Pricing Mistakes to Avoid – with Chris Mele
Mistakes are inevitable, be it in business decisions or personal endeavors. While they may feel unpleasant, they’re actually fundamental in life, as how would you determine the correct method without knowing what doesn’t work.
B2B SaaS Sales Coach, Host Matt Wolach, and Managing Partner Chris Mele from Software Pricing Partners bring you many tactics you can use to charge accurately for the value you give and avoid those mistakes.
In this SaaS-Story in the Making episode, Mele generously discusses pricing technicalities in depth while sharing his own previous misses so that you don’t have to! Find out what bullets to dodge and how to do yourself justice when pricing your SaaS.
Podcast: SaaS-Story in the Making
Episode: Episode No. 227, “Pricing Mistakes to Avoid – with Chris Mele”
Host: Matt Wolach, a B2B SaaS sales coach, Entrepreneur, and Investor
Guest: Chris Mele, Managing Partner at Software Pricing Partners
TOP TIPS FROM THIS EPISODE
Account for the Full Service
Did you know that many software companies undersell themselves by incorrectly pricing services? When Mele said service, he did not just mean the cost of customer care or software implementation. He suggested that founders should consider the blanket services that they have provided.
The service already started from the massive effort it took to build the software, followed by regular maintenance so it could function to the best of its ability. The investment of the right personnel, from securing talents to fine-tuning them to the task, is already a part of the service. Some SaaS companies have the manpower that would be difficult to get ahold of, like the enterprise architects in Charlotte.
It is crucial to put a premium on the entire value, including the service as you could be losing thousands that could have been used to sustain the capital. Do not accidentally give away too much value. Monetize it all so you can further secure and boost your company.
Charge All of Your Intellectual Property
Like with services, intellectual property is much more than the initial impression of being the patent for your products or your unique business model. It also involves your entire industry expertise, which can be the difference between making and breaking it to the field for your clients.
What intellectual property entails is all the gathered knowledge. Having a veteran’s know-how to guide you means you do not waste critical resources by making mistakes in order to figure it out. You can take your time honing your understanding while someone else combines the ground-breaking advancements and company insights to accurately detect current and future problems.
Prioritize the Roadmap
When you have a big-picture view of the complexity and trajectory of your company, you’ll just naturally have the vantage point to spot weak areas or opportunities. Hence, it is absolutely essential to prioritize the road mapping of your SaaS.
While you could do this on your own, having a pro with the right tools would be pivotal to guiding you through it. Software Pricing Partners does that for you by estimating the initial price, modeling the revenue, and then extracting the final net worth. With all of the factors laid on the table, you can tweak the roadmap and then scale your revenue production.
Establish the Packaging Before the Pricing
Before you worry about what to charge, anchor down what the SaaS company will offer first, the packaging doesn’t have to be unnecessarily complicated by doing a good, better, and the best deal. It can be an all-in-one, as customers prefer that.
A good rule of thumb is to identify core functions most of your customers need and to put everything else as add-ons. Customers may complain that the basic features are insufficient, while the pro version makes them pay for options they aren’t even using. Giving them the choice to customize the service would be a win-win as everyone would receive the exact value that they want.
Be Open to How Customers Want to Buy
Now, what would happen if you are struggling to figure out the packaging? The typical route of getting expert assistance aside, did you know that customers will literally help you with that?
Why, yes. Customers actually tell you how they want to buy. Just like the previous points you can have a good, better, and best plan. Then, you’ll get a customer telling you they don’t need the excessiveness of the best plan and ask to only pay for the features they need.
The key takeaway is to listen closely to customer feedback. Sometimes, the solution is already there. Clients would directly or indirectly tell you what they need, and it is your special privilege to meet that.
A Constantly Evolving Product Needs Agile Pricing
Ideally, your SaaS product should be ever-changing as the company consistently strives to improve the functionalities or upgrade service. To match this value growth, your pricing has to be just as agile. Thus, it is vital to construct a system “to revisit the price, alter the packaging, recalculate net prices and incentives accordingly” as per Mele.
Market Fairness Helps Defend Price
Back in the day, there was a tendency to give different prices or discounts based on the perceived capacity-to-pay of the customer. While this may seem like it would work, what really happens is that customers find out, and the sales team is toast, or they raise hell to customer service. The crux of the matter is to price fairly.
Customers shouldn’t feel like they are being discriminated against due to feeling that others got a giveaway. An equal opportunity to earn the price is key, so this is where pricing schemes like loyalty discounts or incentives come into play. A reasonable price variation is tenable, but drastic cost differences for the exact same product are a big no.
[8:33] “So pricing is a real science. There’s also aspects to that that carry with it good judgment. But it is a soon-to-be dominant part of the business model, if you have a software company– is to treat that more on par with product management so that you’re making decisions about how you might put an offer together.”
[11:00] “And that, that prioritization of the roadmap is where monetization connects into at the very start of that product management process. And then, of course, it glues a lot of other things together that we can talk about. But that concrete gluing point, on the way in which we plan, what we’re going to build was a real aha for me”
[14:33] “And then we have pricing, which is the modeling and the mechanics and the price point setting and the optimization and sort of how do we understand what truly our value is? And, you know, what does this look like a year from now or two years from now as we start building more things? Because the things that you’re building can radically impact sometimes the value that you create. And you really want to get a hold of that”
[22:20] “I want to get maximum value such that it’s fair to the customer for the exchange of money for intellectual property. And I want to do that at the maximum rate … And so you really want to crank the flywheel at a high velocity, such that your early access pricing is designed in a way that you’re not inadvertently slowing down new customer acquisition.”
[17:18] “You should have a lot of your teams communicating with each other. You know, if customer success or support hears about something… they get it over to the product. Product builds it; they throw it out. Maybe they should have run through whoever’s on monetization, sales, marketing, whoever it is, to make sure ‘Hey, maybe we should put this in one of our higher packages. Make it an add on. Up the uprising overall.”
To learn more about Chris Mele and Software Pricing Partners, visit https://softwarepricing.com/.
You can also find Chris Mele on LinkedIn at: https://www.linkedin.com/in/christophermele.
For more about how host Matt Wolach helps software companies achieve maximum growth, visit https://mattwolach.com/.