Freshsales CRM partnered with Patrick Campbell (CEO, Price Intelligently) for a webinar on “How to supercharge revenue with a value-based Pricing strategy” on January 31, 2018.
Here were some of the takeaways:
- The core principles that power the best pricing pages
- A framework for continually optimizing your pricing
- Easy changes that can boost your revenue
- The most common pricing mistakes
Janani: Hi everybody! Thank you so much for joining us live on the webinar today. My name is Janani and I head marketing at Freshsales. So, for those of you who don’t know Freshsales, it’s a great, easy to use sales CRM product from Freshworks with features like AI based lead scoring, built-in phone, visual sales pipeline, and great reporting.
We help businesses of all sizes scale and optimize their sales processes. So, I’m super excited today to have Patrick Campbell here. For those of you who don’t know Patrick, Patrick is the co-founder and CEO of Price Intelligently, the industry standard software for helping companies like Autodesk, Medium, Lyft with their monetization and retention strategies.
Welcome, Patrick! Patrick is also the maker of ProfitWell. You must have heard ProfitWell. They’ve been making a lot of noise lately. A turnkey solution that powers the subscription financial metrics over 5,000 SaaS companies. Prior to Price Intelligently, Patrick was at Google and was also at Gemvara.
Patrick had recently come over to Freshworks and we had a really great workshop and we will be blown away by some of the insights. So, as a SaaS company that is really great for us. So, we’re really excited that Patrick is on board with this webinar today. Thank you so much, Patrick!
Before we begin, I also want to let you guys know that this webinar is being recorded. So, if anybody interested in listening to the webinar again, we will be providing you with a link of the recording by next week. So, yeah. Thank you, guys, and over to you Patrick.
Patrick: Yeah let’s do it. Well, thank you so much for having me. We’re going to go through a lot today. So, let’s just jump right in. Just a couple of other housekeeping items here. We’re going to be doing just kind of set expectations here is really walking through initially why pricing and your monetization is so important, not just in general but right now in the current kind of economic and market that we’re in.
We’re going to talk specifically and more tactically on how to quantify what is called your buyer personas. And if you’re not sure what those are, we’ll explain what they are in a bit but they’re crucial to a value-based pricing strategy. And then finally we’re going to you know give you a nice detailed playbook for increasing your revenue on pretty substantially using pricing.
Now to be clear though what this webinar is not, first off, unfortunately, and we’ve been searching for a long time for this. There’s unfortunately not a magic formula that can give you that requires no work at all. Pricing and in taking advantage of pricing does take a bit of work and you can do it in a very very tactical and very very targeted way to make sure that you’re doing it properly. The final piece that this webinar is not as a pitch tone.
So, there’s plenty of time outside of this webinar for us to talk about what we do and Freshsales talk about what they do, but it’s one of those things where we want to make this a nice educational experience. So, as was mentioned, webinars being recorded, all the slides, materials all that type of stuff will be sent out and we’ll have plenty of time for questions. So, with that, let’s jump in.
The big thing initially is you know who in the world are we or am I in order to talk about this? So, as was mentioned, we have a couple of different products. I won’t go too deep into anyone in particular but I will say for the past five or so years, we’ve been helping some of the best and brightest in the subscription and SaaS economy essentially with their monetization and their pricing, some of the logos are here and we’ve also a product called ProfitWell which is free subscription financial metrics that plugs right into your billing system.
I’m giving you this context obviously not to sell you, to no pitch on, but essentially to let you know that at this point in time we’ve actually seen inside more software and subscription companies than anyone else out there. We have about 25 percent of the subscription market actually using ProfitWell and that’s provided us a significant uplift when it comes to understanding what data is actually important and what data can actually teach us about how to help our pricing and ultimately how to grow our subscription in our SaaS and software businesses.
So, with that, one thing that we found particularly in the past couple of years is that growth is pretty dramatically changing and unfortunately what we think is working or what we think works to build a particular business, and this is if an independent of a subscription or a SaaS business, actually doesn’t work anymore. If we continue to build businesses in the same way that we were building businesses 5, 10 or even 3 Years Ago, it’s, unfortunately, going to have dire consequences on our growth.
We’re going to unpack this through some heavy data so you don’t have to take my word for it. But we’re going to unpack this and the first part of this is probably going to make us all feel a little bit bad. It’s not my intention to make you feel bad. It’s just kind of the reality of some of this data unfortunately but then the second half we’re going to build everyone back up and basically give you some of these tactics through pricing that you can use in order to basically overcome some of these things.
But to kind of dig in from a very very macroeconomic or a very high level, we’re living on another planet. When I say we’re living on another planet, I’m referring more towards the fact of if you were building a company 3, 4, 5, 10 years ago, the world was very very different. Today we have the ability to spin up software products, to spin up any product or landing pages or ads or anything to build a business in seconds and minutes rather than days or even weeks that he used to take 5, 10 or 15 years ago. What that’s caused, unfortunately, is a world where competition is now rampant. So, we actually went out and we talked to a bunch of different companies and we asked them Hey! In your first year of doing business, how many competitors did you have? What we found is that five years ago, you’re averaging probably around three different competitors and today you’re actually getting into double digits. This is what’s created you know maps that look like this. The chief martech kind of marketing technology landscape where essentially there’s a significant number of companies out there.
Unfortunately, all of these companies here, every single one on this particular map here, their whole goal is to basically help you grow your business. So, this doesn’t even include Dev apps or Dev products or you know even some of the other kind of functional pieces that we have within our business. So, what’s amazing about this though is that the reason so many of these companies have been able to kind of spur up and start to exist is because one technology is getting easier and easier to build. We don’t have to kind of have servers in a closet somewhere. We can just kind of basically build a business very very quickly but also sales and marketing channels were plentiful. I say, “were” very very specifically because we are living in a time where we can market and sell in so many different ways. But if you built a company 10, 15 years ago what was really interesting is that almost every single quarter, almost every single year within your business you were getting a new major marketing channel that you could take advantage of. That was really cool because when Facebook ads first came out you could basically spend very very little amounts of money and get a really really high return. Same thing with AdWords, same thing with some of the other major sales channels, but what we’ll notice saying in the past couple of years is that it’s leveling off. So, what I mean by that is if you’ll notice in the past three years, these last three bars in the graph, all of a sudden, we’re not getting a major marketing channel every single year that we’re able to utilize. We’re getting less and less, so all of a sudden, we need to use the marketing channels we have much much more effectively and that makes it a little bit painful for a business. And the fact that we’ve actually lost a lot of our power. What’s happening with all of these different people marketing?
The limits of marketing channels as well as all this technology being built and all these companies being built, we’ve lost a lot of this power in the sense that CAC (Customer Acquisition Cost) is actually increasing pretty steadily over time. We noticed that in both B2B and B2C environment, your customer acquisition costs which might have been let’s say $100 five years ago is now $150 – $170 today for that same customer and that increase is pretty substantially especially if you’re running a business at scale because obviously, you need to bring in more money than you’re actually spending so all of your margins are start to go going down in terms of what’s actually happening with your acquisition world. Now it’s fascinating is while this is happening. Because all of these different companies are coming out and all these different competitors are existing. All of a sudden, we’re also noticing that the relative value of features or the relative value of software, in general, is declining. So, 5, 10 years ago you might have been able to sell a Salesforce integration for $1,000 per month and that was in addition to the core product that you’re already selling. But today, that’s something that’s just expected. We can see this anecdote in the real live data here when we look what’s happening on this particular graph. So, essentially a product that was worth $100 five years ago is now only worth you know $30 – $40 today which is pretty extreme when you think about it but it’s also pretty intuitive if you think about it because all of a sudden, it’s easier and easier to integrate apps. It’s easier and easier to build products. It’s never going to be perfectly easy but it’s definitely one of those things where all of a sudden, we can’t differentiate on having features when it comes to boosting our value and boosting essentially the willingness to pay of customers.
In light of this, what we found is that costs are going up, prices or willingness to pay is essentially going down and unfortunately even though software is so beautiful today comparative 10-15 years ago, consumers and our customers are really really ungrateful. We looked at NPS (Net Promoter Score) scores across multiple different types of businesses and across multiple timelines here and we actually found that NPS scores on average are actually going down. So, if you don’t know what NPS is, that’s okay. It’s a measure of customer satisfaction. So, folks five years ago we’re seeing an average of about 34 in terms of their NPS score which isn’t phenomenal but it’s definitely pretty good and the scale is -100 to about 100. It’s a little confusing if you’ve never kind of come across it but you can definitely see even if you haven’t worked with NPS before that today or as of a year ago that NPS score is essentially dropped to almost 10 here.
What’s fascinating about this is if you really take a step back and look at what’s happening with software, it’s one of those things where you’re having this moment where everything is great but no one’s really happy.
If we go a little bit deeper now and a little bit you know taking this back to pricing a little bit, what we’re noticing is that what once worked it’s just no longer working in this environment. Our playbook 5, 10 even 3 years ago was to acquire acquire acquire. All we wanted to do was acquire as many customers as possible. When we asked a bunch of founders and executives what basket of their growth would they put all of their eggs as they say? Meaning if you would you put all of your resources and acquisition, all of your resources and monetization, all of your resources in retention, what we found is that on the whole, everyone said I want more logos. I want to acquire more customers. Of course, that’s pretty intuitive because obviously, you need customers to grow your business but this included startups, this included fortune 500 companies, all types of people in this data. What we’re finding when we go into the actual market data of a business is that acquisition is now table stakes. What I mean by that is if you just want to survive, meaning you just want to keep stagnant, not grow but just survive, you’re only going to focus on acquisition.
We found this by looking at data where we isolated the relative impact of acquisition, monetization and retention meaning we improved each of those levers in a business and we looked at what was the relative impact and what we found is that a 1% improvement in your acquisition meaning if you improve your lead volume by 1% or you improve your conversion rate by about 1%, four or five years ago you were seeing a 3% or just over a 3% boost in your bottom line which isn’t bad. But if we look a little bit closer to today, that’s actually diminished to just over 2%. It’s actually dropped by 1/3. And if we look a little bit deeper into that same 1% improvement for monetization which is improving ARPU (Average Revenue Per User) or your same 1% optimization on retention which is your churn rate, we’re actually seeing that the relative impact on your bottom line is much more significant. So, that same 1% improvement in your monetization comes with almost 13% boost in your revenue and that same 1% on retention comes with almost a 7% boost and that is actually accelerating when we look at closer to today versus four or five years ago. But unfortunately, if you remember the graph above, all we’re doing is we’re focusing on those particular customers that acquisition.
We’re not focusing on how much money they’re bringing us or how long those customers are actually sticking around. What’s interesting about this is when we dug a little bit deeper because we wanted to know why. Why is this happening? People who work in startups and SaaS and software and subscription businesses, they’re not dumb. We’re all intelligent at some level but why aren’t we doing it and why aren’t we realizing this growth potential? What we found is that if you were building a company 5, 10 years ago, it was actually okay to be lazy with customer development. Customer development for those of you don’t know is essentially customer research. If you ask any luminaries in Silicon Valley and you say, Hey! What’s the one thing if you could distill everything down to one piece of advice, more often than not it’s hey, you need to focus on your customer. You need to talk to your customer. You need to go to your customer. But unfortunately, what we found when we talk to a bunch of different founders and executives out there is that none of us are talking to customers. The average number of customer development conversations that we’re having every single month is actually less than 10 for most of us and these are conversations that are anon sales conversation just basically trying to figure out what makes sense in order to grow a particular company or grow or build for a particular customer.
When I show this slide to a lot of product people they like to say, oh! What we don’t do customer development conversations but we do a lot of AB tests. We do a lot of experimentation. Unfortunately, the data suggests we don’t. Nearly half of us are running zero tests per month and this includes things like marketing tests meaning we’re not even testing subject lines which is probably the easiest thing that you can AB test in the world. What’s scary about this is that this is causing us to essentially build the wrong product.
In order to introduce this concept, if you’re introduced a little bit of a model that you probably haven’t seen before but for any MBAs on the call, it’s a classic 2×2 that you may have seen. What we’re going to look at is if you think about value and pricing for any product and this is kind of where we transition into how we actually help on pricing. If you look at any product there’s two axes upon which you can actually evaluate something. The first is what are the attributes of that particular piece of product? So, if we talk about a cup of coffee, we might think well that cup of coffee has five different attributes. It has a temperature. It has color. It has taste and its country of origin. Has a number of different things. What are the one things of those features are one of those attributes that you really really care about? And we can represent that value along this x-axis. And then more commonly, what is the willingness to pay for that cup of coffee and what can we find is the actual dollar amount that people are looking for and we can represent that on the y-axis. So, if we find a particular feature that is really really well-liked as a group and also the willingness to pay is very very high, we have what’s called a differentiable feature. So, this would be in the cup of coffee example, maybe something like the taste. You know if you want something that’s really really high tasting, you really really care about it and you’re willing to pay for it, that’s a differentiable feature.
Now if we have a feature that isn’t really cared about in the aggregate but the people who do care about it are willing to pay for it then you have an add-on. This is something when it comes to a cup of coffee like the country of origin. Or if you’re talking about software, this might be Analytics or a Salesforce Integration where the people who really really care about it are willing to pay something for it.
Now if you have a feature that everyone cares about but they’re not willing to pay for it. You have a core feature and then, in particular, my favorite quadrant which is something that no one cares about and no one’s willing to pay, we have trash land. Now what’s fascinating is we went out to I believe it was about 5,000 different companies and product leaders and we asked them to manually input where they think their last features were on this particular map. What we found is that most product people out there think this is what you’re building. They think this is how they’re building. They think this is exactly what’s going on with their product but then we went out to a million different consumers of software and different products and we asked them about willingness to pay and we also asked them the features that they care about and they don’t care about. What we actually found was that this is actually what we’re building. So, I’ll show this to you in a little bit but this is what your product team thinks they’re building and this is what your customers believe that you’re actually putting out there. This is pretty scary because we’re really really confident in what we’re building and we wouldn’t build it if we didn’t think it was valuable but a lot of us aren’t doing our homework and aren’t talking to our customers. That creates an environment where there’s really really clear winners and really really clear losers. We actually went out and we looked at growth rates from companies that were doing their customer development and those customers that weren’t doing their customer development and we found that you know essentially five-six years ago those companies that we’re doing their customer development and the lighter green here, they were growing at you know around 30% more than those companies that weren’t. But that Delta has gotten significantly higher now that we look at today. And this should really be scary.
To bring this back to kind of pricing and kind of go a little bit more tactical on the pricing side, the reason that this should be so scary is that when you think about your business, it doesn’t matter if you’re a non-profit, a for-profit, if you’re selling you know a retail product, a SaaS software product, a subscription, anything, but if you think about any products that are out there, your whole point of why you’re in business is to drive a customer to a point of conversion. So, to basically drive someone to a point where you say this is where you should buy and then to justify that product or justify that price. But if you have no idea who that customer is, if you haven’t done your customer development, if you haven’t done your customer research, then there’s no way in hell you’re going to be able to understand how you should price that particular product or how you should actually grow that particular business. Unfortunately, too many of us acquire all we can without actually thinking of that customer and unfortunately because of that data up above it just doesn’t work anymore.
So, hopefully, I haven’t made everyone feel too bad and hopefully, it’s just kind of a wake-up call here but we got to fix this. The best way to fix this is I’m going to actually walk through an example that has enough data that I can actually share. That’s something in our line of work it’s tough to find data that people are willing for us to share with others because it’s very very kind of close to their products. To kind of go back into what our history is as a company, we’ve been around for about six years now we’re about 40-45 people in Boston. We launched Price Intelligently as our first product and then about 3 years ago we actually were looking to kind of get a better lift across the market. So, we went in and we actually were talking to a company that was about to IPO that we were helping with their pricing. What we actually discovered that they were calculating their MRR or their Monthly Recurring Revenue incorrectly. For those of you who aren’t familiar with MRR, this is kind of like looking at your bank account and realizing that you’re basically getting the number wrong, reading the number incorrectly. It’s that crucial of a number. So, we got really really excited. We were like this is a product that we can build, we can basically have them plug in their billing system and instantly get access to all of the different numbers that they need and this is one that we can scale because everyone really needs it. So, we started building ProfitWell and it did not look like this. It looked pretty bad in the beginning. If I am if I’m being honest and upfront. But what ended up happening is we started getting our first 10 kinds of beta customers and we got them really excited about it and started building and started getting them buy-in. We had a couple of companies that were really big and using it, some small companies as well. And we were ready to launch. It was kind of fascinating because within a six-week period, we actually noticed that there were about 4 or 5 other competitors that kind of popped up. Some of them you might have heard of, some of them you probably haven’t but what was fascinating about kind of a launch was all of a sudden within 18 months 36 different products started claiming to do exactly what we were trying to do. This made us pretty sad because we thought this was something really really exciting. We had already put our down payments on yachts. I’m just kidding. We didn’t actually put a down payment on a yacht but we were really excited. We thought this was going to the thing and then all of a sudden, we had all these competitors. So, what we ended up doing is we went back to the drawing board and we stopped building. We stopped buying ads. We stop guessing and checking and we started doing our research. If there’s anything that you take away from this presentation, it should be for the love of God talk to your customer. They’re the only people who are going to be able to tell you what their willingness to pay. They’re the only people are going to be able to tell you what they value and they’re the only people are going to be able to give you this data so that you can then filter it as the product person or as the CEO or as whatever you are within your business and then use it properly within your business.
So how do we do that?
Well, it’s a lot to kind of explain in the rest of the time that we have today but it’s something that we can definitely… We have an eBook that we wrote. It’s about 150 pages. It’s really well chaptered out so it goes through this entire process. But what we’ll do is we’ll kind of go through the high-level and some of the tactical pieces that you can take away today in order to kind of get you started. Your process overall is essentially what you’re seeing on this one slide. What we’re going to do is we’re going to set up an experimental design. An experimental design, it’s just a fancy way of saying hey we’re going to go out and we’re going to ask some people some questions in a very very kind of formatted and formulate way, we’re going to take that data and run it through some basic statistical models, you don’t have to be a mathematician to do any of this. A lot of this you could do in Excel. It’s basic math. You can make the math much more complicated if you want to but it’s one of those things where you can keep it straightforward. We’re going to quantify those buyer personas. We’re going to figure out who those buyers are and then we’re going to basically use that data to kind of inform our pricing strategy. The tools that we’re going to use and we’re going to double click into this even further, one is called relative preference analysis. So, in the coffee example, that’s figuring out do they care about you know the temperature? Do they care about the taste? Do they care about the smell? What do they care about? And then the other is the price sensitivity analysis which is the actual willingness to pay data which is ironically the easiest data actually collect. The way that we’re going to collect this data is actually through surveys.
I know what you’re thinking. Surveys? I hate surveys! And you’re probably right. You probably do hate surveys. But the reason most of us hate surveys and the reason that surveys seem to be an ineffective tool is that to be very very frank with you, we are terrible as is industry and just as practitioners at sending surveys. We like to send 45 questions surveys via email to someone where the first question is what’s your email? And my response is always you just sent me this via email and you should basically not waste my time asking me what my email address is. Those 45 questions are typically way too long. They require way too much of our users. What we really want to do is we want to make sure that any survey that we’re sending that’s non-compensated. It needs to be less than 4 minutes long. In addition to that, any survey should really get down to about 30 to 60 seconds if you want to continually send these surveys out. So that’s a max of 5 questions. When you get these down to 5 questions, you can actually send these out almost every you know single 6 weeks. It makes it really really effective to get that data right in time. But in order to only ask five questions, we need to make sure that we’re asking the right type of questions in order to help these particular users.
