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Monika Saha - Key Considerations When Operationalizing Your Pricing Strategy

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Key Considerations
When Operationalizing Your Pricing Strategy
Monika Saha
GM/VP Finance Product Line

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Topic
➢ Lessons, Observations & Suggestions
○ Designing growth journeys
○ Selecting pricing metrics
○ Maintaining a health...

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Lessons, observations, suggestions

when designing pricing and packaging
01Designing “growth
journeys” 02Single vs. multip...

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Monika Saha - Key Considerations When Operationalizing Your Pricing Strategy

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Making changes to your pricing can be daunting, but in this presentation Monika Saha from Zuora outlines the steps you need to take in order to operationalize a change in your pricing strategy. You'll discover a whole host of learnings from this presentation given at SaaSFest 2017.

Making changes to your pricing can be daunting, but in this presentation Monika Saha from Zuora outlines the steps you need to take in order to operationalize a change in your pricing strategy. You'll discover a whole host of learnings from this presentation given at SaaSFest 2017.

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Monika Saha - Key Considerations When Operationalizing Your Pricing Strategy

  1. 1. Key Considerations When Operationalizing Your Pricing Strategy Monika Saha GM/VP Finance Product Line
  2. 2. Topic ➢ Lessons, Observations & Suggestions ○ Designing growth journeys ○ Selecting pricing metrics ○ Maintaining a healthy pace of innovation Agenda
  3. 3. Lessons, observations, suggestions
 when designing pricing and packaging 01Designing “growth journeys” 02Single vs. multiple value metrics 03Maintaining a healthy pace of innovation
  4. 4. Healthy upsell revenue is critical % of bookings from upsells Source: 2016 Pacific Crest SAAS survey Cost of new business vs. upsell, expansion, renewals
  5. 5. Challenge : Balancing acquisition vs. lifetime value B2B Pressure to meet quotas Higher bookings numbers Lower net dollar retention B2C Race to acquire a high volume of subscribers Higher subscriber growth rates Lower post- promotion retention
  6. 6. Identify The “Pricing Profiles” For Your Target Market Questions to consider: Do you want/expect customers to go through natural “growth journeys”? Are there natural “tipping points” that will drive customers from one profile to another? If customers stay on within a single profile, what avenues do you have to grow ARPU?
  7. 7. A packaging framework often emerges for each pricing profile EDGE NEEDS Identify new capabilities customers may want as their needs begin to extend beyond baseline needs of their profile Map this to baseline packages Map this to capability driven growth (tipping points, cross/ up sells) Map this to consumption driven growth (add-ons) COMMON NEEDS Define the most common pricing profiles and the “baseline needs” of those profiles ADOPTION SIGNALS Identify signals that indicate higher adoption of the same set of capabilities over time ⇊ optimal packaging
  8. 8. When possible, design for 2 factors to drive upsells/expansion Current ARR/ MRR Capability driven growth levers Consumption driven growth levers New ARR/ MRR a.Capability-driven: The need for an expanded set of product capabilities (cross/upsell) a.Consumption Driven: Higher use and adoption of a base set of capabilities that a customer has bought (add-on)
  9. 9. Suggestions for incentivizing the right outcome ! Identify the right attainment metric ○ ARR/MRR ○ TCV ○ Customer Lifetime Value ○ Compensating on one-time components vs recurring components ○ Compensating for renewals
  10. 10. Challenge : maintaining compelling “tipping points” Benefit A Benefit B Benefit C GOLD PLAN $150/user/yr BRONZE PLAN $100/user/yr Compelling Tipping Point You might start here …. Benefit A $10 Benefit B $5 Add-On Creep Weak Tipping Point BRONZE PLAN $100/user/yr GOLD PLAN $150/user/yr Benefit A Benefit B Benefit C But over time you could end up here ….
  11. 11. Suggestion: carefully consider the “value-optics” of add-ons Benefit A Benefit B Benefit C GOLD PLAN $150/user/yr BRONZE PLAN $100/user/yr (A + B) $50Tipping point advantage This solves for a need to offer add-ons A & B with the bronze plan, without eroding the price-value tipping point of the Gold Plan
  12. 12. Lessons, observations, suggestions
 when designing pricing and packaging 01Designing “growth journeys” 02Single vs. multiple value metrics 03Maintaining a healthy pace of innovation
  13. 13. We are seeing an increasing number of value metrics Source: 2016 Pacific Crest SAAS survey
  14. 14. We are seeing an increasing number of value metrics Source: 2016 Pacific Crest SAAS survey
  15. 15. Challenge : selecting the right value metric You might be leaving money on the table Buyers will have a hard time aligning price to value delivered ✕ ✕ A single value metric is ideal, but sometimes not every product innovation will map to this value metrics Without the right value metric:
  16. 16. # Of Sales Quote Users$100M $10M $1M CFO : Transactions processed VP Sales : Users Creating Sales Quotes Suggestion: one value metric per persona
  17. 17. Impact on operations ! Can you internally and externally measure progress towards capacity? ! Are your systems flexible enough to allow quick amendments to your primary pricing metric? ! Does your pricing metric make the customer feel like they own the relationship?
  18. 18. Impact on operations ! What do you do when customers exceed capacity? ○ Prevent customer from extending use ○ Charge the customer an overage ○ Allow the customer continue use, and upgrade them upon renewal ! Upgrading the customer: ○ small sales (e.g. 1-2 seats or incremental volume) ○ material upgrades (new 12 month term with increased volume)
  19. 19. Lessons, observations, suggestions
 when designing pricing and packaging 01Designing “growth journeys” 02Single vs. multiple value metrics 03Maintaining a healthy pace of innovation
  20. 20. Pricing Innovation Is Not Keeping Up With Product Innovation
  21. 21. Challenge : keeping up with a continuous innovation cycle Lack of alignment on process and expected outcomes Systems Challenges ✕ ✕ Pricing/Packaging decisions have to be made at a faster, more frequent pace These are the common challenges that hold companies back:
  22. 22. PRICING TEAMS REVENUE TEAMS Often unaware of the revenue impacts their decisions will have Often unfairly seen as “blockers” or “Dr. No” In revenue, it is NOT easier to ask for forgiveness than permission. Chances are that revenue teams will Have a solution for you that works for both sales/pricing and the company’s revenue recognition policies
  23. 23. Suggestion : Understand The Revenue Implications 
 Of Your Pricing/Discounting Practices Ext Price SSP % Of Total Price Revenue Allocation PRODUCT A $1,100 $1,200 $1,200/$2,160 = 56% $1,900 * 56% = $1,055 PRODUCT B $700 $800 $800/$2,160 = 37% $1,900 * 37% = $705 PRODUCT C $100 $160 $160/$2,160 = 7% $1,900 * 7% = $140 TOTALS $1,900 $2,160 100% $1,900 Review Pricing Compliance Rates And Share Results With Your Pricing Committee Ensure You Understand How Revenue Shifts When Discounted Products Are Bundled Together
  24. 24. Suggestion: A pricing council/committee that has a well defined and regular operating cadence Items to consider: • Market research (incl. historical analysis) • Revenue Recognition Considerations • CAB Input • Communication/Training • Systems Implications Sales Leadership CSM Leadership Finance Leadership IT Product Leadership Sales Strategy Legend StakeholdersCore Team Coordination/Alignment
  25. 25. Suggestion: An innovation alignment framework PRIMARY PRICING GOAL Product Innovation Benefits Competitive play Reduce sales/ acquisition friction Generate new business revenue Generate upsell/ expansion revenue Increase package differentiation Benefit name 1 + Benefit name 2 + Benefit name 3 + Benefit name 4 + Benefit name 5 + Force yourself and your primary stakeholders to attach ONE primary pricing goal to each benefit
  26. 26. Suggestion: De-couple pricing offers from packaging to give you the most flexibility to iterate on pricing PRODUCT Storage OFFER A $10 per month CAPABILITIES ❑ BENEFIT 1 ❑ BENEFIT 2 ❑ BENEFIT 3 ❑ BENFEIT 4 ❑ …. ❑ .... ❑ BENEFIT N OFFER B $100 per year OFFER C Pay-as-you-go OFFER N Custom pricing
  27. 27. END

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