How to price for profitability

Transcript

1. INTERNAL INTERNAL EXTERNAL How to price for growth and profitability
2. INTERNAL EXTERNAL American 󾓦, French󾓧, African🇹🇬 Former Product Marketing Lead at LinkedIn in San Francisco 🌁 Current Global Product Marketing Director @ PayFit in Paris 󾓧 Avid book reader 📚 Adjunct Professor in business schools 👨🏽‍🏫 (Strategy, Leadership, Product Marketing)
3. INTERNAL insert a visual of this size INTERNAL How to price for growth and profitability EXTERNAL
4. INTERNAL INTERNAL Why Pricing? EXTERNAL
5. INTERNAL INTERNAL insert a visual of this size of startups fail because they run out of cash - CBI Insights of all pricing increases fail - Simon Kucher & Partners INTERNAL EXTERNAL Source 1: https://www.cbinsights.com/research/startup-failure-reasons-top/ Source2: https://www.linkedin.com/pulse/why-97-all-price-increases-fail-what-your-company-needs-philip-daus/
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9. INTERNAL ✅ Effective 🛑 Not Effective • Data-driven • Customer feedback • Sales feedback • Cross-functional buy-in • Gut feeling • Emotional decision • No cross-functional alignment INTERNAL INTERNAL EXTERNAL
10. INTERNAL INTERNAL 󾠮 Understand costs of business operations 󾠯 Understand market dynamics and trends 󾠰 Understand customer willingness to pay 󾠱 Make the best decision for growth and profitability 󾠲 Monitor performance, get feedback, and make adjustments along the way EXTERNAL
11. INTERNAL INTERNAL Understand the strategic weight of pricing Why and when should you consider revising your pricing strategy Where to start and how you should tackle a pricing issue How to get alignment from Sales, Product, and the Leadership Team INTERNAL How to enable sales for the launch of the new pricing grid How to track performance and adjust when needed EXTERNAL
12. INTERNAL INTERNAL Why am I presenting this topic? EXTERNAL
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16. INTERNAL INTERNAL The VP/Head of Product Marketing that just joined a new business The product marketer assigned to run this pricing exercise Cross-functional partners EXTERNAL 💡 EXTERNAL
17. INTERNAL insert a visual of this size INTERNAL Take your time. Rome wasn’t built in a day EXTERNAL
18. INTERNAL INTERNAL INTERNAL ⚠ INTERNAL EXTERNAL
19. INTERNAL INTERNAL EXTERNAL How to price for 📈growth and 💰profitability
20. INTERNAL INTERNAL When should you consider reviewing your pricing strategy? EXTERNAL
21. INTERNAL Just launched your business Reached a milestone Losing too many deals Customers are churning Expanding product portfolio Recently acquired EXTERNAL Feedback from Sales New leadership Entering a new market Clear problem
22. INTERNAL INTERNAL 1. Stay close to the numbers EXTERNAL
23. INTERNAL INTERNAL Is Sales Team discounting too much on a specific pricing plan? Are 50% of your customers are on your premium price? Do you have 80% of your customers on the basic plan? Are you losing too many deals to the competition? Do you have negative gross margins? EXTERNAL ❌ ❌ ❌ ❌ ❌
24. INTERNAL INTERNAL insert a visual of this size INTERNAL Recommendation: 25% on your basic price, 50% on your mid-level, and 25% on your premium. ➮ If 80% of your customers are on the premium plan, it means your product could be too cheap or you have room to create an even more premium offer. ➮ If more than 50% of your customers are on your basic plan, you could be offering too much value already on that first plan. Which doesn't justify them to move on to the next one. Or the price of the next plan might be too expensive to justify the added costs. EXTERNAL
25. INTERNAL INTERNAL 2. Pick a place to start EXTERNAL
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27. INTERNAL 📊 Understand what it’s costing you to operate the business 📈 Understand what the market is doing 👨‍👩‍👦‍👦 Understand what the customer is willing to pay 🎯 INTERNAL EXTERNAL
28. INTERNAL INTERNAL 3. Aim for both growth and profitability EXTERNAL
29. INTERNAL 📈 Growth 💰 Profitability • Acquiring more customers with negative margins • Profitability decreases with more customers • Not sustainable • Acquiring more customers with positive margins • Profitability increases with more customers • Sustainable EXTERNAL
30. INTERNAL INTERNAL Sony introduced the PlayStation 3 console below margins hoping to make profits through game sales. The product was: • Revolutionary • Equipped with blue-ray technology • Priced competitively for the market • Losing money with every sale ❌ Not sustainable EXTERNAL 💡Later released a slim PS3 without premium features
31. INTERNAL INTERNAL Electric shared scooter are taking the cities by storm but with a steep operating cost. • Expensive hardware • Needs to be continually replaced • Fragile business model ❌ Not sustainable EXTERNAL 💡Conversely, Ford focused on leveraging data from bikes to increase profitability in other areas of the business to maintain cashflow EXTERNAL
32. INTERNAL You’re selling a lot and making tons of revenue, but you’re not making profits 🥵 You’re not growing fast but you’re profitable. Not selling a lot of units but you’re making profit on each sale 😐 You’re growing fast and you’re profitable You’re selling a lot of units and making profits on each sale 🤩 INTERNAL EXTERNAL
33. INTERNAL INTERNAL How much is it costing you to create the product? (product team) How much is it costing you to sell it? (marketing budget + sales team) How much is a customer worth for you during the entire lifecycle? Do the math: Gross margin is the difference between revenue and cost of goods sold divided by revenue. How many sales do you need to become profitable? EXTERNAL
34. INTERNAL INTERNAL Costs: (COGS) • Hosting fees • Customer success • Customer support • Sales • Payment processing • Marketing budget Revenue • First year & customer lifetime value (LTV) Gross margins = • (revenue - COGS) / Revenue EXTERNAL EXTERNAL
35. INTERNAL INTERNAL 4. Build a business case EXTERNAL
36. INTERNAL INTERNAL EXTERNAL • How do their offers compares with yours? Are they targeting the same type of customers? • Do they have a free trial? Do they have a fixed fee + per employee? Or unlimited based on pricing plan? • How do you compare in terms of value vs price? • How would you position yourself? Are you premium? Low cost? Faster? What’s your competitive advantage? • What are the sales teams saying? Why are we losing deals? Why are we winning deals? • What role does pricing and packaging play? • Are we too expensive for SMBs? Are we not customisable enough for enterprise? • Could we benefit from having payment plans? • What does finance say? How long does it take to pay back on advertising? 12 months? 24 months? More? • Are additional services priced right based on the additional costs? • How are the margins doing at scale? • How do they feel about the value vs price? How do they measure ROI? If they could improve something about our pricing vs product offering, what would it be? Integrations, add-ons, advances support? • What would they be willing to pay for it, and why? 🥊 🚀 📊 👩‍💼 • What’s the product roadmap strategy? Are they looking to introduce new verticals? Create premium offers? • Do they think pricing plan first or by default does everything go into the basic offer? 📱
37. INTERNAL INTERNAL 5. Get buy-in from cross-functional leadership EXTERNAL
38. INTERNAL 󾠮 Determine who needs to be part of the conversation. Typically you’ll have sales, marketing, product, customer success, finance, business operations, and leadership. 󾠯 Schedule the meeting and present what you have found. (💡Tip: Focus on what’s important to them.) 󾠰 Ask for resources and get their commitment. 󾠱 Assemble the team and align on what is the objective. 󾠲 Draft the plan, have the kick-off call, get to work. EXTERNAL
39. INTERNAL INTERNAL insert a visual of this size INTERNAL 󾠮 Find an exec sponsor. Leverage them to push for resources and get executive alignment. 󾠯 It’s highly recommended to have 30-minute weekly meetings with the core team. Bi-weekly meeting with the exec sponsor (s) to update on progress, highlight challenges, and determine next steps or resources. 󾠰 Have individual meetings before the big meeting to sell the project. Pro Tip: Get buy-in from cross-functional leadership EXTERNAL
40. INTERNAL INTERNAL 6. Build and validate your hypothesis EXTERNAL
41. INTERNAL After having all of the conversations (analyzing the competition, looking at internal data, and interviewing cross-functional partners) you begin to form an opinion and see 2-3 potential options. Now you want to validate these options, create 2-3 models, and go interview all the cross-functional partners. If you know a customer advisory board, go speak to them and ask them about this new model. Trust the data and make a decision. 💡Tip: Make sure that the new pricing strategy can be operational within your desired time-frame. 󾠮 󾠯 󾠰 INTERNAL EXTERNAL
42. INTERNAL 󾠮 🎯Goal: Determine what type of pricing model to have. 👉Ex: dynamic, fixed price + user fee 💡Tip: customer willingness to pay and market dynamics plays a big role here 󾠯 🎯Goal: the 👉Ex: $49 + $5 per user 💡Tip: Speak to sales 󾠰 🎯Goal: Create opportunities to add more value for additional fees. 👉Ex: Add-ons. Two or three pricing plans 💡Tip: Think of a premium offer to increase customer lifetime value INTERNAL EXTERNAL
43. INTERNAL INTERNAL EXTERNAL Source: https://slack.com/intl/en-fr/pricing
44. INTERNAL INTERNAL 7. How do you make a decision? EXTERNAL
45. INTERNAL INTERNAL Crunch the numbers Think growth & profitability Create upsell paths Get alignment from stakeholders Make adjustments EXTERNAL
46. INTERNAL INTERNAL 8. Launch EXTERNAL
47. INTERNAL • New website • Product • Sales collateral • Support articles • Upsell campaign • New website • Product • Sales commercial etc • Sales training • Support articles • Upsell campaign • How well are you doing? • Conversion rates are higher? • More revenue? • More customers? • More upsells? • Better gross-margins? • Competitive in the market? 󾠮 󾠯 󾠰 INTERNAL EXTERNAL
48. INTERNAL INTERNAL insert a visual of this size INTERNAL 󾠮 Do a monthly win/loss meeting with the sales and ops team 󾠯 Review financials with the finance team monthly 󾠰 Conduct a quarterly business review 󾠱 Make the tweaks when needed Pro Tip: Monitor Performance EXTERNAL
49. INTERNAL 🗞 INTERNAL Stay close to the numbers. Pick a place to start. Aim for growth and profitability. It’s the holy grail. Build a business case. Get buy-in from cross-functional leadership. Build and validate your hypothesis. Make a decision. Launch and monitor. EXTERNAL 1 2 3 4 5 6 7 8 EXTERNAL
50. INTERNAL 🔗 INTERNAL 󾠮Articles • Investopedia: How to analyze Profit margins • Hubspot Good profit margin for product • Unbounce Conversion-based pricing 󾠯Books • Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine 󾠰Podcasts • HBR Podcast: Pricing Strategies for Uncertain Times 󾠱Consulting Firms: • McKinsey: What really matters in B2B pricing • LEK: Optimizing B2B pricing - one of the greatest levers of profitability • Bain: Customer Strategy & Marketing • Simon Kucher: Must haves for a pricing strategy 󾠲 Courses: • 40-minute module in the PMA Course EXTERNAL EXTERNAL
51. INTERNAL yannick.kpodar@payfit.com @yannickkpodar EXTERNAL