How do you handle pricing for a new feature?

Please look here for my pricing framework on what to think about when coming up with new value-based pricing recommendations. 

As a PMM I own pricing strategy and I work close with Product Managers (PM) with their product roadmap. As they are developing their products I meet with them to discuss how we will monetize a new product using my pricing framework. We'll understand how the value of our product is different than competitors, we'll understand what prospects/customers value by talking to them or surveying them if it's something brand new, we'll study the data on how people are using the product if its an enhancement to an existing product, we'll run projections on potential usage and adoption of the product, work with finance on COGS/Margin analysis -- we work together to do any and all analysis we think we need. The decsion may also be that we don't want to monetize it, but at least we've done the analysis and had a conversation. Perhaps once the product is more robust, we can monetize it too. Many decsions and recommendations will come out of these initial discussions.  

Then together we come up with a pricing recommendation. Then we take this to a greater cross-function pricing operations team that includes our Rev Rec team, legal, contracts, deal desk, finance, product leaders, sales operations, billing, payments, collections....etc and we work out all the downstream pricing impacts to the Order to Revenue process and get all of their approval and agree upon a timeline to get our pricing live. 

The last step in approvals is taking this to our Pricing Committee for approval - exectuvies across all our cross-function teams (CRO, CFO, CAO, CCO, GC, CPO, CSO etc...) will do the final sign off.  

There are a bunch of post operational meetings once pricing goes live. And steps we take to go back and look at the data of how our pricing recommendation is fairing. Is it driving the ARR, MRR, ACV and Customer Lifetime Value we wanted? Are our discounting policies holding? Are margins what we expected? What are bookings, cross-sell and up-sell metrics? What is usage adoption? This is where the iteration of our pricing strategy begins and how we uplevel our pricing to keep maintaining double digit revenue growth. 

First, you need to scope the feature. Is this a highly differentiated, high-value feature or a check-the-box feature? Also very important to understand your cost structure and how much it will cost you to serve customers - is there an added cost from 3rd party SW systems, storage, compute, etc. that you need to recover to maintain target margins. Next, you have to think about packaging - do you have a tiered pricing model and this feature will be added into an upper tier to drive more value, or do you have an a-la-carte model and this feature becomes an add-on capability. Really important throughout this process to stay attuned to your customers, how they buy, their budgeting cycles, and most importantly how they perceive your product and the new feature in terms of value creation.

1. Quick note that in most of my experience, new features are rarely “priced” as a standalone charge unless you’re launching an entirely new solution to the market, so when you’re making the decision you’re often deciding which pricing plan the feature goes in. In that world here’s how I go about it:
1. Start with personas and clear frameworks for which customers should be on which plan and what the plans are for, what value each customer should get on each plan, and what should and should not be possible for customers to do on that plan.
2. From there, understand your competitive landscape and how other solutions on the market package similar features. You’re not always going to go in line with what your competitors do but sometimes taking a look at the market provides a pretty clear answer.
3. Then, line your feature up with your overall messaging framework. Who did you build this feature for? What plan best solves the needs of that audience? What painpoint does this feature solve? And which plan(s) are socued on solving that pain? How is this feature different than what’s on the market today and does that warrant a premium pricing plan?
4. Usually, you’ll weigh competitive, messaging, and product factors and a fairly clear answer will present itself. That said, you almost always need to discuss that decision with a group to make sure. Sometimes what might seem logical on paper is actually pretty hard to implement or difficult for the customer in actuality.
5. Bonus points: Make a framework/template for each PM and PMM on your team to do together as part of their launch process to help streamline how you make packagin decisions.