In your role working as Product Manager & Go-To-Market or working with PE/VC/pricing consulting firms on company valuation & market assessment, whats your go-to resource with frameworks & examples to conduct B2B pricing power assessment for a product?

Question

Vishal Naik · Accepted Answer

Generally speaking, developer platforms bring about more customer usage and higher customer retention, so from a pricing standpoint, I tend to not get too deep on how to price dev tools–because the long term approach of healthy revenue generating customers is more valuable than a short term lift in charging for access to the platform. If you’re really getting serious on pricing, I’d suggest you look to a research firm to do some discrete choice modeling for you.

Srini Nirmalgandhi · Answer

Pricing is hard, especially when the product price has to extract the maximum customer willingness to pay and still leaves some customer value. There is plenty of resources on the web you can find and I don’t want to recommend anything here. From my experience, here are a few things that will be helpful when pricing your B2B product. Good research from interviews and surveys from existing / potential customers, supplemented by consulting firms’ pricing models is a great start. Trade-offs between long-term commit vs discount are a must. Keep the pricing window open for sales leaders to build customer relationships by offering personalized pricing terms. Think of other levers such as modules, solution / vert-based, marketplace, live support, etc. to customize pricing to maximize customer value. If there are multiple distribution channels, channel conflicts (with price, sales incentives, product availability, etc.) are to be addressed so your customers benefit the most. Analyst / third-party firms’ research report on pricing and TCO / ROI analysis is a good asset to validate your product pricing and move customer conversation towards value-based.

As a growing developer tools or platform company, you want to think about ensuring your pricing packaging strategy can grow as your customers grow and your company grows. You want to make sure your pricing is approachable for any legitimate business that wants to solve business problems using your products and solutions while ensuring you have the safeguards in place to protect from abuse or onboarding lots of low-value, non-commercial customers.

Ajit Ghuman · Answer

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.

Aaron Brennan · Answer

So I have done a lot of work with Profit Well, they have some great frameworks and suggestions for building Pricing and packaging. The ideal scenario for me is to find out what I am building towards, what is our goal. Is it a land grab, are we just trying to get as many people as possible or are we building towards revenue and that is the biggest driver. From there you should be able to find the framework that either brings in more registrations or optimizes for revenue in order to make sure you are hitting company goals. But if you haven't checked out profit well, I highly suggest them!

Akshay Kerkar · Answer

Figuring out the willingness-to-pay (WTP) by conducting research for your product with your target market/buyers is an effective approach. I've mentioned more details in a previous response.

There are lots of good articles on WTP research (including HBR). Also checkout the Profitwell/PriceIntelligently blog for some good articles on pricing.

Natalie Louie · Answer

If you want the highest company valuation possible, you need a recurring stream based on a value-based and/or usage-based pricing model. Investors and Wall Street value recurring revenue streams at a much higher multiple than one-time transactional revenue because they are predictable revenue streams with higher profit margins that build longer customer lifetime value. This is why many companies are moving to subscriptions.

There are 4 key levers in determining your recurring pricing strategy for a B2B product:

* Market Segment: who are your target markets and what are their shared problems? 
 * Pricing Metric: what do you charge for and what do your customers value? This should be tied directly to how a customer thinks about their ROI. 
 * Packaging: what are your customer’s use cases and how do you package up products and services? 
 * Price Points: what do you charge, what’s the discount strategy, do you have promotion or trials? Many people like to do a Conjoint Analysis to figure out the willingness-to-pay when establishing their price points.

A good resource for pricing courses is with Champions of Value

Unlike one-time transactions where people figure out the price point first, in recurring revenue pricing strategies it is the LAST thing you determine. It’s good to work with your finance team here too in case you have a high cost of goods sold (COGS), so you can keep an eye on an agreed upon profit margin.

You need to figure out #1-3 first -- and these 3 areas are square within what Product Marketers already own today! This is why I think product marketers should always have a seat at pricing strategy discussions. We know our target markets, we know what they value, we know what their use cases are and we understand what our competitors are doing.

It is also important to test your pricing and keep iterating -- just like you do with your messaging. Along with a product roadmap, you need a pricing roadmap. Look at the data and signals of how your customers are buying and using your product and use it to inform how you iterate on your pricing. The Subscribed Institute has been studying subscription businesses for over a decade and the benchmarks show that B2B companies who change their pricing 3-5 times a year grow the fastest. Pricing is not something you set and forget, or something you look at annually. The data shows it needs to be looked at every quarter, at a minimum, to unlock the most value and revenue for your products.

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