Unlock the Potential of the B2b Saas Sales Model for Financial Services

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[Music] laughs [Music] welcome to software talks today we are addressing an area that's really important but often overlooked pricing stay tuned if you want to learn more about the effects of pricing optimization and how to create a pricing strategy and a pricing roadmap we have great guests in the studio today with me is Brian Bellard managing director at Blue Ridge partners helping companies accelerate a profitable Revenue growth welcome thank you and partner Montero and currently CEO at meatmaster you have a long experience for managing and developing software companies great to have both of you here and you to know each other tell us about your background your joint background we have a passion for pricing besides that Brian that is true life is maybe the easiest person ever to work with because he's pulling me forward rather than me pushing it at all and he's lived it as an executive you know good pricing and financial performance is just that much easier to achieve and if you can't align your team around pricing then then you leave some money on the table but the better thing that Leif says is doing pricing reveals what you don't know about your business model and so if you're good at pricing it's a Bellwether as we say which means it probably indicates you're doing a lot of other things well also you can hear already that this is going to get really good and we're going to hear a lot of good advice today um Ryan you talked to maybe five companies a week that need your advice what's their main challenge around pricing I think in the last 20 years we've never seen inflation like we've seen it now every board every CEO every CFO is asking themselves the question what do we do given inflation and what is inflation it's rising prices but does that apply to software if yes exactly what do I do to address it and I have a feeling we'll get into that in this conversation and what about you Leif when it comes to pricing um what what would you say that a company like make Master what is your your main challenge well it it depends where where you are as a company and how well developed you are in this area some companies have done something and some companies have done a lot in this area when it comes to our my specific case right now we have quite a lot to do and that's that's because we are in that phase on in our journey building the company so inflation or not I personally think that pricing should always be on the agenda and now I think the inflation will bring it to the table for some companies but in my view you should always set pricing on the agenda what effect can price optimization have on a company's revenue and and profitability who wants to start Ryan well I'll start um I think it's fair to say that company valuation ties to revenue growth and increasingly profit but at a minimum Revenue growth our experience in the last 18 months is that small and medium-sized SAS companies can actually increase Revenue 15 to 25 percent through a price Improvement program I mean just pause for a second that's amazing 15 to 25 percent and I am not talking about raising prices 15 to 25 percent there's a lot of different techniques but the ultimate result it's sort of game changing for a lot of companies so I mean the ROI of a pricing strategy initiative or project pays back um straight away that's what you say oh within the first year and generally we're returning between 10 times and 30 times the the the cost you know in my work and you know this life I I work on go to market models and sales strategy and sales commission and international expansion and all of those approaches take time and money pricing while not super easy to achieve it's the biggest and the fastest impact on the on the financial statement would you agree on those numbers Dave absolutely and I can I can confirm that um I mean Brian is a consultant so we we always have have to divide that a little bit what he says but I can actually confirm that from real cases in my previous role we did a pricing project and we actually had even higher numbers than Brian isn't mentioning it well I told you I just had coffee with my former client in Sweden and that rate was I can't say specifics but higher than the numbers I quote so I I don't just inflate that's a legitimate average and how many companies would you say realize this potential um if a SAS Company addresses pricing now it's inconceivable it wouldn't be successful and and it's really inflation like you do you even if you make all the wrong decisions it's going to be better financially than it was in the past but if you make a few right decisions instead of getting three or four percent you could be at 10 or 12 or 15 so would you agree with that absolutely and I mean now we talk a lot about the numbers which is of course the ultimate effect that you're you're after but having done pricing projects and in reality and done this I think and we will probably get back to that later on but there are also a lot of other positive effects coming out when you start working with pricing because pricing is not an isolated activity you do because you need to understand your customers you need to understand your Market you need to do your Market segmentation you need to think about your bundling how you actually package your products and so on and so so that's why I'm so passionate about pricing because I think it's really tightly together with your your strategy and and your how you actually develop your company address 7 those effects now and then we can revisit them later yeah no but I mean we're in order to do pricing right first of all this is not the one-man show it's a it's a collaboration between the different functions you need to have product in management involved you need to have sales involved you need a marketing you even need to have development involved because that's where how you actually develop and package your product that's going to affect your pricing so you need to think backwards all the way and and just starting that process is super interesting and that's when you start to get your functions together and you also need to dig into your numbers and your data and have that then I think you can elaborate even more on that yeah you know a lot of people think you you look at your product and develop a price so I would call that from the inside out and don't do that no you want to go from the outside in and you want to see what the value is of your product the impact of your your product on your customer members and the way they think about value is the Insight on how much they're going to pay but his life was just saying it's also the road map for the sales team what are you going to sell what are the advantages that those people really care about hey is the financial services customers are they different than Health Care are they different from somebody else and as soon as you understand those nuances not only do you sell better but you're going to get the right price for each of those exactly who is the owner of pricing in a company well I'll give you my answer so the easy answer for me is ideally somebody in a strategy role or a or a marketing role because they have that bigger vision and as life said pricing connects to so many things where I always get nervous is when the CEO tells me the chief product officer owns pricing why well the question is does the product team love features too much do they love the product too much like a lot of times in order to get the development team to build a feature the product officer has to commit an Roi and next thing you know you've got a monster of a price list where every feature is priced and when you go interview the customers not the low-level users but the people with budget that make decisions they don't care about the features they want the value of the product so I'll let you answer the other part because I think you have a good answer here well I agree and I disagree Brian I think first of all it has to start with the CU you need to have the sponsoring from the CEO and the CFO that this pricing projects or pricing strategies or pricing initiatives is not scan projects somewhere down in the organization you need to you need to have a CEO that is packing this and understanding this having said that I tend to disagree with you Brian and that's based on my experience uh in the project I've done we have had product management coordinating this with high involvement from the other participants or without the functions and my view of product management is that a product manager owns the project and the product and the business case he is the CEO of the product and that's I so I think a product manager managed in the right way all the way down from the CEO can very well be the one leading and coordinating a pricing initiative yeah but you would agree that whether you call it a steering committee or something absolutely you're going to need the head of sales and marketing finance apps that buy into what's happening it's not the one-man show right it's not the one mentioned if we talk about timing when is it time when is it a good time to set a pricing strategy no now can you elaborate you I mean this is I think first of all it's not the one-off thing it's not the Silver Bullet that you fire one one time pricing is very equal to your strategy you have to work with this continuously because the market is evolving the market is changing competitors are changing your products are changing this is an ongoing process that you do depending on which industry you are or the products two times per year every quarter one time per year I don't know what what your experience is Brian but yeah well I'll add two things there given 20-year High inflation if you say no to pricing now like what are you waiting for is is there something that you know that we don't know um and the other thing actually what I think is really interesting what Leif said is think of the economic disruption of the last two years you know it's inflation it's covid it's Invasion it's uncertainty you're not on an island all your competitors did something in the market they raised they lower they did something wrong they did something right bottom line the way the buyer sees the world is just fundamentally different than six to 12 months ago and you're either ahead of the curve and you really know how your buyers think or you're not and pricing is a very good way to sort of become current with their thinking yeah and I think to elaborate on that I think the way to see look at pricing is to have a pricing roadmap because it's very similar to your product roadmap you need to think about what do I do within the coming six months what I do within the coming 12 months and so on because you don't do price changes in one shot you might do it for your existing customers by the end of this year then you do it for a certain segment for new customers or you chained or you change the pricing in next quarter and so on and that's also when you can start to include this into your Finance answer planning because you know that we are planning for a pricing change next year which will have an impact on budget we're going to talk more about how to create and roll out a pricing a roadmap what I really like about that notion is that if you typically everybody's so familiar with the product everybody in the company knows every feature but it you also need pricing to be something that you could go fluent in like you need to know exactly how we reasoning and what our strategy is and that's not always the case um what about let me interrupt you that triggers that triggers a thought um a lot of what we do in pricing is we'll go interview buyers not just your customers that already know you but non-customers that have an independent thought and one question I'll ask is um let's say one vendor's price is 50 percent higher than the other two what would make you want to buy from that customer they always start with a laugh well there's no way I would do that and then they say unless and you got them and then they give you some gem like unless you could lower my risk unless the you could bring in my accounts receivable and a real executive buyer like I said they don't talk about the features they talk about their own world their own objectives and if you can learn that nugget you can really change how you do things that's an excellent point I'm just thinking though some of our listeners might be in a startup face wouldn't you say that in the startup phase you're kind of willing to sell as much as you can just to get some kind of customer base yes so um you know in my experience the if you're really small the founding team has developed a product that they think is immensely valuable and sometimes they can have unrealistically high price expectations so in the earliest of early days you just need to get wins that become referenceable and you need to learn from it yeah um if you're giving your product away for free after that then you've not acquired the skill set of understanding value in the marketplace and what investor is going to be attracted to you so I wouldn't say it's about the maximum price you just need a reasonable price and you really need to be articulate about value yeah no and I think that that Taps into what I said before it's an ongoing process so maybe in the beginning you review your your pricing strategy more often than you do when you become more mature as a company or more stabilized as a company because you you are testing but still you want to do that in a controlled way and you need to think about what is what what have you done what is the takeaways from that and how can we learn from that and how do we continue to develop our strategy which is because it's about ready yeah so let's talk a bit about spend some time talking about how to develop a pricing strategy um how what are the steps and where do you start and how do you make it an ongoing present a process who wants to start here Ryan you know if you're gonna update pricing or do a price initiative I'd sort of say there's three stages of it uh the first stage is acquiring Market information so interviews some buyers some customers some non-customers you know if you can get some Consulting help interview some competitors I mean what you can really learn out there ideally you do a survey of buyers and that gives you some data you can analyze on how much they're willing to pay so now you have the information to make smart decisions and now you go develop the pricing So based on everything you learned about value and priorities next step is create bundles when I say this next one to CEOs they love it just make it simple to buy and simple to sell like why is complex good it's not and so as long as you're def you're defining your bundle or solution around the high value you have made it easy and then based on some of that survey analysis you can determine the pricing and if if you really want to do it the right way you can analyze the survey and create discount levels for the sales team because some customers are willing to pay more than others and so now you've got your pricing I'm trying to shorten this up a little bit and then you have to plan for the launch so sales training is really key and I don't mean negotiation training I mean here's how buyers think and here's the value and here's where competitors are and if you hit these high points of of how your product helps them they're going to be willing to pay more can you just elabor a little bit more on how to create a bundling structure yeah so what you want to do is you want to look at the the different components so you're going to have product components like features and maybe modules in the software a lot of companies undervalue the services component and so you want to bundle those together you really don't want customers paying for a lot of line items because that just makes it harder for them to buy and and then I think a pretty common approach is what they would call good better and best bundles so a good bundle would have a kind of the smallest amount of functionality to get a customer live on your product it's a little bit less expensive and then as they mature as a customer and get more sophisticated they would then upsell to the other two modules and the third one might be for Enterprises with integration and high-end services so three different modules pricing modules yeah I mean a pretty common approach would be that good better and best three steps of bundles but it could be four and it could be others um yeah that's a quick comment to the audience uh I mean what what Brian explained is the right way to do it don't get scared away and that this is a large huge Consulting project I think the point is that you need to get started you need to put this on the agenda for the management team and you need to start to dig into this then don't be afraid of using external help could be for bonding could be for doing market research or maybe for a larger project but you can never Outsource pricing to some external per parties you have to own it yourself that's right what is most crucial to succeed long term I'm going to steal life's line it's CEO buy-in yeah you know if the CEO doesn't care about pricing you're never really going to be a top performer in this area and if the CEO sees pricing as an element of the commercial strategy then you're going to get the buy-in of the team anything else live leaving process not a project not the project not a project what would you say are internal obstacles to success that one should watch out for uh my first one is lack of CEO or CFO participation um I'm trying to remember if I've even done work with anybody without the CEO or CFO involved I know from time to time I've requested that meeting to make sure they're part of the process because if they don't buy in you know the recommendations aren't a little spreadsheet with prices there's something more profound than that and you want the team to be able to buy in I think there are a few things inside out perspective versus outside yes I think it's very very easy to become you know you think you know everything but you have really missed to take an outside in perspective that's where it starts of course there might be some some resistance from different functions I mean for instance sales might need to learn a new pricing model uh I think you can really overcome that for communication training and so on but it's a collaborative process you need to have the all different stakeholders involved and they need to understand the value which at the end is the CEO responsibility to actually communicate that and write that process let me ask you this if there's a company that has let's call it three products and they're operating in three countries would you recommend that they their first step in pricing is just one product in one country or all of it or something in the middle one product in one company why do you think that to get started okay I don't disagree but I can guarantee you the ROI is exponentially higher when you have a larger view I agree but if that's what it takes to get a step then you're then I agree with you why were you curious about that Brian I wanted to lure him into that answer because um you know what he what he's saying is interesting if you don't have CEO support you really have to start with the one product you have to prove that there's enough value here to take the next step for what I do in my job I don't want that I don't want to work with that client um because it tells me the CEO is not supportive and so I really want to align myself with companies that are playing to win so that's really how I think about it I always want to win but but I think it's also a reality you need to have the bandwidth and there might be risk that you started too big projects yeah and so said project process sorry uh process uh so I don't think there is one answer to that it depends on your company I think that's true but I think we can fully agree on that you need to see you uh commitment yeah so you already started addressing the other issues and other challenges that might rise once to start crafting a real PRI pricing process and a way for working with pricing long term what are the kind of situations might you find yourself in and how do you address them in what way do you mean I mean you focus on pricing and there will be areas where you need to collaborate with other teams cross-functionally what are usually some challenges that might arise I mean as I said before um this is it's it's not an isolated process you need because what you very often get into is that you realize that we don't maybe have enough data we don't know our existing customers that spoilers we would like to we don't know the pricing level for our existing customers maybe we haven't worked with them for for a while we maybe think that we have a market segmentation but it's not really in place we we think that we have that we know our customers but that's still from an inside out perspective it's not from an outside in uh view so I think but I I think that's the beauty because it's like a Looking Glass and you start finding other things that are not in place really at the core of your of your whole business because if you can't sell I mean I do have the wrong product or it's wrongly priced uh and but it's still a balance that you would like to get out as much as you can hey can I go back to his word process because it's been triggering this thought um I have a couple of ideas on on a starting point of a process I'd be interested in how you expand on that but three ideas to get your process started number one in the CEO executive meeting have a monthly pricing update which means discounting performance product pricing win rate all those kinds of things have a once and a quarter board meeting where pricing is a topic so that the board is leaning in to that and the third one is to put someone in charge of pricing often we would call that the pricings are and these might be these roles but you may have a bigger vision of process no I think you're right I fully fully buy internet I think that's that's what you should start with that's where I think maybe that's enough yeah to be honest I mean don't over complicate it again you need to follow up you need to put this on the agenda it's not only a management team it's actually also an owner on the board yeah a topic that is of interest because I mean the beauty of pricing is that all the effects that you achieve go straight to the bottom yeah most software companies have a product roadmap how many would you say also have a pricing roadmap I'm not sure I've met more than one or two companies that really do to be honest so it's maybe they've hit a crisis or an inflection point maybe their friend at the golf course made a lot of money on pricing and gives them an idea maybe a private Equity Firm has said you know best performing companies do this um but they're just not as proactive as I wish they were and I think that's what life's advice is get out in front of this and how would you structure how do you prioritize and what what what's the content of a pricing roadmap you know I'd say the the few things that come to mind a pricing strategy is a component of the go to market strategy so it's it's subordinate so the first question is what's my company strategy right what are we different in the marketplace what are our financial objectives and below that is the go to market strategy so commercially are we going after the Enterprise or these segments or these GEOS and what's our expected customer life cycle and are we going to grow Revenue through product line expansion or deepening the number of users and pricing becomes a component of that are we we have product superiority and therefore a premium price or we're pricing for market share gains so we're willing to give a little bit in order to accelerate growth and all this thing has to fit together into a beautiful engine yeah totally agree um and any other tips to our listeners from you leaf on how to work internally for all the teams and all the different competences in the company to work together to really make you every team comfortable and proud of our pricing strategy I mean this is not different to any any other topics or areas that you drive in in your business or in your company like product development product roadmaps product management sales ready uh in my view and in my leadership it's all about teamwork I mean you need to be a team you need to work together each and every one take that responsibility but the power is really is really when you get everyone together that's when and the same goes for pricing and it's not the one-man show so and honestly everyone should be at least in the management team should be aware and interested in this in in the same way as you are interested in what is your next what is your next product coming out what is the next what is our product roadmap or our sales ready or our expansion strategy it's not rocket science Brian I know you love to advise and you do that really really well um could you give us some sauce pricing best practice sure number one love recurring revenue and do not love one-time Revenue so company valuations are three to five times higher on recurring Revenue so here's what that means your implementation fee or your startup fee ideally is zero and A good rule of thumb is never have it higher than one month's worth of ARR often that means don't have a profit Center on their Professional Services side and if you really push your economics evaluation you really see the company doesn't care much about implementation Revenue number two I would say would really do the bundles the right way and so align to to users and or value excuse me and and what you're doing there um what are the other ones um you want to jump in with some no I think you covered most of them [Music] I mean again there are some specifics for different Industries for for different uh different companies and so on but now I will stop there but actually I have two more I was pausing trying to organize this in my head so you know one of them is don't have a set price list ideally unless you're really a b2c company ideally you want a price for different segments you know uh Enterprise versus SMB customers or different industry verticals and the same goes with price increases you don't want to do this across the board one thing to really think about with pricing is how you upsell your current customer base a lot of people are a little bit afraid to just go to your trusted existing customers and raise the price a lot but if you do bundles the right way maybe you can create the next step in their Journey with your company so more product functionality some premium services and so they're opting into something at a much higher price point that gives them a lot more value great one more for you yes um a lot of SAS companies and this is I I blame CFOs they want nothing but long-term contracts and it's really fear of cancellation and attrition the reality is um if you're if you have a good product and a good Services team your renewal rates are really high so if you give a discount for a two or three year agreement you just gave the companies the money away and didn't get anything back so I generally advise to start your thinking with a one-year agreement that was a lot of good advice and we're nearing near the end of our our show here and can I ask you Leif to just summarize what we've been talking about um to our audience sure I think as we said this is not rocket science make sure if you already not have it put this on your on the agenda start discussing this in your management team make sure that this becomes something that you're continuously talking about and evaluating and as always start small it's better that you get started starting to look into this do some initiatives and then you will step by step see that all right we need to know that we need to do that we need to put that into a plan we need to continue continue to work with this but get started you can't afford to leave this not on the table thank you so much for joining us today there's a lot more for you at montara.com where there's also an e-book on pricing that you can download and there's much more in our other podcasts thanks for listening laughs [Music]