How to price for profitability

Transcript

1. INTERNAL
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   How to price for growth and
   profitability
   

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   American 󾓦, French󾓧, African🇹🇬
   Former Product Marketing Lead at
   LinkedIn in San Francisco 🌁
   Current Global Product Marketing
   Director @ PayFit in Paris 󾓧
   Avid book reader 📚
   Adjunct Professor in business schools
   👨🏽‍🏫 (Strategy, Leadership, Product
   Marketing)
   

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   How to price
   for growth and
   profitability
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4. INTERNAL
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   Why Pricing?
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   of startups fail because they
   run out of cash
   - CBI Insights
   of all pricing increases fail
   - Simon Kucher & Partners
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   Source 1: https://www.cbinsights.com/research/startup-failure-reasons-top/
   Source2: https://www.linkedin.com/pulse/why-97-all-price-increases-fail-what-your-company-needs-philip-daus/
   

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   ✅ Effective 🛑 Not Effective
   ● Data-driven
   ● Customer feedback
   ● Sales feedback
   ● Cross-functional buy-in
   ● Gut feeling
   ● Emotional decision
   ● No cross-functional alignment
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    󾠮 Understand costs of business operations
    󾠯 Understand market dynamics and trends
    󾠰 Understand customer willingness to pay
    󾠱 Make the best decision for growth
    and profitability
    󾠲 Monitor performance, get feedback, and
    make adjustments along the way
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11. INTERNAL
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    Understand the strategic weight of pricing
    Why and when should you consider revising your pricing strategy
    Where to start and how you should tackle a pricing issue
    How to get alignment from Sales, Product, and the Leadership Team
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    How to enable sales for the launch of the new pricing grid
    How to track performance and adjust when needed
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12. INTERNAL
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    Why am I presenting
    this topic?
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13. 🚀 EXTERNAL
    

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14. EXTERNAL
    🚀
    

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15. EXTERNAL
    🚀
    

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16. INTERNAL
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    The VP/Head of Product Marketing that
    just joined a new business
    The product marketer assigned to run
    this pricing exercise
    Cross-functional partners
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    💡
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    Take your time.
    Rome wasn’t
    built in a day
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18. INTERNAL
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    ⚠
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19. INTERNAL
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    How to price for
    📈growth and 💰profitability
    

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20. INTERNAL
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    When should you consider
    reviewing your pricing
    strategy?
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21. INTERNAL
    Just launched your business
    Reached a milestone
    Losing too many deals
    Customers are churning
    Expanding product
    portfolio
    Recently acquired
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    Feedback from Sales New leadership
    Entering a new market Clear problem
    

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    1. Stay close to the numbers
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    Is Sales Team discounting too much on a specific pricing plan?
    Are 50% of your customers are on your premium price?
    Do you have 80% of your customers on the basic plan?
    Are you losing too many deals to the competition?
    Do you have negative gross margins?
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    ❌
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    ❌
    ❌
    ❌
    

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    Recommendation: 25% on your basic price, 50% on your
    mid-level, and 25% on your premium.
    ➮ If 80% of your customers are on the premium plan, it
    means your product could be too cheap or you have room
    to create an even more premium offer.
    ➮ If more than 50% of your customers are on your basic
    plan, you could be offering too much value already on that
    first plan. Which doesn't justify them to move on to the next
    one. Or the price of the next plan might be too expensive to
    justify the added costs.
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    2. Pick a place to start
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    🤔 EXTERNAL
    

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    📊
    Understand what it’s costing
    you to operate the business
    📈
    Understand what the market
    is doing
    👨‍👩‍👦‍👦
    Understand what the
    customer is willing to pay
    🎯
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    3. Aim for both growth and
    profitability
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    📈
    Growth
    💰
    Profitability
    ● Acquiring more customers with
    negative margins
    ● Profitability decreases with more
    customers
    ● Not sustainable
    ● Acquiring more customers with
    positive margins
    ● Profitability increases with more
    customers
    ● Sustainable
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30. INTERNAL
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    Sony introduced the PlayStation 3 console
    below margins hoping to make profits
    through game sales.
    The product was:
    ● Revolutionary
    ● Equipped with blue-ray technology
    ● Priced competitively for the market
    ● Losing money with every sale
    ❌ Not sustainable
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    💡Later released a slim PS3 without premium features
    

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    Electric shared scooter are taking the
    cities by storm but with a steep
    operating cost.
    ● Expensive hardware
    ● Needs to be continually replaced
    ● Fragile business model
    ❌ Not sustainable
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    💡Conversely, Ford focused on leveraging data from
    bikes to increase profitability in other areas of the
    business to maintain cashflow
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    You’re selling a lot and
    making tons of revenue, but
    you’re not making profits
    🥵
    You’re not growing fast but
    you’re profitable.
    Not selling a lot of units but
    you’re making profit on each
    sale
    😐
    You’re growing fast and
    you’re profitable
    You’re selling a lot of units
    and making profits on each
    sale
    🤩
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    How much is it costing you to create
    the product? (product team)
    How much is it costing you to sell it?
    (marketing budget + sales team)
    How much is a customer worth for you
    during the entire lifecycle?
    Do the math: Gross margin is the
    difference between revenue and cost of
    goods sold divided by revenue.
    How many sales do you need to
    become profitable?
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    Costs: (COGS)
    ● Hosting fees
    ● Customer success
    ● Customer support
    ● Sales
    ● Payment processing
    ● Marketing budget
    Revenue
    ● First year & customer lifetime value
    (LTV)
    Gross margins =
    ● (revenue - COGS) / Revenue
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    4. Build a business case
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    ● How do their offers compares with yours? Are they targeting the same type of customers?
    ● Do they have a free trial? Do they have a fixed fee + per employee? Or unlimited based on pricing plan?
    ● How do you compare in terms of value vs price?
    ● How would you position yourself? Are you premium? Low cost? Faster? What’s your competitive advantage?
    ● What are the sales teams saying? Why are we losing deals? Why are we winning deals?
    ● What role does pricing and packaging play?
    ● Are we too expensive for SMBs? Are we not customisable enough for enterprise?
    ● Could we benefit from having payment plans?
    ● What does finance say? How long does it take to pay back on advertising? 12 months? 24 months? More?
    ● Are additional services priced right based on the additional costs?
    ● How are the margins doing at scale?
    ● How do they feel about the value vs price? How do they measure ROI? If they could improve something about
    our pricing vs product offering, what would it be? Integrations, add-ons, advances support?
    ● What would they be willing to pay for it, and why?
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    ● What’s the product roadmap strategy? Are they looking to introduce new verticals? Create premium offers?
    ● Do they think pricing plan first or by default does everything go into the basic offer?
    📱
    

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    5. Get buy-in from
    cross-functional leadership
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    󾠮 Determine who needs to be part of the conversation. Typically you’ll have sales,
    marketing, product, customer success, finance, business operations, and leadership.
    󾠯 Schedule the meeting and present what you have found. (💡Tip: Focus on what’s
    important to them.)
    󾠰 Ask for resources and get their commitment.
    󾠱 Assemble the team and align on what is the objective.
    󾠲 Draft the plan, have the kick-off call, get to work.
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    󾠮 Find an exec sponsor. Leverage them to push for resources and get
    executive alignment.
    󾠯 It’s highly recommended to have 30-minute weekly meetings with the
    core team. Bi-weekly meeting with the exec sponsor (s) to update on
    progress, highlight challenges, and determine next steps or resources.
    󾠰 Have individual meetings before the big meeting to sell the project.
    Pro Tip:
    Get buy-in from cross-functional leadership
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    6. Build and validate your
    hypothesis
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    After having all of the
    conversations (analyzing the
    competition, looking at
    internal data, and
    interviewing cross-functional
    partners) you begin to form
    an opinion and see 2-3
    potential options.
    Now you want to validate
    these options, create 2-3
    models, and go interview all
    the cross-functional
    partners. If you know a
    customer advisory board, go
    speak to them and ask them
    about this new model.
    Trust the data and make a
    decision.
    💡Tip: Make sure that the
    new pricing strategy can be
    operational within your
    desired time-frame.
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    🎯Goal: Determine what
    type of pricing model to
    have.
    👉Ex: dynamic, fixed price +
    user fee
    💡Tip: customer willingness
    to pay and market dynamics
    plays a big role here
    󾠯
    🎯Goal: the
    👉Ex: $49 + $5 per user
    💡Tip: Speak to sales
    󾠰
    🎯Goal: Create opportunities
    to add more value for
    additional fees.
    👉Ex: Add-ons. Two or three
    pricing plans
    💡Tip: Think of a premium
    offer to increase customer
    lifetime value
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    Source: https://slack.com/intl/en-fr/pricing
    

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    7. How do you make a
    decision?
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    Crunch the numbers
    Think growth & profitability
    Create upsell paths
    Get alignment from stakeholders
    Make adjustments
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    8. Launch
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    ● New website
    ● Product
    ● Sales collateral
    ● Support articles
    ● Upsell campaign
    ● New website
    ● Product
    ● Sales commercial etc
    ● Sales training
    ● Support articles
    ● Upsell campaign
    ● How well are you doing?
    ● Conversion rates are higher?
    ● More revenue?
    ● More customers?
    ● More upsells?
    ● Better gross-margins?
    ● Competitive in the market?
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    󾠮 Do a monthly win/loss meeting with the sales and ops team
    󾠯 Review financials with the finance team monthly
    󾠰 Conduct a quarterly business review
    󾠱 Make the tweaks when needed
    Pro Tip: Monitor Performance
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    Stay close to the numbers.
    Pick a place to start.
    Aim for growth and profitability. It’s the holy grail.
    Build a business case.
    Get buy-in from cross-functional leadership.
    Build and validate your hypothesis.
    Make a decision.
    Launch and monitor.
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50. INTERNAL
    🔗 INTERNAL
    󾠮Articles
    ● Investopedia: How to analyze Profit margins
    ● Hubspot Good profit margin for product
    ● Unbounce Conversion-based pricing
    󾠯Books
    ● Profit First: Transform Your Business from a Cash-Eating Monster to a
    Money-Making Machine
    󾠰Podcasts
    ● HBR Podcast: Pricing Strategies for Uncertain Times
    󾠱Consulting Firms:
    ● McKinsey: What really matters in B2B pricing
    ● LEK: Optimizing B2B pricing - one of the greatest levers of profitability
    ● Bain: Customer Strategy & Marketing
    ● Simon Kucher: Must haves for a pricing strategy
    󾠲 Courses:
    ● 40-minute module in the PMA Course
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51. INTERNAL
    yannick.kpodar@payfit.com
    @yannickkpodar
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