Kenny Soto Logo 2020
ūüíįHow Marketers Can Have A Say Regarding Pricing with Dan Balcauski – Episode #132

‚ÄúI ultimately believe that product marketing should own pricing‚Ķpricing is a function of your company‚Äôs positioning.‚ÄĚ

Dan Balcauski is the founder and Chief Pricing Officer at Product Tranquility, based in Austin, TX. He focuses on helping high-volume B2B SaaS CEOs define pricing and packaging for new products. Over his career, he has worked in both B2C and B2B companies ranging from startups to publicly traded enterprises.

Questions and topics we covered include:

  • What do people get wrong about pricing?
  • Defining product management
  • Who should be responsible for pricing decisions in a business?
  • The business objectives that pricing affects
  • The pros and cons of freemium pricing models
  • How businesses can define their product‚Äôs value using the ‚Äúvalue cascade‚ÄĚ and ‚ÄúJobs To Be Done‚ÄĚ
  • How market reference prices work
  • How to measure time to value and see its impact on the end-user
  • How do you identify the most effective price metric?
  • Should a company show pricing on its website?
  • How to leverage bundling as an acquisition tactic
  • Why custom packaging only works in one scenario

And more!

You can connect with Dan via LinkedIn –¬†https://www.linkedin.com/in/balcauski/¬†

And check out his website Р https://www.producttranquility.com/

Our Podcast Partner – MarketerHire

If you‚Äôre looking to hire expert freelance talent this year to scale your business (and impress your boss), check out MarketerHire. MarketerHire vets freelance talent so when you hire an SEO expert, Email Marketer, or even a Fractional CMO‚ÄĒyou‚Äôre not wasting your money or your time. You can hire your first freelancer and get a $500 credit by visiting: www.kennysoto.com/hire¬†

Music for this podcast comes from www.davidcuttermusic.com

Full Episode Transcript:

Dan Balcauski  0:00  

I ultimately believe that product marketing should own pricing. I think pricing is a function of your company’s positioning. The value that a customer perceives is really the only value that matters and it’s ultimately what drives willingness to pay.

 

Kenny Soto  0:14  

Hi there, you’re listening to a new episode with a guest by the name of Dan Bell kowski. Dan is the founder and chief pricing officer at product trend quarterly. based in Austin, Texas. He focuses on helping high volume b2b SaaS CEOs to find pricing and packaging for new products. Over his career, he has worked in both b2c and b2b companies ranging from startups to publicly traded companies. In this episode, we talk about pricing and how product marketers should be thinking of using pricing as a function of positioning for an organization, we cover should you have pricing on your website is bundling a good idea why custom packaging really only works on one scenario, who should be responsible for making pricing decisions in a business and more. This is a new topic that hasn’t been covered on the people’s Digital Marketing podcast. And it’s my goal to make this the number one resource for any marketer who’s trying to become their boss when they the CMO. So without further ado, let’s dive into this new topic and learn from Dan. Hi, Dan, how are you?

 

Dan Balcauski  1:23  

I’m doing well. Kenny, excited to have a conversation today. Thank you for having me on.

 

Kenny Soto  1:27  

Awesome. So we had a conversation prior to this one around how you conceptualize a very important topic. And I haven’t touched on this enough in this podcast, which is why have you on today. And usually I asked a very straightforward question. It’s like my templated go to question at the beginning of all these episodes, but I wanted to deviate today based on our conversation before we hit record. So Dan, my first question for you is, how do you define product?¬†

 

Dan Balcauski  2:01  

Oh, start with easy questions. Yeah, so product is quite a broad term. But fundamentally, the function of product or product management in companies is really about how do you take the resources capabilities of the organization mostly focused on development, in order to focus them to maximize outcomes for customers and beneficial outcomes for the business?

 

Kenny Soto  2:29  

Okay, when we dive a little deeper, do you believe that product sits separately from marketing? Or does it sit within marketing?

 

Dan Balcauski  2:41  

Organizationally, it is usually separate. So I think well run especially I play a lot in b2b SaaS companies, I believe a well organized company in that space should have a chief marketing officer and the chief product officer, I believe those are, those are pure functions. But if we look at what the core marketing definitions, I didn’t come up with this, but a long time ago, there’s what’s called the four P’s of marketing. One of those is product. One is price. One is place, and one is promotion. So place meaning your distribution and promotion, meaning how are people going to find out about it. So ultimately, all of those components fall together underneath the broader umbrella of marketing. But that may differ depending upon your organization, and how those responsibilities are carved up.

 

Kenny Soto  3:30  

Got it? And, Dan, can you give some context to the listeners into what it is that you do on a day to day basis?

 

Dan Balcauski  3:38  

Yeah, so I run a consulting firm down in Austin, Texas, and we help high volume b2b SaaS CEOs defining pricing and packaging for their products

 

Kenny Soto  3:47  

and product marketing in and of itself, there is it depends on the organization. But if you’re a product marketer, I have an assumption that you will be a part of the conversation, you may not be the sole decision maker, or the person that decides on the pricing and pricing packages for whatever it is you’re selling. But if you are doing your job correctly, my assumption is as a product marketer, you have a seat at the table, you’re part of the discussion, you’re collaborating with the product team on what is the right approach to pricing. However, all of this, in theory seems straightforward. But it may be more complicated than how I’m presenting it. Is that correct? And

 

Dan Balcauski  4:27  

yeah, I ultimately believe that product marketing should own pricing. I think pricing is a function of your company’s positioning. And product marketing is usually responsible for the company’s positioning now, saying that they own positioning, right pricing and positioning are have wide ranging impacts on the company. So they’re more the stewards, they are the caretakers. They are the shepherds of pricing and positioning within the firm, but they’re well suited. They have deep customer insights. Distinguished that right I mean, we’ve talked about There’s a bunch of different customer facing teams, customer supports talking to customers all the time customer successes, talking to customers all the time, sales. But those conversations are different, those conversations tend to be very transactional in nature, product management, Product Marketing, have these other teams might consider it the luxury of being able to have very in depth discovery conversations with the folks in the market, really underlying core value drivers purchase decisions, how to make trade offs of one thing versus another information that usually a market participant is not going to feel comfortable necessarily, divulging to someone if they’re in a sales process, right? It’s, you’re gonna be giving way too much information to the to the quote unquote enemy in that situation. But what’s your customer? Right, there’s a different relationship. And they can have those those deep insights to really understand what is the value of the product? How does it differentiate it from the other alternatives that you were thinking about? Your How do you view us compared to these other alternatives, but also a strategic position in the company where they again, own the positioning, usually responsible for some amount of competitive intelligence that might be shared with other organizations. Product Management usually has a strong role in competitive intelligence work. But you’re bringing all those pieces together and they’re incentivized correctly, they have the long term incentives of the company in mind, right? It’s not a transactional quarterly basis, obviously, they’ve got to drive. Drive leads and demand gen Funnels is usually part part partly could be the product marketing organization, sometimes, you know, that’s more of a demand gen function, right? That they’re kind of the strategic making the strategic direction for those those firms. But ultimately, as I was mentioning, you know, with any of these with its pricing, or positioning, these are aspects of the company that have far ranging impacts across the organization. So usually, what we recommend is that companies have a pricing committee or a pricing Council, where they bring in the other stakeholders, whether that’s CEO finance, customer success, or renewals, sales, product management, give everyone sort of a seat at the table to make their concerns heard, have have discussions, there’s diversity of decision making and perspective that is very helpful in these conversations. But ultimately, I do think you have to vest authority in one person to move the conversation forward and often make the parallel to this is what we ask, this is why we have the function of Product Management. Because yeah, everyone has the best idea for the next feature that’s gonna make us you know, the, you know, a million dollars, or $10 million, or whatever it might be. But there’s all sorts of trade offs between complexity of what we can do other demands on the engineering team, trade offs between different stakeholders of wanting hate these features can help us reduce support burden, or these features would be great for us to talk about at the trade show keynote, right to drive more leads versus customers existing and new customers, new prospects have different demands, that really the product manager is there to be the listener, understand those perspectives, and then drive a decision forward that’s in the best interest of the company. And I really think you need someone in that position on the pricing side as well.

 

Kenny Soto  8:24  

And for the person who’s listening, who is or may find themselves themselves in this position in the future. What objective this pricing actually affect in the business? Is there one objective specifically does it touch on multiple objectives?

 

Dan Balcauski  8:46  

It’s a great question. Look, ultimately, we’re all focused on growth, right? Growth is what makes the world go round if you’re in organization. And I think most companies are focused primarily on acquisition to grow their businesses. So like, really, if you’re gonna SAS business, there’s really only three ways to grow. It’s acquisition, monetization, retention, and most folks, I think, entirely ignored monetization. So I think it’s a powerful growth lever. Now, ultimately, when you’re talking about brass tacks, I’m going to recommend that companies use pricing to maximize long term profitability. That’s the ultimate best goal. But ultimately, look it it’s up to the business owner to determine what to optimize for, you know, but what doesn’t work is each team member at the executive table pursuing different objectives like optimizing your pricing only makes sense in terms of estate and concrete objectives. So let me give you an example. Finance, I’m gonna pick on finance, but they’re great people, but I’ll just pick on them for just for the purposes of discussion, like finance may care about gross margin, like, but do they care about gross margin percentage or gross margin dollars? So why does that matter like a discount, which obviously is related to pricing that wins a deal detracts from gross margin percentage but adds to gross margin. even dollars. So this could be a symptom of what might be termed spreadsheet myopia, where in your financial spreadsheet of the CFO, your sales volume and price are not dependent upon each other. So if we’re not clear, right, that what we’re trying to maximize, or it’s not shared across the organization, we’re going to end up in very different tactical arguments, because we don’t have an overall shared objective. You know, also, what I would say is you’ll avoid framing pricing success, too narrowly, you know, again, picking on finance, where they might say, every product has to achieve a certain profitability threshold, where products in different offers, you may have have different roles in a company’s overall profitability, you might have very high volume, low dollar value entry level offers, right that are get people’s foot in the door, right? And then you may have upsell paths from there, right. And so to hold, you know, one product to well, it has to meet this gross margin percentage, because that’s our overall target across the company that might not make it is not that product role that product is to is to get those accounts to establish that initial relationship, right? Because once they’re, once they’re paying you for one product, it’s potentially much easier to sell them an additional product or get them to expand their usage. Alright. But ultimately, look, ultimately, it really depends on like, how are you trying to balance your revenue profit market share, like are you trying to optimize unit economics CAC average revenue per user customer, lifetime value, I think the other thing that we see is, ultimately, goals can shift depending on the stage of your business. So many b2b SaaS companies, like startups will sacrifice profitability in the short term for overall growth. I think ultimately, this is a risky bet. But I think we’ve seen a lot of examples in the technology space where this land and expand eventually will give all this value and eventually will monetize be profitable. Never. It’s more hope than than strategy. And so we have to be cautious of that. But there’s different time dimensions that will come to play up to what you’re trying to optimize as well.

 

Kenny Soto  12:06  

When you bring this up. One thing that comes to my mind, and I’ll give a shout out to another podcast. It’s called Marketing and growth against the green. And it’s part of the HubSpot Podcast Network. And they recently had Neil Patel, on the podcast. And he was talking about how he leverages products that are in this case, businesses that he purchases that offer free products. So for example, and to the public, Uber, some just, they do have paid versions of these products. But his goal is to use the free versions as a lead generation tool for him to then sell service based motions. So when it comes to what you were just talking about, is there an argument to be made that some products based on the overall goal don’t even need to have a price that can be free?

 

Dan Balcauski  12:56  

Oh, man, so this is gonna be a bit of a holy war. I’m not gonna go against Neil because Neil Neil is amazing. I don’t know him personally, but I know his stuff. I will I generally am against the whole idea of freemium. Look, there is an economic argument, there is an economic argument for having lost leaders. You’ll see this even at the retail level. Yeah, you go to your grocery store, right there, like a milk is on sale, right? Milk is being sold at cost. But you know, milk is not where the grocery store is making all their money. They’re making it on the candy you buy at checkout, the Red Bull you pick up, right. That’s where the margin comes from, in those organizations. So there is an argument to be made. I think freemium in general, is used way too frequently, and it doesn’t have the returns that most people think it does. What I would suggest anytime you hear the term freemium being thrown around, instead, you substitute with free trial. Free Trial is a much better strategy. So I, I got thrown into this world very early in my marketing career. When I was getting my MBA, I did a product marketing internship for a very successful Silicon Valley company. And they were trying to decide if they should do a freemium offering, basically, they were getting pushed by one of their partners to do a freemium offering and they had some other products. So they, you know, the question on the CEOs desk was should we do freemium for everything, and so I spent a lot of time looking to when freemium works, and when it doesn’t, and for the most part, it just doesn’t work. Like ultimately, again, it’s much better to have a 14 to 30 day free trial, both freemium and free trial hinge on this idea of what economists would call software as an experience good, which means my perception of the value of the product changes as I use it. So there’s as much as your marketers who are listening to this podcast, as good as they are at their jobs in terms of writing website copy and, and design and run writing emails and newsletters etc. There’s something very different about getting your hands on the product and seeing your own data in it. Right. So in that sense, like the free trial is better, but I think the problem with freemium is, there’s a lot of downside that folks don’t really sort of grasp. And ultimately, like, it’s very challenging to move customers to free or from free, you run into what this problem is called the penny gap, where if I go from free to one cent, that’s an infinite increase in price, check the math or I can run through the derivation here. But ultimately, that’s infinitely more expensive. And so you’re almost at the same amount of activation energy it would take to just go recruit an actual customers to move something from free. But there’s this illusion, it’s a mirage basically have all of these free users because you know, people are paying, you’re not customers, or users, that, Oh, if we just do this one more thing, if we make this, you know, other value path, if we add, you know, XYZ, then all these people convert, what I found is that most of those free users do not look like your actual customers. They are very different. Right? And so here, there’s, there’s some sort of very, very long term play that says, Oh, well, if somebody is using this, maybe they’re, they’re a hobbyist now, but at some point in the future, they’re going to start their own business. And at some point, they’re gonna have 20 employees, and at that point, they’re gonna buy our product, right? I just think that, you know, in the meantime, you’re going to be dealing with a lot of really unfortunate conversations inside the business. And I think that it, one of those other problems that it creates is, you’re, you’re going to have I think, best in class, you should expect about one to 3% of those free users to convert. So then you’re looking at this giant pool, like thinking like, oh, well, again, let’s just put a little bit more effort into converting those folks. And they won’t, because they don’t look alike. It. Also it creates this internal momentum tax on every feature that you develop. So now we have to everything we develop, it has to have this discussion of like, well, how much of this goes on the paid says it’s got on the paid side? Or the free side? How much of it? And I don’t know, any CEO that’s thrilled about the velocity of their development teams. And so don’t think that they want to just add that, that tax to it. Like, ultimately, there could be a couple of very specific competitive environments that make sense for it, for example, you know, the dominant player gives away its product with other offerings. So this happened to Evernote, where they’re competing against Microsoft OneNote, right? I feel anybody, it’s competing with Microsoft. And they’re bundling. I mean, that’s what drove ultimately, slack into the arms of Salesforce was, you know, Microsoft and teams, right? They were like, Well, okay, you sure you’re gonna be done? So, you know, it’s, I wrote, ironically, Slack was also one of these people held up as a bastion of how freemium can work, I think, you know, if we think about Slack, specifically, they had kind of what looked like a two sided marketplace cold start problem, where, in order for the product to have value, it doesn’t help to just bring a single user into Slack, like who they got to talk to, right, there’s no value, right? You need a whole team at once. And so putting a per user charge right away is just gonna stop that motion. But that’s, you know, that’s more of a community type product, right, the other where the other place, I’ve seen it with freemium actually being effective or being appropriate is like developer focused product. So for example, if you know, we have some, whatever some API that you developers hook into, and they’re going to be in dev and staging for six months, right? So it doesn’t make sense to just continually refresh Free Trial keys. But we want them to be able to use it in dev and staging. And then when it goes to production, like no one would ever use the free version of your product in production, right. So at that point, it’s very clear, like, we’re not trying to do a sales motion to convert this person, because they’re not actually using it, when they start actually using it production, they’re gonna come around pay us because they can’t like actually use that in production.

 

Kenny Soto  19:16  

Hey there, if you’re enjoying this episode, and you’re a first time listener, when I hit the Follow button, my goal with each of these episodes is to introduce a new marketing concept, or dive deeper into one so that you can become a better digital marketer. Hopefully, through these episodes, you join me on this journey, the path to CMO. So, if you’ve gotten this far, I’m assuming you’re liking the conversation that I’m having with Dan. And, again, I’d love it if you subscribed. Thanks for listening so far. You mentioned a keyword. It’s called value. What is the difference between actual value and perceived value.

 

Dan Balcauski  20:03  

I don’t know that I ever used the term actual value. The Okay, so there’s a couple of different frameworks that I really think about when I use value. And so I stand on the shoulders of giants. I didn’t invent these, but the first would be what’s called jobs to be done has many fathers, Clayton Christensen, probably one of the most famous Bob mesta Tonio wick. And the other is this concept of the value cascade, which came from a gentleman named Tom Nagel, who wrote maybe a seminal book on pricing. So when we think about what the value cascade, it outlines a couple of different definitions of value that I think maybe getting at your, your core questions, so the first we think of is use value. And by cascade, if you think of just like a, like a waterfall, right, so you’ve got a series of pillars in decreasing height. And this is the idea of the Cascade. The first is this idea of use value. So use value is the sum of all potential benefits a customer could receive from your product, economists would also refer to this as utility. And so this is where jobs to be done comes in, because jobs to be done helps us understand the different types of value drivers. So jobs to be done has this concept of functional job stores or functional jobs. So these are jobs that drive a economic or functional outcome, like increasing revenue, decreasing costs, increasing optionality decreasing risks, then you have this other category of emotional jobs, broken into two subcategories of personal jobs. So personal jobs are those jobs that the outcome is helping us change, some achieve some emotional outcome, or reduce stress, peace of mind, higher confidence, access to expertise, those type of things, and then there’s social jobs. So one of the good things about humans is that we’re not just out for our own outcomes, but we do things that are pro social, so things like helping to improve society, equal rights, other freedoms, you know, access to education, health care, climate, those would be social value, right? So we think about the sum total of everything we’re doing in our product or our company to create those type of outcomes for users. That’s the sum of use value. But that doesn’t really have you know, the effect, or is not really useful for us in a pricing context. Because, ultimately, you know, we are in a market environment, right. And so one of the ways that can illustrate this is we think about, you’re trapped on a desert island. I’ve used Gilligan’s Island before, but maybe your listeners are a little bit young, but maybe they see the reruns, you got, you know, the equivalent of Elon Musk trapped on a desert island with a bunch of other folks. And, you know, there’s just he’s, he’s basically a billionaire. They’re trapped there for years. You imagine a ship captain shows up, right? And it’s like, what price should you know, the Elan pay to get off this desert island? Right. So there’s no Starlink? There’s no, there’s no space shuttle cover to rescue him. Right. This ship captain is the only way off. Ultimately, he should give him all his money because his money is not ordered. And you should probably take out as much debt as he can to get off his island because his money in current state is doing him no good, right? It has no correlate value. But now imagine ship captain B shows up. ship captain B says Well, hey, Mr. Musk, like you don’t have to give me billions of dollars, I’d be happy with $10 million. So now you’ve got a market price. Right? And so now it goes into this world of what we call exchange value. Like they Nagel refers to it as economic value, which is okay, now we’ve got a market reference price, the $10 million, that ship captain B is willing to charge and then ship captain A’s got a decision. He goes, Okay, well, I obviously I can’t charge billions anymore. How what is fair to charge is basically, what is the differentiated value between ship captain and ship captain is BS experience, right. And so some of that might be emotional, some of that might be functional. Well, you know, my ship is a catamaran, so it’s more stable, so your ride will be more comfortable or, or you can use my captain suite, Rachel, you’ll be more you won’t have to sleep on the deck you can sleep on. And I’ll serve you cocktails, and I’ll tell you entertaining stories, right, you might think of how the they might start talking about their differentiated value in that situation. So that’s all well and good. The third part of the value cascade is what we call perceived value. So the value that a customer perceives is really the only value that matters and that’s ultimately what drives willingness to pay. And so although the ship captains might be talking a good game about how much value they provide, now Elon sitting there, and maybe he stopped listening, you know, three minutes into their spiel, right and so you know, he’s getting tired and this happens. to our customers and our prospects all the time, right there, they’ve got jobs to do, they’ve been asked by their boss to go evaluate a CRM to buy or an ERP, or whatever it is a new new wiki tool. And so they have these pre designed filters as well as they’re not, you know, fully aware of all, you know, maybe the, the vendors are lying to them about, you know, the value they actually provide, right. And so they’re, they’re discounting, like, what the vendors telling them, and ultimately, that determines right, the perceived value. And so we think about this in terms of these levels of value, right, it allows us to get very precise about what we’re talking about when we use the term value, because they feel like value is one of these terms that gets thrown around, very willy nilly, without crisp definition. And then people get bogged down and really understanding you know, how to how to actually manage it, how to improve it, and then ultimately, how to price based upon the value they provide their customers.

 

Kenny Soto  25:58  

One question that comes to my mind, and I only learned about this concept fairly recently, probably two years ago. And I still don’t understand it completely. So I’d like your opinion. And perhaps you could define it for the listeners as well. What is time to value? And how important is it as a metric?

 

Dan Balcauski  26:21  

Yeah, well, time to value is this idea that there’s going to be some delay, right. And for our purposes, it doesn’t matter what that delay is, between when I purchase a product, in when I actually receive the outcome that I was promised by the product. For most consumer goods, I go to McDonald’s, I go to the drive thru, I order the hamburger. I mean, my car comes up the drive thru window, my time devalues minimal, I just eat the hamper, right? Like I don’t even have to drive home, right, minimal time to value. It gets much more extreme. As you get in a lot of these b2b situations where potentially you need implementation, you need training, you need adoption. And so all of those elements are incredibly important. And what I think is one of the things that has changed dramatically as we’ve shifted, especially in the software world, from this perpetual license on premise software is to a subscription model deployed in the cloud, is that your before it a perpetual model, sales guy could sell the software, and I don’t really care if you ever install it or ever adopt it, right? Because I’ve got 90% of the dollars, you’re ever gonna pay me off that initial sale. But Software as a Service subscription doesn’t work like that. I need you around to pay your renewals multiple years before I get the equivalent amount of revenue from you that I did in a perpetual license scenario. And so now what we have is this ticking clock says okay, not all like they’ve bought today. But now their renewal is going to come up. We’ll for simplification, we’ll assume this is an annual term, the renewal is gonna come up in a year, okay, I’m gonna have to justify them renewing it year two, which means, you know, they’ve got to be they’ve got to be deployed and adopted, you know, in the first three to six months, right. And obviously, there’s also momentum, and, you know, anyone who’s dealt with complex enterprises knows as a squirrel runs by and some, I don’t know, you know, we have Silicon Valley Bank collapses, right? Who knows, right? He’s like, Oh, my god, yeah, that was a high priority project, we’re putting that aside, then all of a sudden, everyone who you thought was super excited to get the thing implemented is no longer staffed on the project when the dust settles, because they’ve got, you know, some other high burning priority. It’s like, so now we’ve had this idea of, okay, it’s very important that we drive customers to make sure that we, we get them installed, we get their data in, we get the people who are going to use it trained. We push adoption throughout the organization, you know, some of these pieces of software require multiple functions to use it, right? It’s, it’s a tool that finance bought, but sales also has to, you know, we think about like, spin tracking, right? So finance is like, Oh, finally, we have a way for everyone to categorize our receipts. Well, it’s great that finance has it, but now you have to have everyone else in the organization. Okay, everyone’s got to download the app, you guys screenshot your thing, these are the fields you have to enter, right? And if that doesn’t work, right, all that’s going to change the value equation, right? And so why does that matter for pricing? Is because one thing we want to be very clear about in pricing is, you know, time is one of these dimensions when value is being established. Right. So one of the elements of subscription that very much differs from a perpetual license transaction is my value has to be continually delivered over time in order for me to feel like a good deal. I’ve seen companies that have just tried to, like, oh, well just take our product and just make it subscription. You’re like, well, I don’t know like, I don’t I don’t need My McDonald’s hamburger to be subscription like I get the value once. Like, that’s the end of transaction. You know, I know Taco Bell is rolling out a subscription. God help us all. I love Taco Bell. But I don’t know if anyone needs a Taco Bell subscription. Yeah.

 

Kenny Soto  30:13  

When it comes to you, we spoke on one metric, but I’m sure there’s a variety of other metrics look at what metrics should product marketers look at to measure pricing effectiveness?

 

Dan Balcauski  30:31  

Got it? Well, I think there’s a there’s a few things. Right. So there’s, there’s a few different ways to look at this. So I think the first is, is there, is there a problem? Right? Like, how can you tell, like, overall, so high level, you know, are you meeting your goals? Is pricing getting in the way of those goals? You know, if you implemented a pricing change, or an increase recently did was a successful, you know, why are you losing deals? Or why did you lose deals, you know, what role did price play compared to other factors, you know, then on a more tactical level, I might look at a few different things, you know, are too many customers buying and staying in your entry level plan, you know, are too few customers upgrading or expanding, you know, is sales regularly selling something, a customized product for each deal? Ultimately, you know, there’s there’s a few different you know, so those would kind of be looking at, you know, some some high level signals to see if there’s, if there’s really a problem. I mean, some of the things I’d be wanting to track, your overall, you know, kind of an ongoing basis is, like competitive win rate, you know, the number of opportunities we won, divided by the total opportunities versus a competitor, you know, percentage of my deals, lost pricing. Like, ultimately, I think a good rule of thumb is, you know, if you’re priced well, you should lose about a third of your deals based on price. This can suffer from data hygiene issues. Your, your price is too high is way too easy for prospects to sell a sales rep to make them go away. You know, and I think it’s also the easiest. If there, there’s a bit of a principal agent problem, right? If it’s, you know, I didn’t really like the salesperson was the answer is the salesperson get to put that in and to the as the last reason, I didn’t, I didn’t like the pitch, you know, I didn’t like the way he spoke to me, right? It’s like, ah, your price is too high. So I think it’s a starting point, right? It’s not sort of the ground honest truth, I think you always want another function outside of sales, it could even be a third party consultant to do some of this deeper win loss. But you know, it’s a good, it’s a good place to start. Ultimately, looking at discounting percentage, and help you in a callback form if a price is too high or low, if you slice that, by deal size, can give you some more ideas there. So there’s a couple of things there’s, there’s a long list, right? If there’s a pricing dashboard, we’d have a lot more. But those are just some high level things here.

 

Kenny Soto  32:58  

We’ve defined some, some metrics need to find time to value we’ve talked about value in general, and we talked about high level pricing, who should own it, how to go about it. One question that we haven’t tackled is when is the right time in a buyers journey to showcase pricing? And correct me if I’m wrong, but from what I’ve been seeing, I would guess that 85 90% of b2b SaaS organizations are showing a price on their website. But is that always effective?

 

Dan Balcauski  33:36  

Yeah, unfortunately, like anything else? The answer is it depends. I think, ultimately, you know, I get asked this question all the time about, you know, should people show pricing on their website, if you’re in a very high volume and velocity type model, large horizontal market, right, all your competitors have public ly available pricing? Often it makes sense to have public pricing and packaging, because one of the things is, is you’re one if all your competitors are doing it, you’re gonna look like you’re hiding something. And unless you’re going after an entirely different market, you’re not even going to be involved in a conversation, right? So it’s not that like your, your salespeople will be able to hold it back. And then at the right time, tell the prospect is like, person’s not gonna fill out the contact form, or, you know, they’re just gonna move on because there’s like, Oh, I’m looking at five, I’m looking at five or 10 initial companies, and one of them didn’t show pricing will like their easy one. Like I just won’t deal with them because it looks like something’s weird with them right there. Yeah. So So that’s, that’s something to be aware of. But ultimately, if you’re more of these high volume, velocity type sales models. You’re hopefully minimizing the amount of human touch and when you get sales involved in a deal. It’s very expensive to you know, have them talk about price over and over. Again, right if that’s if that’s just an easy also, like, if it’s an easy qualification mechanisms like, hey, like, this is what our prices are, right? I don’t. They’re like, Oh man, I thought you guys were 10 times less than that that’s way too expensive. Like, well, your sales team who’s, you know, earning a good salary never need to have that conversation, right. That being said, there’s a couple of different alternative models. So kind of that that’s one extreme is showing your pricing and packaging. The other extreme is no pricing or packaging on the website. And that’s usually if you’re going to small, relatively small sort of vertical market that you’re serving, they may think like the fortune 100, right, there’s not many people potentially different, highly, different willingness to pay. Also, if you’re, I mean, I’ve talked to companies before they have a 50 page price list, right, with all the different add ons and modules. It’s like, yeah, you could put that on your website, like, you’re just gonna confuse people and scare them away, right, you only you need a salesperson, you need a salesperson to walk them through. So that kind of brings me to the middle option, which is, you know, we have our publicly displayed packages, but not pricing, right. And that can help if you’ve got clearly defined offer configurations, like good, better best, you know, helps you tell your value story, it helps you sort of align like okay, hey, this, these are the, if you’ve done your offer configurations, well, those are mapped to specific buyer personas that can help the customers get a sense of like, oh, they they looks like they serve customers like me. And this would kind of be the the package I would fall into. And so I’m going to, you know, that’s an easier place to start the conversation, right? It can help from a marketing perspective to be like, Oh, these are the sort of the high level benefits. So it gives you another element to tell your story in a different way, that pricing pages do tend to be one of the most visited true pages on people’s websites. So even if you have one and don’t show your pricing, it will probably get quite a bit of traffic. You know, it might be I don’t know, if I pulled the data on this recently, I wouldn’t be surprised if it’s a second or third on most people who have the pricing page, even if it doesn’t show the pricing.

 

Kenny Soto  37:08  

I don’t work in b2b SaaS, I work in insurance. However, there is one pricing tactic that overlap between the two industries, which is bundling. How should product marketers consider bundling as a tactic? Does it always work? Is it advisable? I’m assuming the answer is it depends. But why?

 

Dan Balcauski  37:31  

¬†Yeah, so this is a really deep question. I think one thing we really haven’t laid out for your listeners is that when I say I work on pricing and packaging, your package pricing gets all the attention, right? We think about the price level, right? Is this $10 users $100 users at 2995. But the packaging is even I think more important, you know, when when it comes to SAS pricing, especially most executives think that what you charge determines your success, in fact, who and how you charge determines your success. And so packaging is all these elements of your Price metric, your offer configurations or bundles, your price model your price fences. So just to kind of quickly get everyone up to speed I’ve been using this analogy of McDonald’s, right? It’s like I go to McDonald’s, I pay for a Big Mac, you know, my Price metric is a Big Mac, I’m paying for a Big Mac. And then you know, I pay whatever, $3, right, that’s my, that’s the price level is $3 Price metric is a Big Mac. But I could also buy a value meal, right and get fries and a coke with it, right. And this would be the idea of a bundle. And so we have the same idea in in b2b SaaS, where we have a set of features, we group them together, it makes it easier for customers to sort of understand versus we’ve got this giant, your Chinese menu of 1000 different features, and customers have to figure out like, Okay, where do all these things mean? How do I right? It’s like we’ve done heavy lifting to put them into the correct bundles. So look, ultimately, this is a process like no one’s gonna be able to give you a magic formula. I think the first step is really getting clear on your customer segmentation and targeting, right and, and building specific bundles for specific customer segments. I think the other thing is setting targets for your bundles in terms of what do you expect in terms of volume, revenue, the price to value ratio that you’re expecting, you’re tracking the performance of that and tuning it over time? I think there’s two sort of different primary philosophies that people go through. So I think one is design the right bundle for where the customer is at today. So what we might do is you say okay, hey, there’s often I like LinkedIn right? So LinkedIn thinks about LinkedIn Sales Navigator, LinkedIn recruiter, LinkedIn, Business Premium LinkedIn job seeker, right. Those are you know, I’m today I’m a job seeker today. I’m a recruiter. Right. And I named the bundle for the use case of the customer it serves, right. So the OP Was it philosophy is you design sort of this compelling introductory offer, and then the whole plan is let’s work a motion to get customers to upgrade. Like, ultimately, I believe the former is a better option, you know, but but there are different companies that have different philosophies, you know, then you’d have, you know, sort of a different approach in the in the secondary one. I just, I think with subscription, you really put yourself in a bad place, if you’re like, like, Oh, we’re gonna, we’re gonna give them not exactly it ultimately, I think was sales, like their job should be to really understand what the customers need is, and then put them in the absolute best fit, like, Hey, I understand your budget constraints, I understand what you’re looking for, I think this is the right thing. Versus like, well, let’s just get them in the door, and then they’re gonna realize how unhappy they are. And then they’re gonna realize that they want these other things later, to be as a consumer, that just sort of leaves a bad taste in my mouth. And so that’s not how I like to operate. But they’ll look teach their own some people purchase business different ways. And I think I think both could fundamentally work. But I ultimately feel like the ladder. Ringo, a lot of different directions with this question, because it’s pretty deep topic. So I’ll leave it there. See if you want to dig it.

 

Kenny Soto  41:03  

Yeah. Yeah, I think one other question I’d follow up with is, based on your conversation, it seems like there is there is a way to leverage bundles, where in certain situations, a custom bundle, which which may not be advertised, is a better way to go. Would you say that, in certain situations, custom bundles can also help a business grow?

 

Dan Balcauski  41:33  

There are many ways to get at this right. So I think the fundamental thing is, you’ve got what we usually see in terms of bundles is a good, better best offering. Right? So starter starter, premium pro enterprise, right, or maybe has a free version, you know, in there, etc. Or you have the LinkedIn version, right, of LinkedIn Sales Navigator, at least a recruiter, etc. Along with that many companies have additional add ons. Right. So add ons are these things that aren’t in the initial sort of bundles, but that allow companies to add on, you know, oh, hey, this, this, I need additional several years of data retention, right, or I need this, whatever it might be, I need these specific integrations, right, that aren’t in the core bundles. So so in a way, those are ways that you can get to semi customized configurations, where I see it go off the rails, if it’s just sort of anything for anyone it makes, I don’t recommend it, right? Because it makes everything more complicated. It makes the upfront sale more complicated, it makes the transaction more complicated. It makes your back office incredibly complex. Everything from the entitlements in the software to your finance tracking, and in general Ledger’s description management systems. It’s just, it becomes a real big nightmare. There are companies that do it, they’re just like, anyone wants to buy anything. Anyway, we’ll we’ll make it happen. But if you’re, again, I tend to work with high volume b2b SaaS, and in that case, every customization every bit of flexibility you add of like, oh, well, you can, you could buy our product, either per user or per gigabyte of data transferred, or per API call. All those decisions, just add friction and sand to your go to market engine. Right. So those I think those customization packages really only work. I wouldn’t even says they say well, they really only work in really high dollar value. Sales, right? So you’re thinking like seven figure type enterprise deals, where it’s like, you’ve got, you know, a team of salespeople descending, I just think it like the old IBM, right, if you got a team of people in your office, you know, roll do the presentation for months, you know, trying to you know, and they’re selling implementation services, etc, right? To build that customize thing. The most of these software companies are trying to scale, right. And if you need customization, Microsoft does as well, where they say like, look, we’ve got a box out of the product, and we got our out of the box product, and then we have a network of third party vendors and integrators, etc. That will, you know, do all the customization that you might need, but we’re selling sort of a standardized offer.

 

Kenny Soto  44:20  

That makes sense. That makes total sense. Then my my last question for you, is hypothetical nature doesn’t have anything to do with pricing, but more so your career. If you could go back in the past, let’s say 10 years, knowing everything you know, today, how would you specifically accelerate the speed of your career?

 

Dan Balcauski  44:40  

Oh, man time machine, or had a time machine. I don’t know if the number one thing on my agenda would be that how to accelerate my career, but I might go just buy, you know, shares of Apple and call it a day. But I don’t think that’s helpful for your audience. So I think one thing I was probably not is adamant about but I’ve gotten better is seeking out mentors who can guide you in your career? I think ultimately, it’s you don’t need, you know, you don’t need to go get Elon Musk, right? You don’t need someone who’s sort of like, you know, or whoever you want to put right to the President or whoever you don’t need to put them. Right, you want someone who is ahead of you in a relatable way, right, someone who’s had success. And right, because there’s a lot I one thing I found about your careers, etc, there’s, there’s a lot of dead ends that you could follow, and someone who’s sort of been there done that can at least give you a sense of like, Hey, here’s kind of what works and like, you’re gonna steer you away from a lot of dead ends. That’s just really kind of hard to learn from any other source. So I think I’d probably be the number one.

 

Kenny Soto  45:59  

Yeah, I’ll go with that. I’d add to that and say that something that’s been helping me this year. And it’s not necessarily caused by me being laid off, because I haven’t been laid off from my job. But it sparked curiosity, when some of my team members earlier this year were laid off, which was not necessarily like applying for jobs or anything, but more. So how do I start creating community of peers, not as mentors, but like, How can I keep in touch with people I’ve worked with in the past, people I’ve never worked with before. But like laterally, horizontally, we’re in the same position, the same situation. Sometimes if you can’t find a mentor, because they’re too busy, or you just have an ad, or no history in your career, to have them bother to take the time to mentor you. A group of peers can work just as well, to let you know, hey, this isn’t the same kind of conversations and challenges I’m facing. How are you tackling it, this is all I’m tackling. Let’s riff off each other, and then use what we’re learning and then come back and have that ongoing conversation. That’s why I love slack communities. Specifically, it’s like, I don’t even need to know these people. But luckily enough, I found three to four slack communities around sales and marketing that helped me just get a pulse check on what’s happening in the market get a good understanding of like, Oh, I got a new job. I can ask all these people, what’s the right salary average or arrange to look for as another example? What are some expectations that a boss may have if I shift from being a SEO manager to a product marketer to a growth marketer, etc? So I love your answer, because one, mentors do help. And if you can’t find a mentor, peers also help as well.

 

Dan Balcauski  47:40  

Yeah, I think I really, I really like your answer. I would make two distinctions that I really I like your answer to because one thing I think people are not intentional about young in life is being selective of your friends. And it sounds it sounds. I don’t know, it sounds dismissive. Right. But you know, I am a big believer in the you are, you know, some of like, the five people you hang around with, right. And so, you know, a lot of people got into friend groups, by default, they happen to sit next to that person at some thing, and that person became their friend. Right in school. Right. And so I think one thing I really like about your answer is becoming very intentional about the kinds of people at your level that you want to associate with because that you will have fundamentally different conversations, and those people will exert a very positive but subtle pressure that otherwise wouldn’t be there, right? To continue sort of growing and evolving and looking at things different ways. The other thing I’ll mentioned going back to my answer on mentorship, never. I didn’t come up with this, but I get told her a long time ago, and I think it’s I think it’s accurate. Never ask somebody to be your mentor. It’s not a good approach. Also be prepared to pay for advice. I think people try to do that when they hear the mentor thing they try to get by on the cheap, like the people who are really good, and who really know their way. Like they’re in demand. Like a lot of other people realize that they have something good to say they have experience and get it helping people move. And you know, like your edge, you might invest in your education, like it’s a part of your education, like making investment. You know, if you’re lucky enough to get one just buy whatever, that’s fine. But like you should also be willing to pay for mentorship, right pay for coaching.

 

Kenny Soto  49:23  

Dan, if anyone wanted to say hello to you online, where can they go to say I?

 

Dan Balcauski  49:27  

Yeah, probably the easiest way he’s just reached out to me on LinkedIn at Danville kowski I’m always happy to connect with folks just let me know you heard me on the podcast so I could separate it from the rest of my LinkedIn spam and yeah, I would love to connect with

 

Kenny Soto  49:38  

good old LinkedIn spam, we all suffer from it. Thanks, Dan, for your time today and thank you to you listener for listening to another episode of the people Digital Marketing podcast. And as always, I hope everyone has a great day. Wow, what an amazing episode on pricing. On the next episode, I will have someone on who I’ve been following for about a year and a half now on both lists. LinkedIn and Twitter. I love his content. I love what he talks about when it comes to being a freelance marketer. And freelancing is definitely a skill that you want to start developing now as quote unquote employment insurance if you get laid off having list of clients, or at least a soft network of leads where you can get some side work in between jobs is important and it’s also a career path in and of itself. The next guest on the people Digital Marketing Podcast is Brooklyn Nash, he is the owner of beam and we will be talking about freelancing as well as other topics. So, as always, thanks again for listening. And I hope to see you next time on the next episode of the people of digital marketing

Related Episodes

What You Need To Know About Buyer Personas with Jim Kraus – Episode #131

‚Äú[A buyer persona] is the understanding in detailed terms, of the attitudes, needs, concerns, decision criteria, and buyer‚Äôs journey around a specific type of buying decision‚Ķit is not a profile of an individual‚Ķ‚ÄĚ Jim Kraus is the President of Buyer Persona Institute...