3 Best Practices to Maximize Revenue and Survive the Recession
3 Best Practices to Maximize Revenue and Survive the Recession
Pricing strategy from the Chief Revenue Officer of a $500M company
Hey, I’m Jacob ✌️ Welcome to all of the product people who subscribed since last time! If you’re not a subscriber yet, I hope you’ll consider joining this band of like-minded folks who are all learning how to build better products. Questions or feedback? Drop ‘em here.
Last week, my team and I got a chance to sit down with the Chief Revenue Officer of a $500MM company to ask questions, get feedback and learn about how they approach pricing strategy and revenue creation.
Because companies are often split into departments, it's easy to forget that a company is a living organism and that each part is intricately connected to every other part of company, not siloed off as it can often seem. As a product-focused founder, it's critical for me to learn about the functions of other departments and how they impact product.
Design, engineering, legal, marketing, sales, HR, operations, business development... they all serve each other and the better we understand each, the better product leaders we'll become.
The job of the CRO is to drive revenue across the organization. This touches many functions across the company including the obvious ones like sales and marketing, but also less obvious ones like product.
What features are getting built that can be sold?
What is the pricing model that maximizes revenue while providing equal or greater value for the customer?
What language are we using in the product to encourage users to upgrade?
How can we improve retention to ensure new revenue isn't churning out?
What can build today to lay the groundwork for future high-revenue products?
Though we covered a lot in our conversation, I'm only going to highlight three main points in this article that are more specific to pricing strategy. Additionally, the advice was tailored for B2B SaaS. If you run a company with a different type of business model, you may need to adjust accordingly.
Let's get into it!
"Price Sensitive" is just an excuse
There are a lot of industries with customers who are considered "price sensitive." Perhaps they seem to quickly switch to the hot new competitor with little to no brand loyalty or they’ll just cancel entirely. But in the eyes of a CRO, this is simply an excuse.
“Price is only a factor in the absence of value.”
At the end of the day, if you create enough value, customers will pay. It's that simple. So if you're having trouble acquiring paying customers and your company is in one of those industries that's considered price sensitive, ask yourself, "how can we create more value for them?"
Price should be a reflection of impact
As you increase value, remember to increase your price accordingly. This is known as value-based pricing as opposed to cost-plus or competitive-based pricing. Especially in SaaS where the value you create once can be sold an infinite number of times, it's easy to make the mistake of increasing value at the same price point but...
"Value should be relative to the impact we make."
Your price should reflect the impact you make on your customer's lives. If you're making or saving your customers $1,000, you can charge some fraction of that.
Figure out a way to measure the material impact that your product has on your customers' lives (B2C) or their businesses (B2B), communicate that value clearly and often and then charge accordingly.
Price is an ever-moving target
It's incredibly difficult to find that price point that's a perfect exchange of value. Companies typically charge too little or too much because the value they provide for their customers is an ever-moving target.
So how do you know if the price you’re charging accurately reflects the impact you’re making? Experiment.
If value is an ever-moving target, price should also be moving to match it. According to Patrick Campbell, the founder of Profitwell, you should be making some sort of pricing experiment every quarter.
Experimentation can include price, sure, but also the language you use to speak about your product and even the features themselves. It's important to experiment so you can discover whether or not:
…the price point is right and the feature set is wrong.
…the feature set is right and the price point is wrong.
…or everything is right and you’re already maximizing revenue.
What does experimenting look like in practice? Tactically, this can all happen with a Stripe checkout flow and a simple landing page that you can spin up in less than a day.
“Don’t let product limitations influence how you go to market.”
Just because your systems aren't set up to handle the transactions automatically, it doesn't mean you can't make the sale. You can always provision the software manually after the sale is done.
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—Jacob ✌️
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