B2B Growth: Your Daily B2B Marketing Podcast
B2B Growth: Your Daily B2B Marketing Podcast

Episode 1658 · 6 months ago

A Guide to a Better Pricing Model with Ajit Ghuman

ABOUT THIS EPISODE

In this replay episode, we're discussing the complex balancing act that is pricing. How can we craft a pricing structure that fits just right when it comes to serving all of our business’ needs?

Ajit Ghuman, Director of Pricing and Packaging at Twilio, has pricing down to a science. He says it’s a path best approached one step at a time. Ajit gives us his step by step framework to simplify the pricing process and how to do it with confidence.

Ajit’s advice: Don’t fear pricing!

Conversations from the front lines of marketing. This is be tob growth. Welcome in to Friday show. Today I am sharing an episode from or Bob Growth Archive. Pricing can be a complex balancing act, to say the least, so the question that we're going to explore today is as follows. How can we craft a pricing structure that fits just right when it comes to serving all of our business needs? A jeep is now director of pricing and packaging at chillio. This interview with a jeet is actually from his time at a previous employer, but man, he has pricing down to a science, and that's why I'm resharing this here today. He says that it's a path best approached one step at a time, and then he breaks down that framework with us to help simplify the pricing process and really help us ensure that we're doing this with confidence. So enjoy this episode from the Archive, a guide to a better pricing model. Here we go, a Geet, a Jeep Gooman, I'm so glad that you get to join us on this show. Thank you having him so par out. Yeah, man, we were talking, I think it was was just before break, but you were born my mind even in Settin up for this call. So I cannot wait to get into everything that we're getting going to get into today. Just to kick off, what is a commonly held belief about marketing that you passionately disagree with? Yeah, about about pricing, right, like is a question or marketing? Yeah, well, I mean for either because usually, yeah, I guess in particular, tell me more of a commonly helped belief about pricing that you disagree with. So, basically, like we were talking last time, and I've been kind of on this process where I've seen so many companies kind of think about their product development process in a couple different silos, and I'm actually really frustrated about it because the product manager says so, it's not my job to think about how this thing is going to be sold and it's not my job to think about how it's going to be marketed or priced as a market and I'm like, but you do know that if you don't think about it, your products not going to be successful, right, and so I do think about it, but what I see is like, time and time again, we are such a technology driven culture out here in the valley that we're like hey, we're just going to build the best technology and we literally think build it and people will come. Not exactly writing. We high the sales people, but it's so true. So much more. It's so true. Yeah, it's like yeah, if it's a good enough product, go worry about churn and pricing and all that later. Yeah, and I mean the honest truth, and this is the marketers truth that people don't like to hear, is like you can have a shitty product and do well and you can have a great product and not do well, and that's the difference that sometimes technical leaders and technical companies don't realize that their exit. I'm sorry to say sales force is not that great of a product, but it still doesn't any well. It's terrible. I hate sales first man, especially it's it is literally the bane of most salespeople's existence because they are like, I'm just doing data entry these days, like I don't actually get sell, but it's their successful company. So they were really good at marketing on the whole whole nine yards of marketing. Yeah, absolutely. So what's the main thing about pricing that you'd say? They people will say, okay, it's this guy's job, it's this guy's job. WHAT'S THE GIST? Is it that it's complex? Is that what you disagree with? Or someone more? That's the impression. So...

...people kind of think, okay, marketing will figure it out, or men, most companies not even marketing. It's people think it's like we don't really know anything about the customers, so we will let sales figure it out. Right. And you find these places and companies with that have just put some random pricing on the board and have survived for so wrong and you look at them like you could have done so much more here and instead of being a twenty million dollar company, you can have been a thirty five million dollar Revenue Company and you could have a double valuation by now, right. I mean that's the literal impact of what you could have done. Now, I'm not saying like see, I am not the founder. I think founders are great, I think they create a lot of value, but I think there is more that can be done and it's not out of reach. In all these consulting companies that offer value, they have experience. But do you really need to spend a hundred K to have somebody else tell you about your startup? Then you you know you know your customers, you know what they like, what they care about. You know how much they're going to pay. It's just the matter of knowing a few steps and a process by which you need to come about. Okay, I've checked off the boxes. I this is my kind of decision framework and now I am confident that I have a pricing structure that is going to do serve my needs. That's really what we're talking about, right. Are you following the simple process that's going to solve you? It's not rocket science and it's definitely not worth the teach you in business school, which you know complex conjoined analysis and you know, let's look at the impact of this attribute. Nobody does it like that and you don't have to. But a GE I get all these people coming to me telling me, work, man, we got a higher this firm. We don't know how much we could charge. What if? We're leaving money on the table? What if? What does it look like? IS THEY SCALE? Will scale look like? So how would you respond to all these? I think I think the too honest people are leaving money on the table more often than not. I don't think the consultancies are bad, right. I think they offer value. I think they have experience, but I think you have, as a business, the most knowledge about your market and your customers and you just need a simple framework. So at my current company, nor where I do all of the pricing and packaging, and this whole realization started once I started this project, is hey, this is actually simple, but there is no document that I can read that just tells me here, just take this sequence of steps to come up with the process. And if I found out what to do by calling people. I'm like, Hey, you're pricing at this company. Tell me how you did this right. So I called five six people in the industry and I just knew what I needed to know. And that's an investment of four or five hours. So that's my pr w right. If you if you know just the sequence of steps you need to take, you can cut all of that out and be more confident. It's really about confidence in the decision that you want to make for your business. Sure, okay. So can you give me example of you know? Where would you start? Where do you even start? How do you even know you should start focusing on pricing? Right? I would say that there it depends on the life cycle of a company. Like, how do you know? At some point, when you're starting, you need a number on the table, right. So it may be that not critical. When you're really starting out and you have a new product in a new market. You just testing things out. Okay, I think you can survive. It's not probably the end of the word. As you get successful, what happens is the decisions you made early on, kind of these implicit assumptions, start to bite you. You start to under under cell. Sometimes you create more friction in the sales process than is actually necessary, depending on how you set up your structure. And I can give you some examples of other value companies that have found that out. And it's a natural, totally natural and expected transition that companies have to go through as they get bigger, they get serious and then...

...they solve this problem. Can you chalk a little about the friction piece? You know, make cutting you are I mean the friction. I'll give you an example, and this is a public example. So mixpanel. I spoke to their head of pricing and they were when they came out, they were charging for their analytics software by event. Right now, event is the only thing at that point that they could measure and track and they said, of you will just give you charge by event and all of these customers, as you have different type of customers using your product, they're like, well, we're not getting valued out of this and you're charging is by event. You know, it's not really proportional to how our users are using the system. Right. So it will okay, it's a fine it's a rough metric, but that company has been allowed for a long time to have only realized it now and that I was like, you should. You guys would probably had changed it little bit. So so I you know, I cover you know, as you know, I'm writing a book on the topic, and I covered this with the head of pricing and he mentioned how they selected a new pricing variable which now was like the trackable users on the website, similarly to the daily active users on a mobile. Now that is more, much more relevant to business, because they're like, okay, well, I'll pay you based on the usage I have on my product. Right, that's if the product is being used, I win and you win. Otherwise, people start to have these questions, especially in the enterprise. I'm paying you K or hundred ky whatever, I'm paying you, and but I'm not happy, and that's where the challenge is. Right you have these hard upsell or renewal conversations where people are like it's not working for me, and the new conversations are hard as well, where you're creating Roy orders and you kind of rationalizing and you're force fitting your sales team to work with an outdated methodology. HMM, that's so interesting. Yeah, one of the points you were bringing up about this is about how sales one of the indicators, along with what you're just talking about about friction, is is one of the indicators is sales is even following the pricing model. Can you talk a little bit more about that? Yeah, I've seen I've seen that in some of my own experiences. The thing is that, if so, let's say you're an enterprise company, right, you've always sold a certain way and you've gotten good at doing that. Now now that comes at time to institutionalize that right and you figure out how to do it properly. If you do it in a cookie cutter manner, you'll do what in the industry is a good, better, best model. All of the different pricing charts and what the V see's tell you, like it's just like the schooky cutter approach. And if you look at I like the guys that price intelligently. But there they have a podcast, right, and they go through pricing pages. If you start to go through pricing pages and see how everybody does, just US put better best. The problem is if you have an enterprise company, it's custom scoped. There are many modules that you have to figure out and if you create so I have been in a company where this has happened and where these pretty much cut and dry solutions were offered to the sales team. They didn't like it. The problem was, hey, you're adding ten features here that I'm going to go back to the customer next year and upsell the five features. So why have you bundled these five features into this this bundle? I'm not I don't want to sell them right now. And they're not interested in these because this is not how the usage scales right. So and so you blocked your upsell potential and your sales team is like, well, I guess I'm the experienced a is not going to follow your pricing and the inexperienced a is going to end up with lower ASPS because he's just going to say this is what this is my pricing, and I've been in that situation where there is a revolt and the sales steam is like this is does, doesn't work for me and somebody gets fired. So that's the problem with implementing bad pricing actually in a bigger environment and not thinking thing through. Hey, everybody work in the sweet fish here. If you've been listening to the show for a while, you know we're big...

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...later, then you cannot go and sell these things later to the customer anymore. So it you really have to be thoughtful about what the customer journey has been for your customers in terms of feature, you say, so that you can design something that's going to maximize up cell. There is a lot of research now that points. O would like beyond the point, beyond, like I around roughly fifty millionaire are, there is an inflection curve where GDM now has to focus on existing customers, to upsell more products to existing customers as a biggest driver of growth leading to IBO, not new business. So that's the biggest type of when you said that was fifteen million are or is that like around zero? Around Five Zero Fifteen? Okay, yeah, the rough estimated. There is a point in evolution structure companie beyond which you got to start focusing on that upsell path a lot more because it's, I believe it's like three to four times cheaper in terms of customer acquisition rate. Wow, it is a cheat for its cheaper and this is a Pacific Rest survey price intelligently also talks about that all the time. And before that you are more focused on new business acquisition. You logo acquisition. If you look at the valley, everybody's focused on new logo acquisition always. Nobody's solving the upsell expansion volume of upsell paths. However, if you did that intelligently, and I know of companies who have, you did not suffer anything during the COVID pandemic because you intelligently kept charging more for usage for an existing customer base and you kept selling them more even when you couldn't go to the broaden market during during a recession. So it's an incredibly powerful lever. Yeah, absolutely, Wow, it's awesome. So what have you seen to speak to some of how powerful can be? What have you seen from companies when they reject the idea that pricing is complex and we shouldn't go through a step I sell by, when they actually go through the step, I stab right? Undoubtedly they see their ASPS increase, they see deal velocities increase, they see pricing or option improve. So sales team actually starts to use it and they see the customer being actually happy. Regularity, easier renewals. Right. So, if you specially with this, if the model was wrong, and you fix the model, it has so many cascading effects. Easier in new wealth, easier contracts, no hassle negotiations upfront. It's easier to justify roy better ASPS, better lower turn rate like it's everything like. That's why I like II. Then remain so books. Yeah, they're saying this is just like one thing, is not a very tiny thing to fix. It fixes so many other problems in their business. If you do it right, that's huge. That's huge. You have me. So where do we start? Where do I begin? What's the first step? But which which I do right away? And then and then what should I do after that? Yeah, I mean I think they are roughly like there's like a decision diagnom I follow, but think of it as three or four steps. Think you consider yourself as a business owner or a product manager. I call it like PPP is just my framework. Think about your positioning. First, are you the premium player? Are you a pricing come you know pry? Are Your commoditized price comparitor? Think about where you are in your customer segment and just make sure you know what you want your position to be. Second, you come to packaging. Right, think about your customer segments. Do you have many customer segments? Build as many packages per customer segment that really solve their problem. Well, and then finally, pick the right pricing variable. Find something that maps to customer value. Right so historically there used to be Pur seat pricing, where it's a very standard model of software pricing that may not necessarily always map to value...

...that a customer is getting. So the value now has a wall to usage based pricing, like the Trulos of the world. So select whether it's a capability or usage based model right. So we looked at positioning, we looked at packaging, we looked at the type of pricing variable. If you think about all this in a step by step process, you solve most of the problems right there and then what you need to do is you could do so a little bit of research on the price point itself, which is probably the least important problem here, but you can do some research using surveys and conjoint and what have you. And the final step, yet the longest step, is pricing operations. You have to if you have a bigger field sales team, then you have to build all of the materials, sales enablement, materials, pricing, calculated, CPQ, execution stuff. So first pass is strategy. Get it right in that order. If you get it right, it's very likely that you won't get the operations peace wrong, but the operation piece will take time, and that's where you involve. We are pricing OPS Fokes, right, that's where you in all other parts of the business and say hey, I've decided, this is the structure I'm going to follow. This is roughly the price points and there is more, like you know, there's some more details to it, but it's a simple structure and now I want you guys to operationalize that and tell me how to do it and then you can negotiate, you can delegate to it to some other team, but as the product manager or as the business owner, you made the important calls first. That's all I'm asking you to do. Just take the important calls for your product. MMM, that's so good. Obviously, this so range based on internal dynamics and everything. The time commitment by what would you say is a typical someone should budget? When they're saying okay, you know, really pricing, usually they're the red pricing conversation is like we need to Redo pricing like this week, and it's always crazy pressure and and they maybe the wrong decisions. Whatever. How long would you say? Typically, that process should, from beginning to end, go through all those steps should take. Right, if you are somewhat of a well runs established business. I would say it would take about a month or six weeks to come up with the structure and then probably a couple of months or more for operationalizing it. Now you can operationalize it in a manual fashion and do it faster, but to make the eye decisions is going to take at least a month to six weeks. That minimum right. I don't think you can do it in a week, but it is possible. You could do it in a week if you were coming out with a brand new product that nobody's ever seen. Right at that point you just have a hypothesis, sure, but for a functioning company that's probably say. That's the minimum. People do tend to fall in like if you go to a consultant, they will take more time because they want to do things properly and they want to charge where they are. I don't think you need that. The other problem is operationalized operationalization. Be a little careful. If you don't need to do the whole hog of a lot of automation, don't, because the CPQ step of implementing things and sale force is where there is the biggest failure rate. And if you think that is all going to be automated and it's going to be the most well functioning thing. Is never going to be that way and it is not that Wain even established companies. So that's just the pitfall that in probably need to watch out for. Wow, that's such good advice, man. That's so good. Is there anything that you would one a big you know, what's a big takeaway that you'd want our listeners to walk away with? The biggest takeaway is just don't fear you know. One is just think holistically. Without your product, GDM, right pricing is part of your product g DM. It's not separate. It's part of marketing. I would love for product managers to have ownership about it because it's their product and it's just a simple step by step framework. Like just think logically about the steps. It's not very complex. It's nor...

...to what mathematical. Everyone can do it. Don't fear it. It's good advice. That's great advice, man. There's so much you've unpacked in this episode. I mean there's I know we're just scratching the surface and it's hard to even if you can cod so deep into this and so ag you've been working on this what's the name of your book again for all listeners? Yeah, thanks. So the book I'm writing on this is called a price to scale. Price to scale, what a great name. It's awesome. And then, and when is that going to be available? I'm hoping sometime in January. So this much sweet. That's around the corner. That's awesome. We're in January. That's fantastic. So you do this month or next, but still be huge. Yeah, what. So for all the listeners, if they want to go and check out the book, where would they go and check out your book? Yep, so it's my website. is a jeep, coomandcom. You can just landen on my website and navigate to the pricing book or, if you want to go additate to the book. It's a jeep, coomandcom forward slash pricing book. That's awesome, man, that's great. Definitely check out that book. I would say reserve it now, or rather make sure you subscribe through that link now, so then as soon as the book drops you can get that. I definitely be getting going to be getting a copy. This topic is so huge and comes up so much. Obviously I'm more on the snow obviously, but for those who don't know, I'm more on the sale side. Usually, the conversations and when you're communicating it from a sales point, people like, Oh, you should bill sell anything or sell any price. It's like know, you don't understand. When you're communicating, there's only so far you can be asked before you're like, I honestly have no idea in the client knows it, like they know without a doubt that you're just making up reasons and they're going to ask. They're going to be like, why are we paying for this if I thought you said we probably will be using that for the first couple months? Or why are we going to pay for this now? Can't we just pay for this? And so those conversations happen. With good pricing, your arming your sales team with the best weapons they could possibly have. Ordering certainly huge. Yeah, we I mean I think sales people are often given the short end of the stick and expected to be Superman. And you know, he's like, Hey, I have a product. You know you're a bad sales person if you can't sell it. But it's not the case. Like we make so many mistakes before we set up send a sales person out there, I think you know, I think there's little more empathies needed because they, you know, see, at the end of the day, they're going to maximize the valuation of their business. Yeah, big time, big time, and then all the up cells and everything else makes so much sense. A Gee, this was awesome. Thank you so much for being on the show. If people want to connect with you personally, is it best to connect with you on Linkedin? What's your preferred social platform? Yeah, linked in. This perfect. Okay, awesome, great. Well, I'm sure we'll have all the links in the show notes and everything, but a gee, thank you so much for joining us. BB growth is brought to you by the team at sweetfish media. Here at sweetfish, we produce podcasts for some of the most innovative brands in the world and we help them turn those podcasts into Microvideos, linkedin content, blog posts and more. We're on a mission to produce every leader's favorite show. Want more information, visit sweetfish Mediacom.

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