AMA: Twilio Director of Pricing and Packaging, Twilio Flex, Ajit Ghuman on Pricing and Packaging

Hi There, When I was in your position trying to get my mind around Pricing, I faced the same challenge. I do not think there is a decent course on software pricing out today - they are either too theoretical or too much about analytics models. I do however refer to Tom Tunguz's blogs and articles for his simplicity and clarity on the topic of pricing. You might want to read my book on the topic, linked here . Finally, if I get enough interest/demand I might run a course myself in the next quarter. Please indicate your interest in this form . 

Even when you may be servinf different markets or segment with the same type of buyer. The needs of these segments are going to vary. A VP of Ecommerce at a D2C 200 person startup is solving for inherently different needs than a VP of Ecommerce at Nike. The D2C startup has a smaller budget and many SMB/Mid-market competitors to choose from. The MNC can pay a lot more and its likely that it is considering only a handful of vendors to solve its problem. The startup requires agility, perhaps an ability to self-serve the product, more simplicity and good support. The big MNC may need reliability at scale, more dedicated professional services and enhanced governance features. In fact only the title of your buyer is the same, everything else varies in the ICP for these two segments, i.e. company size, consumer base, volume of annual orders sold, etc. 

Congrats and Godspeed! Rolling out a new pricing model is exciting, and often is done with the future of your company in mind. New markets, new buyers, a lot of fun! But existing customers are your present and your past. Be careful about rolling out the same changes to your existing customers. Treat existing customers as special. The following is an excerpt from my book, Price To Scale. "Often applying the same rules to existing customers as new customers can result in difficult expansion and renewal conversations, especially if existing customers have historically been given special treatment (lower rates, more services, etc.) You may want to consider creating special upsell bundles or a granular feature menu only for current customers to buy from to ease natural, upsell transitions instead of creating all-or-nothing propositions that current customers may shy away from. 1. Suppose your customer base broadly has a singular package that was sold historically, and you are now introducing graded packages. In that case, it might not make sense to make customers upgrade to the most elite tier before they can buy the add-on applicable for that tier, because in most cases the upgrade + add-on cost will preclude the upsell from even happening in the first place. This is where a special upsell feature menu might help. 2. Suppose your customer base is especially large in size based on annual revenue, e.g., in companies >100M ARR. In that case, you could also consider mapping customer sizes to the new graded plans and providing an incentive to move to the new plans (often a higher discount or deferred payment). If the pricing change is at a place where you are compelled to make this a companywide change with customer migrations, then it will undoubtedly become its own project and should be treated as such -- and not part of the initial pricing rollout."

The truth is most pricing problems aren't pricing problems. In fact, they are rarely pricing problems. They are just the causal impact of poorly understood and/or communicated positioning of a product leading to a lack of conviction and a whole host of downstream issues. Pricing cannot be set without the Positioning being clearly thought through.pricing is intimately connected to Positioning. Knowing the positioning will help you answer the following questions: 1. Is your product a 'tool/widget,' or is it a 'platform'? 2. Is it a vitamin or a painkiller? 3. How is it uniquely different compared to available alternatives? And based on your answers to these questions is how you will create the packages and pricing in context of your product's positioning.

Your room to maneuver depends on whether you have a fully transparent pricing model reflected on your website or if it is somewhat general on the pricing page so that your reps can customize. If I were to guess, this is a transparent pricing page on your website. 1. Package Definition: It could be worth considering what would increase package differentiation more so that your prospects have a clear choice in front of them. To do this correctly it is important to try to reduce the overlap between the segments targeted by the packages. You can also consider adding a decoy package to move people to a clear choice. See famous example from The Economist 2. Sales Process: If you are not a company with completely transparent package prices on your pricing page, then you can actually offer the right package to the prospect vs getting into the shop-a-package discussion. You really want to avoid the latter discussion if cannibalization is a risk. Do this buy ensuring there are no comparitive package collateral or slides available to your reps and train them not to compare packages. Give them total control of the sale. The packages exist to capture the maximum value from the market and this already aligns with your sales reps' incentives, use that to your advantage.

This is a good question. Multiple products, sold successfully together can take a company from good to great. You now have multiple revenue streams and a chance to increase the total spend your customers make with you. Leading to high growth rates and NDR (net dollar retention) rates. From a pricing standpoint, it is important to think about these products both individually and together. What do I mean by that? All products will have to be priced on their own merits, based on the buyers and use cases they work for. At the same time: 1. The pricing metric should be consistent/similar across products: If one product is sold based on MAU (monthly active users) and the another is sold based on say a price per transaction, and yet both these products are part of a platform that solves one bigger problem, then this price metric discrepancy is likely to add friction and confusion in your sales cycles. It can work for a while but eventually a streamlining of pricing metrics has to be done. Read Hubspot's journey in this regard: https://medium.com/swlh/marketing-contacts-pricing-lessons-38eef8301e95 2. You should design for easy cross-sells: The pricing model (packages, price points, etc.) you choose for new business and the broader market may not be what will work for existing customers. They may want easier ways to try/start using your other products, and in some cases they may have a greater ability to pay you. Therefore it might be wise to think about whether you need specific cross-sell packaging and pricing.

Your question is about: The go-to-resource to conduct B2B pricing power for a product. There really isn't any go-to-resource, its a set of things to consider such as: 1. Brand Power: Is the product the category leader? Do customers trust the brand? In this case the brand is likely to have more pricing power than competitors. 2. Net Dollar Retention Rate: Numbers of NDR above 130 generally indicate that customers increase usage of the product and spend more with the company. 3. Discounting Rates: Depending on the customer segment, say Mid-Market, a discounting rate <15% is very healthy and I would question whether it could be a bit higher. On occassion I have increased prices for my companies and have seen no movement in discounting rates. 4. NPS: A high net promoter score (>50) across users and buyers means that the customers share their love for your product on their own. And that is indicative of high pricing power. 

There are a couple of questions here. Let me address the question of single vs bundled solutions. Why do sell something standalone vs in a bundle? Its about the right offering , for the right buyer/market segment. These offers are the right combination of feature-sets, services, and price for a market segment that will ensure that you can derive the maximum possible value from within that segment. The goal of establishing a pricing model is to standardize 'packages/offerings' that allow your firm to run a sales engine that helps you maximize revenue across multiple segments of your market. An easy framework/approach here is to think about your market. 1. If you have a large market, where buyers are homogenous in their use of your product: In this case selling multiple product tiers such as a Good-Better-Best would work well to maximize returns from the market. This is because the different tiers sit at different price points across small, mid-size and large customers. 2. If you have a small market, where buyers are homogenous: In this case you may not need to have multiple tiers and could probably do with fewer tiers and the ability to add-on features/modules. 3. If you have a large market, but your buyers/use cases differ and are hetrogenous: In this again modular packaging (also called the Chinese menu approach) is likely to work well since you can create an offer based on varied use cases, much like lego blocks. The Good-Better-Best approach may not work well here since the needs to the customers are more varied. I hope this helps. If you are interested to learn more, I cover this concept at length, with examples in book, Price To Scale.

It's become a trend today to publish pricing pages, 75% of companies do. But this is by no means a virtue. The following is an excerpt from my book, Price To Scale. "When you have a large market with a high degree of homogeneity, it is feasible to emulate other SaaS companies and publish the complete pricing structure online (replete with packages and prices) to help you scale your sales engine and maximum value from the market. On the other hand, if your market size is limited (say Fortune 100 Retailers) or heterogeneous (say, across Retail, Pharma, Airlines, etc.), the call is more subjective. I've worked in enterprise SaaS companies that have opted not to publish any pricing publicly to give their Sales teams more ability to sell a targeted offer to their prospects. In those cases, the packages were defined internally, but there was lower price transparency which dissuaded package comparisons and enabled them to extract requisite value from prospects that had differing willingess to pay. In this specific context, sales reps appreciated their ability to offer their prospects the right package without necessarily getting into the 'shop-a-package' discussion."

In my experience, most Sales teams think the pricing is too high, and often they have the data to back it up with win/loss calls suggesting price as the reason a customer did not buy a solution. But sometimes these may be customers that fall outside your ICP. At other times, they may just need more ROI justification to make the case for your product internally. Often this is excacerbated by the quota they carry and a short-term focus on closing deals in the near-term. On the other hand, many executives fail to appreciate how prospects really value their solution. They may think they have more leverage on price since they have a more capable solution - while the prospects may not care for many of the additional capabilities. Ad-hoc pricing changes are often meant with sales resistance, unless clearly articulated and justified. Therefore to attempt to change pricing is really about going back to listen to customers and prospects. 1. What do they feel about your products differentiation from competition? 2. How well do they think your current packaging/offering meet their needs? 3. What is their perception on the ROI of using your product? Once you understand how customers value your offerings? You can devise a plan to increase prices by increasing value or the perception of value? Depending on the root issue. This could be done via: 1. Adding value added professional services offerings 2. Breaking down a large software package into smaller chunks that prospects find easier to attribute value to - sometimes the parts can be valued more than the original sum. 3. Creating ROI analysis across your customer base and enabling your sales team with this analysis 4. If you feel you are simply priced lower, you can just pilot a price increase in one sales region or customer segment and track the impact of the change. In this case, you could increase discounting thresholds to lower Sales team resistence. When your VP of Sales understands that all your work is centered around helping her justify value, so that she can make more money - any resistance will fade away.