Create Your Billing Terms and Conditions Template for Product Management Effortlessly

Billing terms and conditions template for Product Management

okay I think we are ready to begin good morning good afternoon good evening depending on where you are my name is Carson tavaria and welcome to this pricing webinar or product managers before we begin a little bit about me I have been in the field of public management for the last three plus years until that time I have the opportunity to work with great companies and great minds in the field of product management that tells me a lot about product and Innovation including the topic for our discussion today for the pricing I am an engineer in electronics and I have an MBA in Innovation and sustainability and currently I am the VP of product management for Kuba systems and my LinkedIn is shown on the screen in case someone wants to connect now with the formalities cover let's talk price pricing is a topic dreaded by product managers the reason is simple when properly though it is not an easy task price is part of a broader subject which is how to convert the output of a company into economic work now you might think pricing economics then why is surprising a function of the finance department simply put pricing is more than generating Revenue it also has to do with productive strategy and it helps develop uh it helps abroad create an image and in a relationship with the customer prices in the hands of finance will be biased towards achieving Revenue targets only pricing is also more than coming up with a simple number it involves making a series of decisions such as determining what should we charge for and AKA pricing dimensions and determine the pricing itself as well as making or taking decisions about having or not having price in tiers as well as decisions about using Global or per region project even though there is a lot of Science in Brighton I don't think it is an exact science and in fact based on my experience though in pricing for many companies the knowledge of what problem we are solving for customers and how much eliminating that problem is worth to them is something that equations cannot predict and that is the reason for the word art on the title of this webinar and also the reason for my choice of living image for this presentation if it happened to brush the in it can happen to anybody before I forget when I use the clothes that the worst product here on this on this chart I am equally referring to a product a service or even a pay paid for feature of April so please just have that in mind during this chat I intend to represent a series of principles and propose a simple but structured framework to help product managers uh create prices where both your customers and your companies come out as winners not only there is no Universal formula that will spill out the perfect pricing you need to set for your product but also a pricing considerations will change depending on your product its market and the business environment even when we talk only about technology products they are around millions of variables to consider that depends on on your product is your product a pure Hardware product or is it a hardware plus a software solution maybe it is pure software so if we say it is software then are we talking about license software or subscription software which by the way can be for example on premise software or cloud-based software all of those are important considerations when determining the right price for your product at the end as product managers we end up having to solve some kind of multi-dimensional person now One Thing Remains a common pricing decisions are supported on on four principles first pricing must align and support corporate strategy we cannot set a premium pricing if our corporate strategy relies on mass for you also the understanding of how much customers are willing to pay to solve a problem or also known as customer a perception of value political costs costs how much it is costing us to make this product happy for customers and last but not least the pricing of alternative Solutions the questions I received the most about pricing are for cloud-based subscription software I guess it is a business model that is becoming increasingly common yet it is one of the most difficult price for this reason and although the discussion today I think is applicable to produce in general let's choose a fictitious product as a way to make this discussion issue let's say our product is a cloud-based subscription service that allows customers to broadcast a message from one microservice to many microservices and let's say that it is not a commoditized product and I will talk a bit about commodity products later all right so there are multiple approaches to pricing some of the ones I have seen before are shown on the screen the first time I had to do pricing for a product once and in a wedding I was working in a very small company and I remember a discussion with the owner of the company where he just said the way we will price our products which contain hardware and firmware is adapt our cost of the hardware components multiply that number by two and that's it there was no consideration for the cost to develop the firmware or the cost of assembling and testing the unit just just to mention a film and there was another case where High management decided that we just needed to land in the middle of our competitors price so my pricing exercise for my pricing exercise I just found the pricing of those competitors calculated the average in in the price exercise was pretty much done and approved there are other examples that I put down on the slides and the last one I am going to mention is the the fourth one they no need to to send this was for a product in a very commoditized and highly regulated market for this product uh that was by the way a large electrical power converter we knew that the price range per watt customers were willing to pay and it was actually a very narrow bridge and we just have to make sure that the product we created could be sold at that price made enough margin and had a value proposition that was strong enough to be the preferred choice of customers the fact that the product was a commodity made the pricing exercise more at a cost reduction exercise as the price was pretty much set for us our strategy was more to look for unique features that allow us to create alternative revenue streams the message here is there are multiple ways to set pricing and although there is no magic bullet the best one I know of follow the same approach there is a step-by-step building of a solid foundation that allows the understanding of how products create body for customers pricing is a serious aspect of product success and it should be treated with a lot of care and consideration to achieve a good result let's first clarify some terms cost the term will first to cost or cost of goods so this is how much it costs a company to provide the the product or service to the customer or that the customer is going to purchase for a price I still see plenty of people using the terms cost and price interchangeably because when we go to store and and we ask hey how much does this Hammer cost well we want to know is the Hammer's price in product management cost and price means two different fees and therefore we must be aware of what term to use when now price or pricing when these terms are mentioned we are talking about what customers paying in exchange for a product or service it is then the company's Financial reward for solving a customer's problem finally value it is a monetary measure of how much is worth for the customer to have a problem solved now these concepts are relevant as pricing is not done in a vacuum you need to consider costs margins and competitors and come with a number that is equal or less than defining the customer assigns to solving the problem your product intends to solve ah the best pricing proportions I have made follow the structures shown on slide and I want to make a couple of processions before moving forward I call it a document you can see it there on the title but it can be in whatever format you like that will help you get your message to to your audience it can be a presentations but she did document okay another point is I regularly use the word proposal on this webinar the reason is that ing to my experience doing pricing pricing is not done by the project manager alone your needs to present or you will need to present your proposal to higher management and get your approval or better product I know this is not this is not the best looking framework but it will allow you to create some of the best pricing proportions you will ever write one thing that might come to mind when checking the framework for the first time is why is the price point all the way to the end why do we have to have all those previous steps the reason is that the price point is the result or should be the result of a process that collects a specific set of considerations funnel stem applying relevant criteria and at the end proposes a number a similar approach is is actually proposed by the Mayo and Hogan on the Strategic pricing pyramid as you can see the setting of the price level is the last step in the pricing process the production propulsion is basically divided into six sections into six areas those are introduction Daniels cost drivers and Alternatives decisions and appendix or normally my way to remember all that is what it's called what I call it color for short in children the first four sections of the pricing proportion provides a kind of readers with all the elements and background information necessary for them to give you well to round and effective feedback why feedback again because when it comes to pricing the product manager will need to present her or his rationale to higher management after those information sections we have the decisions session where you land the reviewer know what your recommendations are and why this section uses a element from the previous sections and add new elements as necessary in order to avoid like a smoke screens about how you took decisions and instead it aims to show a clear view of the rational part you follow to to make your decisions and they are playing this section at the end is where you are all the backup data that might be required if if someone wants to Deep dive into the information you are presenting as one former manager told me once puts there enough information such that if a question is asked while reviewing the pricing proposal you don't have to look elsewhere because all relevant information is on the premises now let's begin working on that pricing proportion first start with your customers they will help you fill out at least the sessions that are highlighted on life now you are doing places right that means you already know or hopefully know which current or potential customers will like would like to use this product that you are trying to price now you need to ask your customers why is this product important for them in other words what are they trying to solve what problem are they trying to solve or if we want to go to the jobs to to be done where your framework the question will be what jobs are customers going to hire this world for get clarity on that and write down the names of the companies you are interviewing as mentioned in them will give a lot more incredibility to your proposal now ask for a detailed example of how the product will be used to solve the problem now the answer to the to these two questions that I just mentioned go into the introduction section also ask how our customers solving this problem today which alternative Solutions will they use instead of your product and why ask as well what are the benefits your product has over the substitutions the substitutes and vice versa and also ask what are like the natural or expected Dimensions to use uh were invoice the customers if you are selling laptops it is very easy customers will expect to pay for X number of luck but let's say for our previous product that we said was a cloud service that broadcasts and messages from one microservice to several microservices do customers expect to pay for the number of messages sent or for the number of messages received or maybe for the size of the message paid log or for the number of of receivers of the broadcasted message maybe it is a combination of those what you have to do is to list all the dimensions used by customers to to count to characterize your product and to try to find patterns or commonalities among those answers that you receive now let's say that for our fictitious product the three most common parameters to determine quantity the ones that we found when talking with customers were the size of the message the number of messages sent by second and the number of microservices receiving the message those three parameters will become the pricing dimensions for your product only if we can measure them by the way sometimes it has I mean it has happened to me more than once that the prices Dimensions Chosen and no are not measurable by the system in that case normally there are like three Alternatives that is as the capability to the system to measure those variables option two could be just calculate the desired Dimension based on other dimensions that the system can measure or there are one sometimes you just have to select another prices by match now act ask customers what price looks fair to them and why and last but not least ask customers what the price will be where this product starts to become not so attractive for them and they prefer and they or they would prefer to either live with the with the problem or look for alternative Solutions get customers to this currently this price on in the terms of those preferred pricing Dimensions that in our mock-up case in our fictitious product are the three uh that previously I shown on the screen I usually ask these questions to a diverse set of of customers handing the information I received out of them begins to converge uh now begin populating the introduction section of your proposal with the information you collected from customers now pricing decisions to be taken State the pricing proportions you need decisions about pricing is not as simple as saying prompt a cost 100 a properly done pricing exercise goes beyond that and it determines a series of things such what pricing Dimensions to use what is the price are there pricing tiers is the price uh Global or per region this is still kind of the introductory part of the document so you don't need to kind of go deep on these uh decision sheet but I've seen things pricing is a very wide topic before you embark on finding the ideal number you need to you need to set some guiding principles in advance as a way to help you stay the course when several options are presented as well as a way to justify some of the decisions you will have to make you will need like a North star when it is time to make some calls and to justify those calls those decisions I the the arms of that North Star are the price intense to choose your pricing tenants you need to ask yourself what is the goal you have on your mind when you set the price how is your price going to help you with your master plan for the for the product and what emotions and feelings do you want your pricing to inside on your cost pricing like so many other things in product management is a tool that allows you to achieve something that's something or multiple things is what will become your pricing tenants or pricing principles some examples for pricing payments I have used before are on the screen we don't have time to describe them all but let's talk a bit about the first two as examples cost following do you want your product pricing to to foreign costs meaning for example that when or where costs are lower then your price will decrease in vice versa or do you prefer for example to select like uh the higher cost case I'm praying on price based on that meaning that when or where costs are lower your margin will increase another pricing tenants for example is the cannibalization of another business in your company do you want to move called on customers from one product of your company to another one maybe because the older product is becoming expensive to maintain or it is holding your company Hostage to obsolete Technologies if that is the case then cannibalization has to be one of your high priority tenants before even thinking about the pricing decisions you are going to take select several pricing tenants and organize them in priority let me give a couple of examples of how to use a tents to make pricing decisions if you want to canalize a product pricing can help you do that if you state cannibalization as a high priority tenant for pricing then as you could say they that the selling price which I will explain in a bit is the price of the old product in this way the price of your new product will be lower than the price of the all product therefore enabling cannibalization if carnivalization is an accepted goal for this pricing and if capitalization is an accepted tenant uh then using uh the price of the all product a selling price becomes justifiable another example of how tablets help us make these issues let's say that both cost following and simple attempts but cost following is is is higher in priority than simple when you are going to make when you are going to take decisions on what pricing Dimensions to use you might need a several pricing Dimensions to be cost following but having several pricing Dimensions is a lot more complex than having only one which way to go well you decided that you wanted to be cost following so you need to include the pricing Dimensions that allow you to achieve that even when it becomes a bit more complex for customers than having only one pricing dimensions so you need to make sure that whatever pricing decisions you take they support your tenants otherwise there is a disconnect between your goals and the plans to get you there if the price you intend to set on your product doesn't allow you to achieve your pricing tenants then you need to review either your pricing or your tenants finding your problem cost drivers is fundamental cost is a key part of pricing as you don't want to be selling for less than what your product costs unless of course you are following up and lost leader strategy and product strategy is not the topic of this webinar so let's assume that you are not willing to lose money every time you sell the product figuring out costs usually falls into the the financial or accounting departments the so-called the cost accounting thing in finance or accounting I'm not going to provide you with costs well welcome to the world of product management where this will also become part of the things you have to do determining product costs however will be a webinar on on its own or or several and we can't spend time to kind of try and write down that path today one important point though about costs if possible the cost you get or you calculated yourself if you have to do it should be safe in the same pricing Dimensions you found out customers perceive as natural ways to characterize quantity for your product I hope you remember when we talk and about pricing Dimensions if you don't assure refresher please if your product is laptops the natural way to count them is per luck so your pricing Dimension is per laptop and therefore the cost you get should be per laptop so you see everything starts kind of to line up now remember that some products are not so simple from the pricing Dimension point of view as a an example for this webinar we took the fight the tissues microservice messaging service with the following three pricing dimensions the size of the message the number of messages sent by a second and the number of microservices preceding the message if we follow the same logic we follow with the laptop example you need to calculate pricing based on those three dimensions meaning you should get costs in terms of each of those pricing dimensions one thing I have observed before is that customers consider a pricing Dimension let's say a size of the message and when doing cost analysis we might find that the message size is not a factor in cost in that case you might want to eliminate that from your prices Dimensions as it doesn't help with your price Bill cost following and it also adds unnecessary complexity to the pricing which doesn't help with the simple tenant uh if YouTube's a simple as one of your parents so again then it's been very important here now regardless of who calculates the costs as the product leader and owner of the product you need to understand the whys of the cost they may be related to product architecture in the case of cloud-based services or be driven by some particularly expensive components that are a part of your product you also need to understand the per unit cost for laptops you will be charging a price per laptop so you need to know the price and for our cloud-based messaging service if the pricing Dimension is quantity of messages then what is the cost per message if we are challenging per time then you need to understand the cost uh per second or whatever is the the relevant unit of time you also need to understand cost driving factors how does the cost change with each and every one of the pricing Dimensions you selected for example if a pricing Dimension is message size how does the cost change with the message size does it remain constant or does it change charge like linearly or or how and also why one thing I have noticed with when when doing pricing is that the cost might have a dependency on variables that were not selected as pricing dimensions for our fictitious problem the cost might have dependencies on how many uh messaging filtering criteria was applied to the message but customers might have not mentioned that as a surprising dimension if you want your pricing to be cost following then you will need to add those cost driving variables to the list of pricing dimensions Baseline costs are there any Baseline costs in a cloud-based a product those are the cost incurred by the company even when there is no customer activity or usage as example a baseline cost of a wasteland cost I manage a cloud-based a product that constantly executed appalling tasks to check for customer activity that tasks run even when no customers were active and generated costs for the company you need to understand if you have those Mainline Baseline cost why are those costs there and how much are they okay now are there any other functionalities configuration anything else that can happen when the service is up and running that affects cost for example in the messaging between microservices product it is possible that this product perform retries when the message failed to be delivered those retries are invisible to the customer yet they may generate costs and therefore needs to be accounted when calculating product costs same with filtering because of architectural choices filtering out messages or filter out messages and are not received a which was the customer's desired Behavior yet they may generate costs and think about extreme values on your pricing dimensions when you consider the dimensions used by customers to describe the uses of your product how does cost behave when you freeze all but one dimension and the one you didn't please you move from very small to very large again how is that affecting costs something that you need to understand also are there any geographical implications for costs if so those also need to be considered uh there might be a that might Point actually in the direction of having like regional prices instead of lower prices if one of your tenants is to be cost followed so with a thorough understanding of your costs and the factors that can affect it you are ready to begin thinking how much money you can make or in a more professional in more professional boards the p l of your problem and that starts with forecast you will need to create or obtain probably from sales the forecast for the product you are creating a price for same as other topics we won't have time today to discuss how to do forecasting but there are some points I need to mention regardless five years forecasting is usually done normally the the criteria for this time Horizon is to do it until the time when the product kind of gets to a stable State okay now uh forecast per pricing Dimension needs to be done that or this means that in the case of our fictitious product we'll need three forecasts one for massage size one for number of published messages and one uh for number of message receivers forecasting is an important aspect of policy as it will allow you to create sensitivity tables that you can use to fine-tune your pricing after you save your bottom pricing and selling price both of which we will and I'm going to discuss in a little bit Alternatives competition is everywhere even though we always try to place our products in a blue ocean rather than in a response and as product leader you need to become familiar with all the substitutes for your product start the alternative section with this topic how are customers solving the same problem with your problem in intend to solve today which one do you consider to be the most meaningful alternative and why then provide information about each meaningful alternative uh slides if you're doing a PowerPoint or paragraph for each alternative is recommended and discuss there why is this an alternative what makes it the same as yours different than yours better than yours and what makes it worse than yours okay now Beyond functionality we are talking about pricing so when your customers use the alternative problems how much will they be and why how does that compare to your costs and your ideas for price points sometimes it might not be necessary but I like to create a spreadsheet that allows me to to change the price of every single pricing Dimension I'm considering so I can see the effect it will have on customers on the customers invoice and how it Compares uh against my considerations compared against the competition all the information until this point uh is basically due diligence with the clarity provided by that information it is time to make some decisions each of the four uh each of the decisions right four in this case are shown on this life and follow the same approach the product manager writes uh writes down like a series of options and provides a description for each of them as well as the pros and the cons all written in an objective manner so as not to bias the opinion of the reviewer of the approval when considering pros and cons also remember to include the impact of each option versus the price intents that's the option support or contradict the the price systems okay at the end of each decision when you wrote down all the options write down an analysis that deals your recommendation for an option and of course I mean the option we won't have time to talk about decisions for like tiers or for Global Regional pricing so we'll focus on the pricing dimensions and price point decisions foreign Dimensions decision and follow the format mentioned on the previous slide and state three or four options for pricing Dimensions based on what you learn uh talking with customers the cost drivers for your product and the price is tenants analysis of each option and then concludes with an analysis that provides you recommended option for pricing dimensions foreign product managers need to see prices as a funneling exercise where at the beginning you have like an infinite vertical line that represents an infinite range of possible prices and the product manager role is to narrow it down to a price point that is your key or he can't just file the first narrowing of that infinite pricing option range is the flow price is that point below which the company needs to to ask itself why is that we are doing this product does it make sense to move forward with this product I mean now once the answer is yes it makes sense then we need to say that that floor price is now can the price the sales price be set of flow pricing sure but hopefully we as strong managers can do better than that now determining floor pricing is something that usually the product manager doesn't doable a selling for under flow prices will imply the company will lose money with every sale and because of that Finance is normally involved in selling the floor price what have I seen before I have had Finance departments telling me don't sell below are where lowest cost plus 12 points other finance department told me don't sell below an infrastructure margin of 30 so you get the point floor pricing is the minimum price where the company is interested in having this product as part of its offerings one important point if we go to a comparison between your product being a laptop or it's been a messaging between microservices product you have selected one or more pricing dimensions and for each pricing Dimensions you need to set a floor price in the case of laptops there is only one pricing Dimension and there is quantity of laptops therefore you need to set the floor pricing for quantity only for our fictitious product we selected three pricing Dimensions so you need to find floor price at the flow price for each of them the second point where you are going to narrow down your pricing option canvas is the ceiling price selling price is that price point above which your customers had lost interest in your product and prefer to either not solve the problems your product intends to solve or use an alternative to your blog determining ceiling pricing is usually something that comes from your customer interviews first you specifically ask them about City price second you ask them about substitutes and hopefully the unit all the invoice simulation for your customers invoices when they use substitute problems so here is where all that prep work begins to pay off you can take for example your biggest competitor and set their price at seating price or if you offer more real value and your competitor and can quantify it let's say 10 percent more than your biggest competitor then your selling price might be your competitive price plus that 10 percent same as with floor pricing or selling prices you need to find the selling price for every pricing dimension a bit of about price elasticity of demand uh this is another topic that comes to the table during pricing discussions and it comes like this let's see how demand changes with price and let's just set the price of a problem as high as possible before the demand begins to decrease and hurt the desired profitability of the problems well not to anger economists and this from my point of view was of a product leader for for technology projects this is something that in 20 years I have seen only what a company do as part of a pricing exercise and it was a very expensive and time-consuming activity and the Practical value of it was so doubtful that we didn't even need to think about it topic of elasticity when selling prices after that and so just a point of my personal experience there with this particular topic now with well thought out floor and seeding prices we can relax a little bit as any price we select in that range might not be optimal but it is not going to be a disaster price either now it is a question of reducing of narrowing the canvas to any point where we can get the best price for our products now how to reduce that canvas there are a series of questions that you can ask yourself such as is your product a commodity I remember working with an antivirus product and mapping the price of all competitors pricing was very similar across the board and the most expensive offerings were either due to plan recognition or to some unique characteristics my antivirus product didn't have brand recognition but it has a way to integrate with our Flagship product that made us unique and in our financial projections to be able to to sell this antivirus or even a portion of our customers will be a success in that case we chose a price that was closed uh to that of well-known Brands and that of course was between the the floor and and ceiling price making sure Finance got their money and come and customers didn't feel like they overpaid so in that case our pricing was set close to the Civil price now check your pricing tenants do they offer any guidance about how to fine-tune the the price you are considering for recommendation in a company I wanted to canalize an existing product as it was not profitable for some usage letters in that in that case I fine-tuned the prices in a way that it was cheaper than the product I wanted to canaveralize again I selected a price that was between floor and selling price a commonly used tactic when your product has a more and or better functionality than the Rival is a set the the price a similar to that competitor main competitor I should say and use the advantages of your product as the reason for customers to switch to your product and last bullet point there I remember pricing an electric uh analytic power quality products that was designed for the outdoors by talking to customers we found that our competition problems uh where what what are the tissue were probably similar to ours but designed for indoors which were cheaper but will break every six months while our product lasted for for at least three years Harvey floor and ceiling price we were able to set the price of our product such that it was a lot cheaper to buy our product than replacing the indoor product at six times that is two times per year times three years and this gave us a very very healthy margin and was significant savings for the customer one thing I always recommend to do is sensitivity tables just an example is the one that I put there on the slides I'll create a table that shows pricing Dimensions uh kind of in the column A versus floor price some price options I like to include on these three and selling price along with their margins okay but option two uh I choose a problem that after all this work and interaction with the customers seems to be the one option one is Uprising normally between floor price and that option two or prefer price and option three is normally a price between option two and and the selling price now what do I check here the questions are am I getting healthy margins are the margins too small am I getting margins that seem excessive the goal of a table like this is to give visibility into revenue and margins of each pricing Dimension at each price point so you can see if the February pricing option is really the best sensitivity tables usually show revenue and margins at some point in the future when the product has reached the same state a common value I have seen is five years in the future but it all depends on the particular product and Industry normally sensitivity tables are provided by the finance department so I won't go into how to create one what you have to do as a product leader is to try to make sure that all pricing dimensions are profitable as you don't want to be losing money with some use cases or customers there are some other sensitivity tables you might get from Finance again the point is to make sure that the product is profitable across the board and uncover any usage Corner case that might be sold in an acceptable margins and police in all cases trying to stay away from Price Wars everybody loses the price Wars even the winners as they are the winners of a market segment where customers because of the price War saved very under price products okay now some final remarks and is your pricing proportion needs to generate trust to that end Define everything for example don't say it is cheaper or more expensive State the number don't say we talked to some customers write down the name of those companies to talk to don't say it will come later after the future is developed what what does later mean spell out the date don't say the functionality is commonly used among customers say the functionality is used by 74 percent of customers for example and sorry a little bit of an interruption there and I think that's all the material that I have to cover today's topic thank you very much for attending and I hope that you learn a little bit again my LinkedIn was in the presentation in case somebody has further questions on wants to connect so for now thank you bye [Music] thank you