B2B SaaS pricing: How to stop guessing - ClassroomX at Web Summit

I'm amazed continually about how many people actually find pricing interesting I thought it was just me so I'm a pricing nerd and it sort of it tastes back to me originally being an entrepreneur so I've started three businesses and I've you know in all of those I focused on product and sales and sort of all the organizational developments that are sort of part of growth and pricing was always one of these things that you know what's aggravating for me and the other co-founders because it was like okay we ought to raise prices we sort of know that or we invented something new so we need to come up with a price in order to sell it and it was just difficult and we had a hard time figuring out how to even drive that decision making like okay so we can go ask our customers but they're not going to tell us or or are they or we can ask them other things like what would they want to buy from us and but still taking that data or taking that insight and turning it into good pricing always seemed pretty hard to me so after having sold my last business I turned out and started to angel interest and then sort of this sort of pricing issue sort of kept rummaging around and then sort of fast forward like a handful of years and and I'm have a pricing consultancy so that's sort of what we do and I wrote a few books about it and we're helping a lot of VC funds primarily out of Scandinavia but also out of Germany and with sort of helping their portfolio companies to pricing and and we're also the preferred pricing partner for don't tell Samsung but from Microsoft in the whole Microsoft I sleep partner universe so I want to sort of take you through some some key takeaways and if you have questions just interrupt me and and if we never get to the fourth key takeaway that's fine we're just you know we're just going to stay with the first two and have a conversation and even though it can be a little difficult in this room but well let's try it out so so the first thing that that I always sort of get to when I talk to a business and this can be sort of it's sort of a pre very new startup or you can even be an enterprise that is trying to transition let's say a legacy on-prem software business to a cloud SAS solution I always sort of trying to figure out ok what are you doing and and who are your customers who you're trying to sell to and all these things and and then we're talking about how they approached pricing like how are they even trying to sort of tackle this subject and and what what what I found is that they're trying to look at their product or their service and then they're trying to figure out what it's worth and they're trying to sort of price that and put a price tag on whatever is they're trying to deliver to the market and essentially what I've come to understand is that your product is actually the wrong unit of analysis when doing pricing it's the wrong place to do so the reason that we can't as founders or executives and a SAS business do pricing is that we're looking we're trying to price the wrong thing and and sort of to illustrate what I mean I actually I thought I'd sort of dig back in sort of the historical archives of entrepreneurship and and give you a little sort of hands-on case for what I mean about this and that's actually trains so ok before you think has it gone mad and train some software actually have a lot in common because what happens if you want to build a a train line railroad line let's say you want to build the Transcontinental Railroad going from the US East Coast in Philadelphia say to California you want to bring people over there so right now people have to walk so it takes four months and several thousand dollars even in 1830 money and it's highly dangerous and and you know the West is there and they're giving away land for free but people can't really get to the west coast of California so railroad companies and Merchants say hey we can build we're going to take a lot of investment money and then we're going to build this great technological innovation and then we can sort of almost teleport people across the continent of the US and a lot of value will be created a little bit like software so you start out you develop its technology you build it and while you're building it you get zero revenue but once you build it you can sell tickets on that rail or run and it will cost you almost nothing to transport a passenger from Philadelphia to second and then you have to price that so the question now becomes since it costs almost nothing to transport that passenger from Philadelphia to Sacramento we can't really use the underlying cost of transporting that passenger s/s sort of as a vantage point of doing our pricing because the cost is zero so do we markup zero it's not zero but it's very low and we have all this development cost upfront costs millions of 1860 hundred dollars to build the railroad so what do we do and so I call it sort of the passenger discrimination problem because how do you price if customers don't want to pay the same thing so we have this just found this old picture with let's say we have some rich intimal and we have a poor passenger we have no middle class whatever that is in this context and this person in the middle has almost no money to pay for the railroad and this person has maybe 50 times as much so we need to sort of figure out how to actually charge different amounts from these different types of passengers to make our railroad maximally profitable and if we sort of line it out a little bit we can say okay let's call them the first second and third class passengers and let's say that they have some form of willingness to pay whatever that means but they can pay and want to pay different amounts of money for this technology will be built and so the thing is if you approach your railroad pricing with the idea that you have to find the optimal or the best ticket price then you're going to test out different things you're going to come with one price it seems a little high then you're going to lower it maybe that's better then you're going to lower it again oh that was not so good and you'll find some sort of optimum in this structure and this structure the optimum is there so you have a single ticket and this single ticket optimally prices this sort of middle-income person it's sort of prices this person so they buy a ticket as well these don't buy a tube because it's too expensive they can't afford it or they won't afford it and up here you have some sort of invisible loss so the the richer person just would want to pay more but they don't because you don't ask them so the reason that we can't really price our product is because we're trying to figure out what this train is worth and we're asking all these different people and they're telling us well it's actually quite expensive inexpensive so but you know I'll buy it if you're keeping selling it this way and this gives oh it's way too expensive a kind of for you so if you try to sell software especially if you go into the market with it's like one product package and trying to sell to your customers you'll hear these sort of these signals from your market where some customers say it's way overpriced we can't afford that and some customers seem to be a little bit too happy about the pricing so it seems like you under charged but maybe these customers also saying oh yeah but really yes so we're gonna buy it because it's cheap and you know we like that the technology but but in reality maybe you should develop like much more sophisticated feature for us we want way more out of your software so please do that so essentially usually what's happening is that you say ok so we have this train that we've built or this software this technology that we're bringing to market and we're going to try sort of do something with it let's try and maybe package it in different ways so we sell and this is sort of the standard I sell for a packaging you often see in almost all sacis businesses where we have like a basic medium advanced solution and people sort of tries to fit it around with their features and say ok let's sell different things to different customers so in the Train example we invent the dining regen we're saying ok we're going to have a super feature and this super feature will then allow us to optimally price these advanced customers that want to pay more so now what's happening is we're starting to have a pricing structure we're starting to have a product structure and we're starting to have a product a pricing structure that starts to get at the difference sort of profit pocket so willingness is to pay that we have in our underlying market or customer group that's right but how would you create a third class experience like how do we create this minimal one so often what what especially startup software companies do is they create some freemium version that's just free and they say ok we're just going to give something away with some features and hopefully they will onboard and they will turn into second class passengers once they sort of see the the value of this product but it can be difficult and and actually we have a great analogy for how to sort of create these sort of minimal products a minimal versions and it actually it comes from the from the historical example so we're gonna we're gonna just run a little guessing game here so what was the third-class train experience so they tried removing all the chairs from the wagons so no chairs so you had to you couldn't sit down it took like a week or two weeks to ride the train from Sacramento so it's from Philadelphia to Sacramento so I play it wrong right couldn't sit down didn't work because these diets they didn't have enough money so they would just buy up the third-class ticket so the third test tickets will get sold out immediately this is so they're freemium problem that you often have and then these passengers there weren't enough tickets for them and they couldn't afford these ones so suddenly you had over capacity here you didn't have enough passengers for this one they tried to transport them in cattle wagons and say okay maybe if there are no chairs maybe we if we put in the wagons maybe you know that will drive people to actually buy this one so basically sort of it was an innovation project where they tried to create a worse experience for some passengers in order to discriminate or move passengers around didn't work yeah louder yeah so maybe you could get them engaged as users in some way and they could volunteer problem is that you're always delivering all the values so and these guys would volunteer in a heartbeat that I work yeah we are there to work you know we're gonna get our you know fists bloody once we get to California we're gonna dig for gold know what they did was they took the roofs off they're gonna say okay okay you can get really cheaply from Philadelphia to Sacramento but we're gonna go without a roof and we're going to go through the Kentucky mountains and rain snow and frost the noise and not all of you are gonna survive that was sort of the so survival guaranteed it's a feature here and here you can get the dining reagan up there on the first class and so the thing that we often see especially in in certain sort of lifecycle stages of software companies is that everybody invents software to create the dining reagan experience everybody wants to take their users or customers from philadelphia to sacramento with just sort of the full-on red carpet treatment right so look at all what our software can do and then we start the saying okay when then when we want to develop our business we develop ever more so the dining wagon desk feature we say okay you can you can do this as well it's you know we feature explode our software when reality sometimes what we should do is we sort of sort of repackages and look at the ways that our customers wants to buy this so the first key takeaway here is don't price your product price your customer so the product is the wrong unit of analysis when doing pricing the customer is the right unit of our lannisters to turn pricing and then you should take the product and fit it to the customer groups and then you should start to sort of figure out okay so what's what's in there what's what's going on with this pricing and how can we help okay so how do you go about to sign this or a product model and I know we have you know so maybe you're thinking I thought this was pricing he's talking about all you know it's all product yeah well usually when we do product and pricing model this time we do it sort of as one thing whenever in our consulting business we're never going to say okay we're only gonna do your pricing ball because the things fit together you can't really sell one without the other sometimes companies are far along how they want to package their product but but usually we need to sort of review that so product model design III called product market fitting because they sort of it was the best term that it's really that wasn't it bits were this it's like if you can get to figuring out sort of this structure then people gonna buy it they're kind of they're gonna write you're trained they're gonna pay you what you want to pay we have two concepts to drive product my product model the first one we call fencing so fencing essentially is to take a look at your market and say okay so arm our customers like structurally sort of the same kind of people or am i selling to actually different markets overall and you're soaked there they can be sort of there's a lot of nuance to this but but generally it can be maybe you're selling yourself or both to b2b and b2c so maybe you should have different product and pricing models for b2b and b2c and maybe you're selling both to businesses and governments and NGOs maybe they need different pricing schemes because if you're selling software that box can be used in private businesses and let's say as EdTech universities usually sort of will almost it's a non-starter if they can't get a 30 percent discount on top of what private businesses charge so you might as well say oh we have this special University price list and also maybe we remove some of the features that are not relevant for you so this is sort of the train ride that we're going to offer you and the ticket the pricing is built in there so let me show to show you an example of it this is say so this is sort of the packaging and up here we have sort of the fencing so this is some this is a company called pure grade it's a venture case that I've worked on in Denmark and so what they sell is so if I'm a university teacher a professor and I have like 300 hundred guests in a classroom and they all need to write an essay I don't want to grade 300 essays because they all gonna get piece or whatever so and and it's boring and they're not going to learn anything and and I'm not either because I've done it for ten years so instead what I do is I log on to peer grade as an instructor and then I installed this software that allows all these 300 undergrads to grade each other's papers and they learn a bunch from that because that's the experience that's building there and I don't get to do the work and that's great but the problem is that professors don't have any money and students don't want to pay to get to grade each other's work so really what you need is you need you need the universities to pay but you can't have the same product structure for them of the pricing structure so essentially what you're doing is you're fencing this you're saying okay so we're selling to individual teachers that's one price list and that is ironclad something different than when we're selling through institutions and then after a while they realized oh we also have to sell to corporates they can actually pay more so we need to sort of split them out and have them pay more so essentially this is sort of just an a top level way of starting to think about this because essentially this is easier to price than having them all in one basket because suddenly it starts to it's much easier test what will the private company pay for this then what will the private company any university and an individual teacher pay for this because that's three different questions so we usually say that fencing should be done if it's obviously possible if it feels sort of awkward or contrived or or you have to get sort of too creative or your customers don't immediately understand it don't do it but if it's sort of immediately applicable to your situation it's sort of a straightforward way to go about it it can also be industry oh sorry okay so can you find some company size like for enterprise and startups not well that's actually the second concept usually because what will happen is that usually we say that fences should be unjust should be hard and you know sometimes startups grow to be big right so when do you move them and that's actually what the next concept is for that's called lettering and lettering is basically what's in here this is the product ladder that was going down here so the product either is to arrange your pricing tiers or your modules or whatever it is that you're asking your customers to buy in such a way that each additional version or addition of the software that the customer can buy solves another problem for that customer so I have another case here so this was in an industrial company that wanted to sort of go in so they were an equipment manufacturer and they are sort of a multi-billion euro company and they sold machines to large cleaning operators with global cleaning operators and then the global cleaning operators lost track of where the machines were so one of their largest customers is by 8 million euros worth of machinery every year and I lose track of it so next year I have to buy eight million more so there was a problem say okay we can build use like something that can track the machines so you know where they are and then you know when we get really advanced then you can integrate it full and get all sorts of AI stuff going on and that's going to be really exciting and they they had Amazon was their customer the Walmart was the customer and they were on board of this because they said yes yes we are very advanced with dates are already give us the data track the machines let's go but they also had various traditional competing companies that were like we just found out how to log into email like we're not advanced enough to use that so what happens is that you starts to say okay let's divide the product in what we call a ladder or a track that helps the customer sort of grow into the experience over time so you're not trying to overwhelm them and the way they to do that is to so the way companies usually do that is say okay we're going to take all the advanced features that are like new tech and cutting-edge and we're gonna place them here and we're gonna price them very expensively and then we're going to take all the old-school features that everybody else has and that are sort of commoditize by the market and we're going to sell it very cheaply that's the wrong way to do it because nobody told you that is all the old tech features that are cheap to make and the everybody else s the day the day it's solve a problem for the customer so is that what you should do is you say okay here we solve this problem for the customer they want to know where their machines are here we solve another problem maybe they want to benchmark their fleet against maybe other industry players and here maybe they want to do machine specific decisions and so on and so forth so it's sort of a way to look at it so we used you to say things if it's obviously possible always latter so that's sort of the takeaway number two so take everyone was don't price your product price your customer take away to fence if it's obviously possible like realize you're selling to different types of customers and then for those customers use your product to create a track for them that they can climb and grow into it this is basically the version where you take and upgrade a third class passenger to a second class through a first class overtime okay pricing model design finally right okay so this is sort of so monthly recurring revenue and customer lifetime let's just say that and then we have a tool box so what can go into a pricing model well usually what happens often sometimes at least is that you have some sort of setup fee so when the customer gets started they pay you something to install it or migrate it or set it up or whatever it is especially in b2b contexts sometimes that's zero if you don't have any sort of onboarding costs that are worth mentioning the gist let's just get going with a recurring revenue model and then recurring revenue you can look at different ways it can be a flat fee license saying okay so you get access to our software for 50000 euros a year whatever right and maybe you have an add-on to that oh you get like the advanced reporting or analytics so whatever it is that we're selling for ten thousand euros more so now they're paying sixty thousand but they're paying six a thousand regardless if they were small or big company if they're using it or not using whatever it is you're pricing model is sort of flat fee license based unless you start adding metrics so a metric is basically anything that is price per X price per user price per gigabyte price per claims handled for an insurance company whatever it is so the metric is it's just that and of course you can have the basic metric and you can have add-ons you can say oh we're going to price your per gigabyte and per user and per model and per whatever widget that is in our software and then maybe if you leave we're gonna have to mix it fees we're going to charge through there as well because well that can be different maybe it costs something to do it to migrate your data out maybe we just want to punish you for leaving whatever that's not all issues but you know it can be there and of course while you're here we might also sell you some one offs that are non-recurring like consultancy or projects or whatever right so this is just the Lego blocks that we can put in now this is an example this is an AI platform company was a spinoff from Saxo Bank so Sachs Bank is a competitor of Bloomberg's in that they sell trading platforms to professional traders and also it sort of serves to retail traders and they have an AI department that was doing really well creating AI projects inside saxophone because they are essentially not a bank their tech company and then the the the leads technical leads of the that AI team said hey we want to spin out this company and create like an AI platform company and that became 2021 AI so they create AI platforms primarily for banks but also for insurance companies and there I sort of faked some of the numbers in their pricing but essentially the structure is this so if you have to buy the grace platform depending on how many of these AI m models we have in production on that platform you that goes up here so that is one metric you pay more and then you also have to pay for users so they have like a grid or a matrix going on so if I have like 25 users and seven models I pay 15,000 right okay so when I see a model like this and say okay fair enough and so do your customers want models and then the answer is yes yes they want models very much that's why they're buying the platform there so they models is what's driving value for them okay great okay fair enough do they want users what do you think not really all right so they said we've never sold more than eight users like that's you know so so the bank says we can probably do with eight like let's stop there so what they did instead was saying okay so they really want us to say okay but you just seem valuable to the bank so they then said okay then we're going to create this one over here so we're gonna have more features so if they want these advanced features we're going to force them to buy like a more advanced here because then they're behaving like an enterprise even though they're cheap bastards and only onboarding aid users and their customers aren't very satisfied with this because customers are thinking that they're getting cheated right they're saying I don't have 7 users why do I have to pay 15,000 just because I want this stupid feature you know I feel like I'm not getting I'm only getting like a third of the value out of it so sometimes we can see without even knowing anything about how their product I still work we can you see oh there are gonna be some Custer's met the customers that are dissatisfied with this because some customers are going to feel that they're overpaying because they can't utilize the entire feature set that you're pricing to them so the response the emotional response for the customer is going to be I have no idea if fifteen thousand euro is the right price because I'm a bank I don't know anything about AI platforms yet you know in ten years we're gonna be experts or all of us but right now I don't know but I can sort of sense that I'm buying too much so your I'm gonna be harder to sell to because I'm gonna feel that I'm getting overpriced you really have to demonstrate the value to me and also I'm more likely to churn and I'm also more likely to ask for discount so the pricing model itself isn't doing you any good so what's going on here because essentially the users are correlated to value like the more users the bank has the more value they can create it seems like logical so to sort of unpack that we we thought about it for a while then we came up with sort of saying okay actually has to do with the customers value chain so if you think about it from the customers perspective perspective what happens if I'm a bank and I want to install AI platforms and I'm hoping that you can sort of bridge this to your own business this anything okay so I decided to do it which means that I create like an AI model project and seem something I'm now going to do AI and you know you're the VP of digital you have the responsibility and you get a budget let's go right and then you go out and you say okay then you're going to find some data sources and start to train some models and figure out how this works and then you're going to deploy those models into the bank and then hopefully they were to improve some KPIs maybe they create credit score so they prevent fraud or whatever is that my software models are doing right okay what's important to understand here that from the bank's perspective this is an input and that is an output this is an investment that is a return it's this correlated to the value absolutely just as much as this is but this is an investment and that is a return and there's a big difference because we can attach our pricing to any point in this value chain so up here on the team level it will be users here it would be gigabytes process maybe processing speed we can come up with sort of different versions of it marbles may be models in production data I'll personally say that we say okay we're gonna price specifically on the credit scoring that you're doing like on the specific model output okay so if you're charging based on users what's going to happen is that the bank is going to buy the minimal amount because they they don't know how they this list sort of investment works for them and then they're gonna run the daily chain and at the end they're gonna say oh that was great we actually got a lot of value out it maybe we'll get more users and then they have to run the value chain again so we call this the expansion sales cycle which means that the time it takes that your customer to decide to upgrade and buy more from you has to do with how long it takes them to run the value chain and if you place your pricing at the very beginning of that value chain even though it's perfectly correlated with value your expansion sales cycle is going to be a lot longer so essentially what we do with with with twenty twenty-one over here is saying good rid of this just price based on features just let them have all the users they want they can just everyone in the bank get said user license that's okay just unbought them and just price on the models they crave because what's going to happen is that everybody now is an AI engineer you're going to have all sorts of ideas from HR to whatever caning and management and then they're going to create a lot more models and they're going to get a lot more value out of the software and you can charge higher price because you charge based on models and it's it's reasonable to think that if you have 50 users they're going to train more data and create more model than if you only have eight right so that is something that is where we can start to see a hockey stick and growth by simply sort of just cleaning up a pricing model saying okay this is this is hurting your expansion sales cycle because reality what you want to do is you want to customers to go all-in and get value out of your product and your pricing models is inhibiting it so you should think of your pricing model sort of as an interface between your product and your customers so it's an interface in the sense that it's going to affect how your customers use your product and can get value from that product in this example here it's a poor interface because it's slow they slowly get value from your product and it's also poor in space because that means also you slowly can attract your portion of that value so build a better interface okay let's take it in another angle as well if you have something like these for users he buys models and dates outputs and we say okay now we sort of know how they look on a value chain then we usually take and look at them in another dimension as well and say okay value is one thing that's usually what all product teams are focused on let's create something that's really valuable to our users or our customers okay and we found out that there's another question that's relevant and that is are your custom is actually expecting to pay for this so we had this and the reason is that if it's post valuable it will they will have demand for it and if they're also expecting to pay for it they will also think that it's fair but in case that we don't have these two check marks we get these other scenarios so if it's purely valuable but they don't expect to pay for it they'll think that yeah okay I want it but it seems unfair like your pricing method is weird and I don't you know maybe you're bringing me profit but I don't understand why you have to charge me 25% of it and immediately I'll try to lower your price I'll try to pressure you for that price point and if a competitor comes along and sells me the same thing I have demand for I'm gonna switch and procurement is gonna have try and have a field day with with figuring out why you are charging this because they're not expecting to pay for it so if you're selling you I know this is PT B but for example customer service is a great one up here for B to C so all call consumers want customer service they're not really expecting to pay for it unless you go into sort of luxury level domains if you have something like you're selling enterprise software and you say oh we just developed a nice new user interface the bank is gonna say that's great you know we really like the new user services we don't think that it's something that you can increase pricing on especially if it's if it's software related white labeled links to their customers banks pay for infrastructure and they pay for you know costs and servers and compliance and all these things taxes and fees are down here zero value very high expectations pay transportation shipping you know all your delivery costs are down here they're like yeah they're not valuables me I wish they were lower right but I kind of understand that you needed in order to deliver it to me so if we take the four outputs that we had before we see that users are down here for cultural reasons everybody expects to pay for users it's like okay everybody else charges on a user base so I'm sort of expecting to do that it has kind of low value for me gigabytes processed is also here it doesn't really it's it's not if I can reduce the amount of gigabytes that are processed and get the same results I will I'll buy a few gigabytes as I absolutely have to to get the models working but I understand that you have server costs and processing cost and so on associated with it so that's fine data outputs are there so if you're charging me basically based on the business outputs that I create I'm thinking that's not fabulous because I created the model I know that your software enabled me to create that value but maybe if you're starting to charge me on the credit score so that I make on my own data maybe I feel that's yeah it's valuable but I'm not expecting to pay for that because that's I sort of feel that the intellectual property is mine but up here we have sort of a marriage of the two okay because here there are structural costs associated with it and they are valuable so that's why we will pick this one for them so remember this sort of value versus expectation to pay drives a lot of things like psychologically in pricing model okay and it's sort of it's the 8020 of a pricing model it's the value metric sort of if you're worrying about setup costs or like nickel and diming all your customers pick basically 20 21 nickel and dimed their customers they had a great value metric deployed models it was perfect for them and then they were worried that their customers were getting away cheap so they they they started to overcomplicate their pricing not as I had anything I can complicate a pricing complicated pricing you sometimes the exactly right step for you but in this sense it wasn't right so if you get a good value metric and pricing metrics together it's gonna drive you a long way so let's say we have a good pricing metric now so usually what's gonna happen is you're gonna sell yourself to where it's just someone in the business that you're selling the software to let's say you're selling to a bank or you're selling to a design agency or you're selling whatever you're creating a marketplace for for two sort of groups to exchange something or whatever you're aggregating across the base I don't care you have something that you're pushing your value proposition to you and often especially in enterprise sales that is some sort of business manager it can also be like a CIO whatever but but you're having a primary buyer almost everyone I see they start sort of unload value proposition work on this guy that's say like oh what we're creating is so valuable and so risk free and you know buy it buy buy buy it and this guy is on board like he wants to buy your software then he speaks to this guy up here the CIO who owns all tech and then the CEO said well oh so you want to install enterprise software in like the infrastructure that I'm running let me have a look at that and then he has the low guy on it that says other he says well yeah maybe but I don't understand what that that cat cost that much to make and maybe we can make it ourselves and and so on and so forth so this guy becomes an obstacle right and maybe these guys become obstacles as well procurement compliance you can sort of we call that a wallet structure reviewers sort of figuring out how the buying process works with your customer and I call these different sort of positions desks because when you can also call them in boxes whatever but but they are sort of distinct points of reference inside the organization and they can have distinct sort of differently preferences for what your product and your value proposition should and shouldn't do and essentially you need all of them to agree that you know it's a good idea to buy from you so I'm usually saying that what your pricing needs to be is sort of a really good conversation tool between these four guys so if you land a proposal or value proposition in this team they're gonna say okay we're gonna have a look at it we're gonna have a meeting Monday or whatever and then we gonna get that you let's usually how it works and they're gonna say and then they're gonna talk it over and they're gonna and he's gonna say oh yeah I really like you know I can save a lot of money I can drive sales or whatever it is that this guy is trying to do this guy is trying to sort of not get caught up in something he doesn't want to get caught up in and so these times we're just gonna try and prevent downside liability and whatever it is that there so if we then take this back again and say okay we have these four value metrics that we had before but let's assume that that was actually the perspective of the business manager what's the perspective of the CIO maybe he has a different perspective maybe for him users aren't as valuable at all I mean he doesn't expect to pay for them because he just know he's paying maybe less for users and he is usually used to bargaining for users data outputs is way way down here because I think data outputs yeah okay maybe there's like some processing power involved and like technical capability but he's not a business person so he doesn't care that we're gonna get something processed that's like not his death so he's still saying okay I need to get paid for processing things I guess and so on and so forth so his perspective is different and you can see that procurement is different as well and there might be other things involved and essentially we're going to say trying to aggregate these different views and then essentially you and running it as a sort of a spreadsheet or an Excel exercise you have to run this as a design exercise you can see okay there's likely no we can't prove that whatever we arrive at is like the optimal solution but we can't find something that is good enough to sort of go through and that's the that's the goal here and we usually say that I call this the reverse fruit triangle like you should get more from this area and some from this and also you can start to sort of you can start to mix and match so essentially if you have something like this up here this is a mock-up that I created for actually another AI platform that is hosted out of Berlin so essentially what's going on here is to say okay up here we have infrastructure so these are engines and cores and all these things that we're saying oh this is for the cio this is the kind of price list that he's going to look at it so he's gonna look at if the engines and the cores are priced in a way that he can relate to and at a price points that he can relate to and down here now we're processing insurance claims that's the line of business so he can relate to that so we can price them based on value as long as we prize the infrastructure up here based on that expectations of cost and then down here we might have procurement saying oh we want we can you know embed ourselves in our architecture that we wear we can't in by third parties and we can't get out of so we're saying third party modules are free so it's non-binding so essentially what your pricing models should do is to sort of be again a conversation tool that all the stakeholders in your customer organization can use to sort of figure out that say okay I'm like covered because I'm my budget is going to own this part likely right and my budget is going to own this part and and I can okay that whatever it is right so I called Meg I had like a longer one but then I just I hope they do so in the context understand what the hell this means like make your pricing talk to everyone so the for our price your customer and then fence if possible always ladder the pricing metric metric is your 80/20 and make your pricing talks for everyone and actually just as a courtesy to you guys maybe you should trip these but they're sort of prioritized like do them in that order this is sort of the high level thinking that you should have and then you can start start to execute here the metric can be right in one finis and in another finish you need another metric so maybe universities they need to pay per student and maybe professors need to pay just a single user license whatever right doesn't matter you can write me there I'm trying to finish a book on this stuff so sign up for like the email that tells you it's ready hopefully before Christmas lesson see okay two minutes of questions I know so it's like 17 minutes passed and the other guys needs to the room at half past so we have like a few minutes okay do i do pricing consultant for startups and how does it work I did not pay this guy to say this I'm just saying yeah we do so so sometimes we work through the venture fund if there is a venture fund and sometimes we just work directly with the founder trying to sort of figure that out sometimes we do like a pricing and product modeling like workshop thing where depending on where you're located sometimes it's like a series of conference calls and I'm me flying in and then yeah you I'll give you a quote on that but it's found or friendly yeah yeah yeah [Music] okay so you have a product that sells virtual assistant services yeah and you you you have right now you're you're targeting for half a full days was it time unit half time a full time okay and you want another pricing metric and how can we price everyone okay so the first thing I would do is say okay lift that maybe the pricing metric for half time a full time is right but essentially so I just unbothered a virtual assistant and I've just on-boarded her for maybe five hours a week like a minimum because I don't want to I want to sort of Chester out so maybe part time is too much so maybe just getting the pricing metric down to our least better and then I would I would I would say okay you need different service levels maybe you have a specific kind of recruitment process and you say if we go all in so for example if you want to if you want to source a and au pair like a nanny you can either get like a login for platform and you can just like try and do it yourself and it'll be low price or you can get like a full service where she gets interviewed and and you know background checked and trained and all these things that it just is different the thing I would work on a feature based scenario as well saying you can be more or less involved in the training and monitoring of the assistant you can have maybe you can have backup so you're saying okay maybe you don't need maybe on peak hours you don't need a full-time assistant maybe you need three full-time assistants like two weeks a year when you're preparing for the weight summit or whatever it is right and you can say with this platinum solution maybe we provide that added help and we ensure that the assistants work together in teams so that they can you know cover for each other so you get like 24-hour service I'm just riffing on the topic right but essentially you will see some people will be willing to pay much much more for this airtight service level and it isn't just the time base and basically you feature differentiate that and say an hour costs whatever $10 here and $25 here or whatever your pricing is right okay last question how do you how do you test them great questions okay so actually one of the reasons that I'm a lot of interest sort of business-to-business pricing is that it's really difficult to test so you don't have large data sets and you don't have a lot of testing material because I'm working with at SAS business in Copenhagen and they're turning over maybe 200 million euros of annual revenue and they have 14 customers and they're like we need pricing and after that we need 14 customers we don't need 13 like that's gonna be like a massive hit to us right so essentially you can test everything up until the price point together with the customer so the great thing is that that the fens thing you can sort of try to design and ask if they think is fair the pricing metric you can actually just ask customers like how do you want to get price do you want to price by the hour price by the day what is your preference and it's actually in their interest to answer truthfully because nobody wants weird pricing they're not going to tell you how much they want to pay for that hour or day or whatever it is so leave that out of it and approach your customers as sort of as a product development conversation saying hey we want to improve you know how we interact with you and sells you so it's you know better for everyone would you rather be priced this way and that way and the other way whatever because we want to accommodate your preferences and your budget structure and all these things lalalala and you can actually have an open conversation about that and then once all that is set up actually what's going to happen is that the price point $70 per hour $19 per hour whatever it is the signals that you get back from your clusters is going to be much more signal and much less noise if all the modeling the packaging and the metric are sort of on point and your customers like that because then the knows you're going to get back are going to be it's just too damn expensive I really want to buy it it straight for me you know this I just can't fit into my budget as opposed to oh that's a great product I'm sure that somebody will like that which is sort of the kiss of death right from a customer which basically tells you that you Hammond sort of nailed it with them right okay I'm gonna be outside and yeah I can be reached here okay just guys

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Id: L-x11nwynVQ

Length: 46min 25sec (2785 seconds)

Published: Thu Mar 05 2020