It’s not so complicated: Pricing for B2B SaaS

Aggelos Mouzakitis: Hello, I’m Aggelos Mouzakitis. And I help B2B SaaS companies transform their Go To Market from sales or marketing lead to product lead, but also do all the associated activities that come along this exercise such as pricing restructuring.

Spyros Tsoukalas: Welcome to the Growth Mentor podcast, I’m excited to learn from you about B2B SaaS pricing. So, let’s get to the chase, could you tell us something we don’t know about B2B SaaS and pricing?

Aggelos Mouzakitis: Sure, absolutely. Something that people do not know and is a common misconception is that pricing isn’t necessarily a financial exercise mostly. It isn’t an exercise that requires super strong data analysis skills. In fact, when we’re talking about B2B SaaS, even at growth stage, it is mostly an exercise that is related to your growth. Pricing is part of your value proposition. In fact, there is there is a nice shape called the three P of pricing, which have the bottom of it, it has Positioning, and then on top of Positioning, it’s Packaging. And then on top of that is Pricing. So pricing is all about positioning, pricing is your Go To Market, your offering your value proposition. So let’s not confuse it with the way that way bigger companies might tweak their pricing, they might tweak little numbers and have significant impacts into the ad revenue in in the comments that we’re talking about. And in that stage, it is a purely Go To Market exercise.

Spyros Tsoukalas: That was a very interesting approach about pricing. Are there more mistakes that startups or smaller companies tend to do when it comes to pricing?

Aggelos Mouzakitis: I have seen a lot of different mistakes that they might do. One very, very common one is that they are trying to build a perfect pricing. So pricing, compared to other things that are sort of binary, there is something that is wrong. And something that is less wrong, is an exercise that what you are trying to do is create versions of your pricing that seem to be good. There is no absolutely perfect pricing, there is a good pricing at a specific point in time. Another common mistake is the price point obsession. So typically, companies obsess about the number the figures that they will charge. In fact, the price point is the only thing that if you were if you actually screw, there is no problem. There are other things that are way more important. Other common mistakes, they don’t have data. So they reach out to me, for example, to help with a pricing. And they haven’t even tested ideas, they have no data, they don’t have a homogenous customer base. And they are attempting to do a pricing restructuring. Pricing requires data and it requires evidence. So if you do not have any of that, then maybe it’s too early for you to actually do it. Of course, the biggest mistake about pricing is not changing your price, your pricing every six to 12 months. And, you know, I don’t want to overwhelm you, there are a lot of different mistakes. But another one that is very important is to actually use the wrong value metric. We will talk about value metrics later, or have actually no value metric have packages that provide several features. But there is no metric of value across your packages. So pricing is an area that I have seen a ton of mistakes. And these are the most important that I have identified.

Spyros Tsoukalas: Thanks for sharing them in sets. It was such a big list of things that probably fellows do. So in your everyday life, I know that you have dealt with restructuring the prices of multiple SaaS services, what are the biggest challenges that you face when dealing with this restructuring?

Aggelos Mouzakitis: Okay, that’s a great question. The the biggest, the biggest challenge about pricing is that it connects with pretty much everything in the same time, every function of the business, it connects with growth, it connects with product, it connects with sales, it connects with marketing, it connects with everything. So you need to you need to be perfectly aligned with all functions. You need to have a relatively perfect, almost perfect cross functional cooperation with all teams. Very good communication skills, because pricing is very much a people exercise, at least the first and the second one. So you need to score quite high in pretty much everything when you’re doing this exercise in order to make it successful. pricing is the is one of the few things that cannot be siloed. We this is this is a common thing that we say in the growth world and in the B2B SaaS world, that we have to break silos. But in pricing, it’s absolutely impossible not to break the silos because the changes that you do your pricing impact the day to day of everybody within the business.

Spyros Tsoukalas: Okay, and why why the should companies rethink their pricing? So frequently, you mentioned something earlier, about six to 12 months, this is a question that like you created the inspired in my head every year.

Aggelos Mouzakitis: Oh my God, there are a ton of reasons to to rethink your pricing. At first, the biggest one, and then the one that everybody can understand, you’re definitely leaving money on the table. So chances are that if you have product market fit, and you’re selling, it means that you can sell more. So if there is nothing wrong, and you’re selling motion has absolutely no push back, and you’re selling like a charm, it means that you have to increase your price, or it means that you have to change your pricing. So pricing is a matter of money that you’re leaving on the table. So if you actually change your pricing, it’s not only the money that you’re leaving on the table, you can actually bring health to the rest of the business to the whole funnel of your business, you can achieve sales efficiency, you can improve your retention rate. And as a result, reduce your churn rate. You can recover revenue, you can increase your customer satisfaction, you can bring heels to most financial metrics. And even you can increase the valuation of your company so you can increase your chances of a very good exit. Also, last but not the least, pricing can be the factor that will solidify your product market fit. So you hear me saying all these various things that pricing can can impact. This is not an exaggeration. Pricing is part of your offering. Pricing is what you offer, is like is as important as is your product is part of everything. So reconsider your pricing is like reconsidering the value that you’re giving to customers. So think, what is the value of reconsidering the value that you give to customers? It’s, it’s everything. It’s absolutely everything.

Spyros Tsoukalas: That was huge. I love how you save that. So let’s say that one of the people in the audience would like to restructure their pricing. You briefly mentioned part of this exercise, and you pointed out that it’s not a financial exercise. So what would that’s a restructuring and dale, if they had to execute it, let’s say tomorrow.

Aggelos Mouzakitis: Oh, this is a very big question, I will try to answer it as thoroughly as possible. As I said, there is a little pyramid called the three the 3 P hierarchy. The three P parameters pricing, the model at the bottom it has Positioning then it has Packaging, and on top there is Pricing. So the first thing we need to think that we need to do is streamline position. That might sound easy, but it’s like the problem that 9 out of 10 companies have, which means that they either position that they either undersell, oversell or read misrepresent themselves, this is a big problem, because it might drive the wrong people with the wrong expectations, which will mess up your whole funnel. So if you do not solidify, what is your value, and for whom, then you’re not ready to actually create packages for each of the segments and for each of the ideal customer profiles that you’re providing value. So, you see what I did here I said, we create packages for each segment, if we do not know specifically, what is our ideal customer and what is the segmentation of our customer base, then we cannot create packages for each individual segments because this is the ultimate goal to have package segment fit. So exercise number one, solidify your positioning, I will not go into detail here split up because we need three hours . Step number two, create packages for each of this segment that corresponds to the value that they want to get. Step number three, find a metric that when this increases the value that your customers get and want also increases in a healthy manner. This is your value metric. And step number four, best experiment different versions of your pricing. Also test and experiment with different price points, perhaps with Yvonne Westenberg survey or other surveys and have some assumptions on what are the ranges that you can actually price these packages. So, in a very few words and in a provocatively summarised version of what is this exercise, this is the third process that you have to consider when you reconsider pricing. And I actually challenge you, and everybody that will hear us to tell me, which part of what I just said, has to do with finances, it might be 5%, it might be the very end of this exercise where you basically model some versions. And you might need some sort of financial or data analysis help to more than a few different versions and see what they bring back. But that’s pretty much it.

Spyros Tsoukalas: Aggelos, you gave us homework for the next two months, I think. But I know, I know you are. And you have inspired me to fall in love with customer research in the past. And I guess that along that process, customer research, and maybe the to be done framework comes into play. Could you elaborate a little bit on that?

Aggelos Mouzakitis: Absolutely. Again, I will try to give you a very summarised notes on that. But when we talk about Positioning, we automatically talk about Customer Research. So we have to figure out through customer research, what is our ideal customer? What is not our ideal customer? Demonstrate, which is what are the differences between those two, and then create a positioning that attracts the right people with the right expectations, the right use cases, the right jobs to be done. So if what our customer base tells us, that is the right customer to focus on, that needs to be reflected in our position and super provocatively summarised version. The second thing that we have to do is, as soon as we have evidence that you know what, this is a good customer, and this is not a good customer for XYZ reasons, then we have to go to our product analytics, this is a more quantitative customer research that we do. And check does have valid data evidence, get validated by where usage gravitates within the product. So the users that we consider as the best? Do they actually use the features that corresponds to the value that they want? The answer is yes, then we are at a good position. The next thing that you will need customer research is basically when you are testing your packages, and you’re testing willingness to pay. At this stage, you will definitely need some surveys to communicate with your customer base. Do ask them, which is the package that they prefer, what is the package that they will choose why, and also ask them how much they would pay minimum and maximum. Also, you want to pair this up with some interviews to validate the results. So pricing, has customer research at its core, and you cannot do a step without customer research. Yeah.

Spyros Tsoukalas: Thank you very much for provocatively giving those answers. As you said. My last question for the day is a learning tools or resources that you would recommend to our listeners.

Aggelos Mouzakitis: Yeah, of course. Pricing is one of the few things that you will need the least amount of tools. So in my experience in pricing, or how long we use the Google Forms, or Type Form, or Otter tools that do something similar. You might want to use some solution to store, transcribe and organise your customer research. But generally, I prefer Google Spreadsheets, Google Drive for that. And you will definitely need Excel or Google Spreadsheets, and some knowledge on that. So three things very simple. No other tools, at least, with when we’re referring to first and second and third pricing restructuring. If we’re talking about the scale up, that has figured out package segment fate, and now they’re tweaking price points, and they want to do something way, way, way more sophisticated. You will definitely need tools to do conjoint analysis. But this is something that is super, super sophisticated. Probably it’s not necessary at the level that you are, it might become necessary when you raise a gazillion. And you really want to scale. So keep those three simple tools that I shared, and you will be fine.

Spyros Tsoukalas: Aggelos, thank you very much for sharing your insights and experiences with us today. I hope that people will enjoy the episode as much as I did.

Aggelos Mouzakitis: Thank you very much Spyros.