we'll be dropping, um, our believe it's 6th Annual SaaS Benchmarks Report.
[00:43:56] I might be wrong. We might have done more of that more than that on November 8th And so it's it's gonna have really all the metrics that you need to understand how you stack up to your peers And then help you plan for for what's to come in 2024
[00:44:13] Toni: Wonderful. Kyle, thank you so much
[00:44:15] Kyle: thanks
[00:44:15] guys
[00:44:16] Toni: joining, Kyle.