Yeah, sounds good. Thanks for joining, everyone. I think I know most of you on the call, but if not, my name is Nick Keeley. I’m a Senior Associate on the Portfolio Operations Team at Resurgence. And so today we’re lucky enough to have Mark Stiving joining us. Mark is the Chief Pricing Educator at Impact Pricing. It’s an advisory firm specializing in value- based pricing for B2B technology companies.

So today in this session, he’s going to describe how to manage price increases, including how much to charge, which customers should see a price increase, and how to manage the whole rollout and everything like that. So with that, I’ll kick it over to you, Mark, and yeah, let’s do it.

All right.

Thank you, Nick. Appreciate it. Welcome, everybody. This is going to be a fun and hopefully very informative session. Let me start out by sharing my screen.

Perfect.

All right.

We’ve titled this How to Raise Prices and More, because you’re going to walk away with more than just how to raise prices. We’re going to learn a lot about pricing and about value as we go through this. But I always like to start with this one concept. This concept is probably the most fundamental concept in all of business, and that is that buyers trade money for value. Think about that for a second. This is the reason you are in business.

The only reason someone buys from you is because they think they’re going to get more value than it costs them in money. And this is true for anything you buy as well. If you think about the last thing you bought, the only reason you bought it is because you thought it gave you more value than it costs you in money. And so the really hard question ends up becoming, well, what is value? Well, a buyer is going to buy from us when they get more value than we charge them in price. And so this is obviously what we’re after.

How do we deliver more value and get the great price? But I want you to stop and think for a second. And when you don’t win a deal, why didn’t you win it? And there’s actually two reasons every time you lose a deal. If you ask salespeople, why did you lose this deal? They always give you one reason. Price was too high. And by the way, they’re right. Because if you lowered the price to zero, we probably could have won the deal. So the price was too high. But on the other hand, the value was too low.

The customer didn’t perceive that there was enough value in our product to say, hey, yes, you’re worth the price that you’re asking for. And so when I think about not enough value, there’s two actually things that go on. One could be that we don’t have enough value. Maybe it’s the wrong customer. Maybe it isn’t a good product market fit for that opportunity. So, for example, if I’m holding a Starbucks mug in my hand and I ask you, it’s $ 100, would you like to buy my Starbucks mug? You’re thinking, no.

Nobody in their right mind would ever pay $ 100 for a Starbucks mug. This is ridiculous. So not enough value exists. But it could also be we didn’t communicate the value of our product.

Maybe the value is there, but we were unable to communicate what that value was. So if we go back to that Starbucks mug example, I forgot to mention to you that there’s a one- ounce gold coin sitting in the bottom of the mug. Now is it worth a hundred bucks to you? Well, heck yeah, it’s worth a lot more than that. So have we communicated the value to our customers? And so there’s two reasons, price and value. And when we start to dig into value, the question becomes, have we delivered enough value? Can we deliver enough value?

And can we communicate that value? So I spend most of my time thinking about value. What does value mean? What does value mean to our customers? Here are a whole bunch of different ways that I tend to think about value. Several of these we’ll end up touching on today as we go through it. I’m always happy to chat with you about one or two of these if you have questions as we go through it. But what I find most interesting is as we start to understand, how is it that our customers perceive the value of our products?

It should be driving a lot of our business decisions. So obviously it drives our pricing. So we were going to use value- based pricing. But we’re going to find it should be driving our market segmentation. And how is it that we segment our markets? Or how do we create good, better, best packages for our market segments? Or which pricing metrics or pricing models should we choose? And then we jump into price segmentation. I’ve got different customers buying the same thing, but they have different willingness to pay.

Raising prices is what we’re going to talk about today. When we deeply understand value, we have better marketing messages. And we have more ability to sell that value to our customers. So to me, value drives almost everything a business should be doing. But I focus a lot on pricing. And pricing is about how do we capture that value from our customers. So let’s do a little bit of level setting for a second. What is value- based pricing? So value- based pricing is the most profitable pricing strategy that any company could possibly adopt.

And it has a really easy definition. Charge what a buyer is willing to pay. It’s impossible to do this perfectly because you can’t read a buyer’s mind. You don’t know what a buyer is willing to pay. But if we adopt this as an attitude or a goal, we make much better pricing decisions, much better business decisions. How do we charge exactly what a customer is willing to pay or get as close to that as possible? So the perfect price, which we know we can’t achieve, is when the value, when we define it as willingness to pay, is exactly equal to the price.

Now, we know we don’t get there. And so usually we price a little bit lower than what we think someone’s willing to pay so that we can win more business. The key, though, is trying to understand what is that willingness to pay. And so what I always do is ask you to put yourself in the shoes of your buyer. Ask yourself, what’s the buyer thinking? How are they getting value from our product? How are they making the decision? That’s what drives our pricing, always, always. So let’s start with a quick little example or a quick little exercise.

Everybody, hopefully you’ve got your chat open. Can everybody type into the chat? Is that right, Mary? Yep. Excellent. So here’s what I’m going to ask you. Do I have a question already? Oh, no. Got it.

Mark, we had a pre- submitted question that was, how do you approach raising prices on customers who have rate- increased caps in their master agreements?

Can we put that towards the end? Is that OK? Yes, definitely. Because it doesn’t match the flow of where I’m going.

Definitely.

But I’d be thrilled to answer it. Absolutely thrilled to answer it. So imagine for a second that you’ve got a product that costs you $ 20 to make this product, buy this product, whatever it is. Whatever cost you want to think better, it costs you $ 20. And you are actually able to read a customer’s mind. And in this customer’s mind, they’re willing to pay $ 100. If you charge $ 101, they’re not going to buy. But they’re willing to pay $ 100. And what I’d like you to do is, in the chat room for me, type how much would you charge this customer?

You get the price of the customer. What are you going to charge?

And

What are you going to charge?

Is anybody answering? Oh, there we go. 99, 75, 99, 95, 95. Okay, I can see we have some work to do. Now we have three right answers here. The three right answers are $ 100. Now, 99 is not a horrible answer, but here’s the scoop. You just left, at 99, we left $ 1 on the table. If I know they’re gonna pay 100, why wouldn’t I charge 100? It’s impossible to do better than $ 100. Absolutely impossible. If I charge 101, they don’t buy, I lose the sale. If I charge 199, I left $ 1 on the table. So the right answer, at least in my mind, is $ 100.

So here’s the next question. What if it costs you $ 50 and this buyer is willing to pay $ 100?

Sorry, can I, are we allowed to interject?

Yeah, go ahead, feel free.

I have a question philosophically. If someone feels like they got a better value than they were willing to pay, like 100 was the max, doesn’t that yield an opportunity for upsell, cross- sell? Like if they’re incremental thing, like they bought this platform and you have additional platforms, additional features, and they felt like, hey, I got a deal. I didn’t pay the max I was willing to pay. I have more funds or opportunity to keep buying other things.

Yeah, so I’m gonna give you two answers to that. Number one, it wasn’t part of the exercise. So you’re reading way more into the exercise than I gave you. But number two, it’s absolutely a true statement. And we often say, hey, I’m giving this client a discount because it’s a strategic client. And what I often push back on when I hear that is, well, have you gone back and captured the strategicness of that client, right? So they were a strategic client because they were gonna help us win other logos. Well, did we do that?

They’re a strategic client because they’re gonna buy more from us. Well, did we demonstrate that? So we often give discounts with the words, especially we hear this from salespeople, oh, this is a strategic opportunity. The question is, do we go back and test it? Do we go back and push on that? But I think what you said is absolutely true.

Cool, thanks. Sorry, and another quick question. Are we assuming in our hypothetical that this is a non- competitive? I mean, like we’re the only bidder?

I haven’t talked about competition today, but here’s what we’re assuming is that that person has looked at your product relative to whatever other alternatives are out there and said, I would pay you $ 100.

Okay.

But we are about to talk about competition and non- competition.

All right. I’ll say my question too, because I was talking about procurement people who are paid to get blood from the rock and they get managed to that KPI every year, which is why you’re going a little bit higher, but I know you’re making all these assumptions, so let’s continue.

Yeah, and bring up procurement towards the end as well. I’d love to talk about it.

Great.

Okay, so here we go. Let’s try it again. Cost $ 50, buyer’s willing to pay 100. How much do you charge? Excellent. God, you guys are fast learners. Excellent answers. Excellence. Here’s the real point of this slide, or here’s the tricky part of the question. What if it costs you $ 150 and this buyer’s willing to pay you 100? Now, how much do you charge? Update my resume. I love that answer, Alex. So absolutely, the right answer is we don’t sell to this buyer, right? We’re going to find another buyer. It’s not the right business to be in.

There’s something going on that’s totally wrong here. And so we’re not going to sell, but there’s a really important point, and that is the price, I’m sorry, the cost for us to create something didn’t drive our prices. What drove our prices is our customer’s willingness to pay. Now, the cost mattered. It matters, do I want to be in this business? It matters, do I want to sell to this customer? But it doesn’t drive our pricing.

And so, it’s impossible to price better than willingness to pay. And our buyer’s willingness to pay is not related to our costs. My mother- in- law lived in, in 1967, she bought a house in San Jose, California for $ 25, 000. We just sold it a few years ago.

I’m just curious. What do you think we should have sold it for?

Maybe $ 27, 000, $ 28, 000, right?

I mean, you know, it’s fair because you only pay $ 25, 000 for it.

And so, she made a few K off of it. Or maybe we should have sold it for like a million dollars because that’s what the customers were willing to pay for it. And so, the point is, the willingness to pay has nothing to do with our costs. In this world of value- based pricing, value comes first. 90% of value- based pricing is value.

10% is pricing. So, the second key fundamental I want to go through with you real quickly is this concept of segmentation.

And I am not yet talking about market segmentation or price segmentation. I’m just saying the word segmentation. In the world of segmentation, I asked you earlier, let’s put ourselves in the shoes of this buyer to figure out what this buyer’s thinking.

But the question is, is this buyer thinking the same thing that this buyer’s thinking or the same thing that this buyer’s thinking or the same thing that this buyer’s thinking?

And obviously, the answer is no, right? Our buyers don’t think the same things. They don’t value things the same way. They don’t have the same problem sets, the same use cases. They don’t value solving these problems the same. Buyers are different all over the place.

And so, what we want to try to do is figure out what does each buyer think?

How do they make a decision? How do they value our products?

And so, just for kicks, let’s just spend a minute on this. Type in the chat for me, use case for Uber. And I often think of it this way. What is it that you use Uber for today or you could use Uber for today that you didn’t use a taxi for before Uber came along?

So what value does Uber have? Why is Uber so much more popular than taxis today?

So type in a use case in the chat for me.

Actually showing up, nice. Convenience. How is it convenient, John?

So because it’s all app- based, you can just quickly pull it up and just get a car ride. So the process of acquiring is a lot easier than looking up taxis, phone numbers, one that are near you. So it’s a lot easier to kind of get there to get a ride.

Yeah, it’s easier to buy. So excellent.

Proactive, Tucker, what’s that mean?

You can schedule in advance.

Got it.

Got it.

I can schedule in advance on the app. Easier for business travel. Receipts are automatic. Easier to transact, okay. No, I needed a ride, so I didn’t have the limo planned, the limo scheduled. Nice, nice, okay.

Out of curiosity, as you look through these use cases, does one use case look like it has more value than another use case?

If you’re going to rank order them based on how much would somebody be willing to pay for this capability versus another capability? Which one has the highest willingness to pay? Which one’s the most valuable? And I would guess each of you who typed one in, that was probably the most valuable one to you. I mean, I would say convenience. Yeah, convenience, convenience, right?

And so we would, I actually don’t know how much they charge for taxis versus Uber today, but I’ll bet most of us would probably pay more for Uber than we would for a taxi today.

By the way, there are many, many, many different answers to these questions. I just love putting this in. So use cases might be, I use it for my daily commute. It might be that I’ve got to have a trip to the hospital, or it’s snowing and I don’t want to drive my own car in the snow, or I hate returning rental cars after I get done with a business trip. I especially hate filling up with gas at the end of a business trip. Don’t like parking my own car at the airport.

So there’s lots of different use cases that we could start thinking of in terms of, well, how much would someone pay for that one? How much would someone pay for that one? And how would we go about it? That’s what’s really interesting. And so we start to think about value. Value differs based on context. Value differs based on what’s the use case that someone’s using our product for. Value differs based on how much of our product they use. How painful is it? Here’s a whole list of things that could be context that’s driving value for our customers.

This is certainly not exhaustive. There are more, many, many more. And what you want to do is start thinking through when are some buyers willing to pay us more? When are we delivering more value to our customers? And what’s really hard about all of this, what we’re talking about right now, is how do we capture it?

Right?

So once we can understand all of these different situations, how do we start to capture what’s the value that we’re – more of the value that we’re delivering to our customers? And so for example, I tend to think in terms of a hierarchy. The first decision we have to make is what’s the market segment we’re going after? Usually when we think about market segments, we think about what’s the product line that we would use. I tend to think a lot about LinkedIn and the way LinkedIn does their business for a lot of reasons.

They do some things that are brilliant. And so when you think about the way LinkedIn does market segmentation, they’ve defined their segments as recruiters, salespeople, job seekers, and everybody else. And they’ve built a different product line for each one of those market segments. So once we can understand at a high level what are the problems that buyers are solving, we define our market segments. Then we move on to say, okay, got it. Now that I know that, what’s the offering that we’re giving to our customers?

And so in this case, you might think of it as packaging, right? How do I create a good, better, best package for recruiters? And it’s the pricing metric. What am I going to charge for? So when I talk to recruiters, it might be the number of job postings that I put out. It might be the number of interviews that I achieve. When I think of salespeople, it might be the number of emails I’m allowed to send. In fact, that’s what they do. They use for the pricing metric in the offering.

But the pricing metric and the packaging is different for each one of those market segments. And once we’ve defined the market segments and the offer, now it’s time to figure out what are we going to do for pricing? And so pricing typically involves price segmentation. I have two different customers. One’s willing to pay me more than the other. How do I get more from that customer than I got from the first? And when I think about these, today we’re going to talk about raising prices.

And raising prices, I’m making the assumption that we’ve already made really good decisions on market segmentation, on what the offer looks like. And in fact, not only am I making those decisions, I’m saying that regardless of what decisions we’ve made, we’re just going to price based on those today. Now, maybe you want to go back and revisit those. All of you are B2B SaaS- based companies. As a B2B SaaS company, you care about net revenue retention a lot. And so how do you grow net revenue retention?

There’s really only four ways that you can grow a customer. Those four ways are raised prices, which we see right here, cross- sell, which I don’t really have up here, but then you could do upsell. And for you to do upsell well, you’ve got to define that packaging well. We need to get a buyer to go from good to better, from better to best. And the other way to grow a customer is through usage. And usage comes from as they use more of my product, as they get more value for my product, they pay us more money.

And that comes around to finding that pricing metric well. What is it that we’re charging for? What is it that we’re charging for?

Those are decisions we’re not going to talk a lot about today. We’re going to talk about raising prices, because raising prices is huge. So let’s start out with what is value. Buyers trade money for value. Somebody early on- I apologize for not remembering who- asked about competition versus no competition, and that’s really what we’re going to talk about right now. Most buyers, when they make a purchase decision, they make two different decisions. The first decision they make is: will I buy something in the product category?

And then, after they said yes to that, they go on to say: okay, which one am I going to go buy? And then, after they’ve chosen the one they want to buy, they buy something. When they’re making the will I decision. This is all about what’s the value of solving the problem. So let’s talk about a CRM for a second right.

What’s the value of having a CRM? Well, if today I’m a startup and I’m using an Excel spreadsheet, I’m losing track of customers, I’m not following up or at the right opportunities, I’m losing business, and so what’s the value of getting rid of Excel spreadsheets and moving into a CRM? That’s the inherent value, or the value of solving the problem. What’s incredible here is that people aren’t price sensitive when they’re making this decision. I’ll show you some examples in just a second.

After they said, yes, I need, I need to go buy a new CRM. I got to get rid of Excel spreadsheets- what do they do next? Well, usually they go out and start to use relative value. They’re comparing the alternatives. They’re looking at HubSpot, they’re looking at Salesforce- all right, what is what’s the? What’s the best one for me? And in this decision, price becomes very important to them. They’re starting to look at which one’s more expensive. Is it worth it? Is it worth me to pay more to get that one than this less expensive one?

And so we want to understand how our buyers are making these decisions, and most new purchases go through both the both decisions, which is key. But what’s really important for us to be able to do is recognize when buyers only make a will I decision. Sometimes buyers don’t compare us to a competitive alternative, and when they do that, they’re not price sensitive, or at least I’ll say it this way- price isn’t driving that decision. So think about popcorn at the movie theater. Last time you went to the movies, you walked in the door after you’ve.

After you’re in the door, you look up at the concession board and ask yourself: am I going to take out a mortgage today to buy popcorn or not? Or you’re driving down the freeway. You see the sign that says last gas 75 miles. You look down at your gas gauge: you’ve got an eighth of a tank left. You pull off and the price of gas is four times the price of it what it is in the city. Are you buying gas? Yes, you are, because price isn’t driving that decision something else’s, or here’s my- possibly my- favorite example.

If you are using an iPhone today, let me tell you what you’re probably thinking. You’re probably thinking: should I upgrade to the new iPhone 15 or not? But here’s what you’re not thinking. You’re not thinking: should I upgrade to the new iPhone 15 or switch to Android? You are making a will I decision and this is why Apple gets away with charging such high prices for their products relative to huawei and LG and whoever else makes Android phones. As a proof point, android has 72 percent market share worldwide of mobile phones.

Apple makes 85 percent of the profit in the industry. Is that amazing? 85 percent of the profit? And this is because they’ve generated an ecosystem where people just buy from them and don’t look at a competitive alternative. What you want to learn how to do is find those products inside your portfolio where people aren’t looking at competitive alternatives. You have them right: upgrades when you, when you upsell someone from good to better to best, they’re not looking. Hey, am I going to switch to a competitive product?

They’re saying, am I going to buy the next set of features? That’s a will I decision. What’s the value of the features? Not what’s the value relative to competition.

What’s the value

In the world of subscriptions, in the world of recurring revenue, we typically have the same business model that traditional businesses do, and that is we’ve got marketing and sales where marketing brings potentials into our sales funnel. Salespeople guide them through the funnel and at the bottom pop customers. The one thing that’s different in our subscription world is usually the customer pays us less money on a per month basis or a per year basis. But the good news is they pay us year after year or month after month, except for when they churn.

Churn is bad.

And of course, what we’re really trying to do is how do we grow those customers?

So I think in terms of these three revenue buckets, you’ve got three key revenue buckets, win, keep, and grow, that you have to manage all three of those.

And when we start thinking about our businesses, how do you grow this business? So we grow this business through customer success departments. I don’t know if you guys have customer success departments or not, but these are the people who are making sure your customers get value from your products.

They’re watching to see, are your customers getting value? And if they’re not, how do we help them? And if they are getting value, how do we help them get more value? How do we help them realize that they need to upgrade into our next product line? And so let’s start thinking about these three, win, keep, and grow, in terms of value and how they actually get value from our products. And you could think of the y- axis here as customer value.

How much value does a customer get from our product? The x- axis, we’ll think of this as expected lifetime value of a customer. So we’ve got all these potential customers.

They don’t know that they need us, but some of them would get a ton of value. Some of them wouldn’t get that much value, but they don’t know yet.

We have existing customers, and they probably fit on a line that looks like this. The ones that get a lot of value from us are probably going to stick around a long time and pay us a lot of money.

And the ones who don’t get very much value, or at least maybe even they pay us more than the value they get, they’re probably not going to stick around for very long, and we’ll end up losing those.

The potential customers, all they can use is perceived value. What’s their perception of value? How well did we communicate value to our customers? Our existing customers, they’re experiencing our product.

They’ve got experienced value, but even then, they don’t really know the value. They just know what they think they know.

So then the question becomes, are we using proven value? Are we doing pre and post KPI measurements?

What’s the KPI we think we’re going to move when they buy our product, and then did we actually move it? And later on, when they go to consolidate into one vendor for whatever it is that we sell, can we demonstrate to them that we still are delivering a ton of value? And are we making sure they’re getting that value? And in the world of win, keep, and grow, obviously we need to win these potential customers. The ones that are getting negative value, we should be thinking, how do we keep them?

What are the things we could do to help them get more value from our product?

And the ones that are going to grow with us, these are the ones we’re saying to ourselves, how do we get them to pay us more money? This is where net revenue retention comes from, in that grow piece.

And then the last concept of value that I want to share with you before we jump into actually how do we raise prices with our customers? And this is something called a value table. This is a powerful way for you to think about what’s the value you deliver to your customers. In the world of B2B, it is fair to say that value is measured in incremental profit.

How much more money do you make your customers when they buy and use your product? And to get to that incremental profit or value, I tend to think in terms of solution, problem, result, and value. The solution is your product. The solution is a really cool feature of your product. The problem is, what’s the problem that the customer has?

Why did you build your product, build that feature?

Well, you built it because it solved a problem for a customer. What’s that problem? If you solve that problem, what result do you think your customer might expect?

And there I think about KPIs.

What are the KPIs that your customer is using that you’re about to influence or impact?

What are the KPIs that your

And then the last column is value. Given that you moved these KPIs for your customer, can you use business acumen to say how much incremental profit that is to your customer? This is where value really comes to play in the world of B2B. Let me quickly go through an example and then we’ll jump into raising prices. This is one of my clients that make connectors. And if you’ll notice on this connector, in the lower left- hand corner, there’s a little gray oval. That’s a screen that lets air go in and out of the connector box.

It’s supposed to be a weatherproof, but they want air to go in and out. And so why would they ever build that? Well, obviously they put it in because it solved the problem. I write problems from customers’ perspectives. And so imagine you’re a city planner and you would say the following problem. We have a lot of electronics failures on top of light poles due to condensation from large temperature swings. Citizens complain that our city is not safe. Well, that feels like a problem. Feels like a problem they can solve with that screen.

So if they solve that problem with a screen, what kind of result might they expect? Well, the vent allows the escape of condensation, lengthening the life of the electronics, resulting in 20% fewer failures. For 100, 000 light poles, the normal failure rate would be 1, 000 per year. That would decrease by about 200 per year. Excellent. So what’s the value of 200 fewer failures? If we save 200 failures at $ 1, 000 per repair, that’s $ 200, 000 or $ 2 per pole per year.

What’s fascinating about the example I just gave you was we put a dollar value to the customer on that little screen in the bottom of a connector. You can probably do that with your products and every major or important feature of your products. This is what value really means. So now that we know about value, at least we have a lot of different aspects of value, how do we raise prices? Well, we want to raise prices on people who are getting more value from our product. We want to raise prices on buyers that are willing to pay us more.

And so when should you raise prices, especially in normal times? First off, if you’re not losing enough deals, you should be raising price. If you have a 90% win rate, that’s too high, right? You should be raising prices because it’s easy for us to make more money. If your win ratio is increasing, if you’ve gone from 50% to 70% win ratios, it’s probably time to raise prices or look at raising prices. If your competitors raise their price, you should be thinking you’re going to raise your price.

If you’re delivering more value, as a software company, you probably have developed more features, put more capability in your product over the last year, two years, three years, you’re delivering more value, you should be raising prices. And my favorite one, it’s January 1st, you should raise prices. We want to get our customers used to the fact that we raise prices every year. And in fact, if we do small price increases every year, it is much less painful than huge price increases every few years.

So get in the habit of saying, hey, we’re raising prices this year. But almost every company I deal with when we start talking about how do we raise prices, it’s because of, they don’t do it because of one thing. And that’s this, they’re afraid. They don’t know what’s going to happen. They’re afraid that if they raise prices, customers are going to leave them. Customers are going to call them and yell at them. It’s scary. I get scared when I raise my prices. It’s scary. I get it.

And so what we want to do is we want to start thinking about what are the things we can do to test it, to make sure that it’s okay, to make sure that the company’s not going to fall apart because we raise prices.

But the best reason for you to be raising prices right now is inflation. If you haven’t raised prices in the last three years, you are now 18% behind the curve. You’ve essentially lowered your prices by 18% if you haven’t raised prices in the last three years. And so inflation, although you heard me do a big thing on how we don’t do cost plus pricing and cost don’t drive pricing, it turns out that inflation sets an expectation for what our customers are willing to pay.

And if we’re not at least keeping up with inflation, we are falling behind in what we could be doing and should be doing.

And so let’s think of several different ways that we could raise prices. First way to raise prices is discover your will- I products and raise prices on those.

We talked about will- I versus which one. You’ve got products where people are going to upgrade to or options that people are going to buy after they already have your product.

These are will- I products. You could raise prices on those and it probably has very little impact on demand.

In fact, I’ll just make a quick guarantee for you. If it’s truly a will- I product and you raise prices 10%, it won’t even change demand. That’s just free money. PageVault happens to be a company, a client of mine.

They do web scraping for legal purposes.

So lawyers go out and scrape websites to say, hey, look, they were saying this at this point in time. But every once in a while, it has to have an affidavit to say, yes, we really do swear that this happened on this day and this time. So in order to get an affidavit, that was an add- on product.

PageVault raised the prices of their affidavits by 181% and it had zero impact on demand.

When we have will- I products, we have the ability to raise prices. Remember this slide where we talked about customers in subscription businesses?

Well, if we’re going to raise prices, here’s the first step. Raise prices on your potential customers. They don’t know that you raised prices. They don’t know what the old price was. And if you’re still winning customers at this new higher price, these are people who don’t know the value of your product.

They’re relying on how well did you communicate it. Think about all the value that you’re delivering to current customers and they know the value. They would absolutely be willing to pay you more. And so we think about this group, the ones at the high end, they’re going to take a price increase. They won’t like it.

Nobody likes a price increase, but they’ll take it.

And the ones at the bottom, these people are likely to churn.

And so we don’t want to raise their prices.

What do we do? If we could actually create this line and rank order our customers based on how much value they get. And one way that you might be able to do that is by monitoring usage and rank ordering them based on usage.

Take the top 20% and raise their price.

And absolutely nothing will happen except they pay you more money. Go to the next 20%, the next 20%. And pretty soon what will end up happening is you’ll start getting more pushback. Maybe someone will churn and that’s when you stop.

Don’t raise prices below that point. It is okay to charge different prices to different customers.

And what we’re saying is let’s charge higher prices to customers who are willing to pay us more, to customers who get the most value from our products. But a great money idea is to raise prices on a subset of customers and watch their response.

When you raise prices on your current customers, you have to explain to them what you did, why you did it. I recommend a five- step communications, whether you have your salespeople call them directly, or if you have enough customers, you can’t do that, you want to send an email out. These are the five steps that I recommend that you pay, or that you say. Number one, our costs went up. We get it, costs don’t drive pricing. Our customers don’t know that. And the only excuse they really accept is our costs went up.

So say it, some costs went up, our costs went up. Number two, we added more value. We put in a lot more features since you originally signed up so it’s got more value to it. Number three, if it’s true, we haven’t raised prices in three years, in five years. Actually, I’ve worked with a client who hadn’t raised prices in 40 years.

Hey, Mark, I have a question on the added more value concept. And we’re doing price increases internally here, or we’ve been doing it for a while. But if you’re adding more value to a product, but customer A doesn’t use or get value out of said value, you made an investment, you added features to a product, some customers are using it, some are don’t, how do you think about communicating or not communicating that to customers that get that increase but don’t really get the value out of that or not using that feature?

So two things. Number one, you could choose not to raise prices on the customer who’s not getting value at a new feature. So when we say raise prices on a subset, maybe you wanna start with the ones who are using it and get that value and saying, yes, we’re gonna raise prices. And then start with some of the ones who aren’t using it. Number two, we often know that you’re developing products and some features I’m gonna like and some features I’m not gonna like. So Netflix does their price increase and they say, hey, we’re creating new content.

But I gotta tell you, I don’t like most of the content Netflix creates. But some of it I do. But I’m paying for all the content they create. So I think it’s totally okay to say it. And it isn’t the thing we’re relying on. This isn’t the reason we’re raising prices. This is one of the excuses we’re using as we raise prices.

It makes sense. And I guess the second related question is, I think in a lot of these businesses, and I’ve been quite a few, they have these legacy customers that to your point, maybe haven’t had price increases or they didn’t have controls on pricing. So they were all over the board. So people are paying different prices for the same thing. How do you think about that community and consistency that if customer A says, well, I paid 10 grand for this product, but customer B says, I paid 50 grand, what the heck?

Yeah, so two things. First off, I don’t care too, in fact, I don’t care at all about getting everybody to say this, pay the same prices. We often think our customers talk about prices, but they really don’t, right? Every once in a while, I find an industry where it happens more often, but it really doesn’t. Think about when the last time you told somebody how much you paid for something, or you had someone else tell you how much they paid for something. It just doesn’t happen very often.

And even if it does happen, the answer is exactly what you just said. And that is, oh, they bought something different. They committed five years ago. They bought when it was on sale. They bought when we didn’t have inventory. They bought when we had excess implementation time. They bought when, or there’s always a reason why somebody gets a better price than somebody else. And so I don’t worry about that too much. What I do think about is these legacy customers who came in really early, first off, if I raise prices on them, are they going to leave?

Probably not. But how much am I going to raise prices? And here’s a quick insight on how much to raise prices. Let’s use 20% as a cutoff number. So 10%, if you raise prices anywhere from zero to 10%, people don’t like it, but they just go, oh, okay. That hurt. When you go between 10 and 20%, they start to not like it a lot, but they’re not willing to go out of their way, especially if you write a good communications package for them. Once you go over 20%, they actually hate you. And they will often find ways to punish you. The cost of that money.

It’s like, I don’t care if there’s an implementation or switching costs. I’m not going to pay these guys money anymore. We’re not going to buy anything in the future from them. Or, right, so they go out of their way to figure out how to hate, how to punish you. So I tend to think if I want to raise someone’s price by 100%, I’m going to do it in 20% increments year after year, as opposed to, let me hit you with 100% price increase this year.

You know, one thing that’s interesting is we have this subset of smaller customer base, legacy customers. They bought a little bit more elementary version of the product and bought a long time ago and certain methodology. We’ve actually somehow had some success with significantly over 20% price increases because it’s a little bit of the economics of small dollars. They were paying so little that a 50% price increase, maybe it’s a few thousand dollars and it’s 200 bucks a month.

And that’s tougher with customers paying 50, 100, 200 grand, but with some of that smaller customers, it’s in a way a little bit of a rounding error.

Yeah, I could see that as well. Yeah. So for small dollars, it’s not as big a deal. There’s no doubt. Let me point out number four. Number four is pretty important. You still pay less than somebody else. And what I really like to do here is raise prices on new customers first. So I have a high list price, and then I could easily say to my customers, you know, we just raised prices to $ 100. You’ve been paying 80, we’re going to raise yours to 90. You still pay less than new customers. We love the fact that you’re a loyal customer.

For some reason, customers care a lot about their relative price more than they care about the actual price. And then number five, do something nice. Hey, Mr. Customer, you’ve been a loyal customer of ours, we really appreciate it. We’re raising prices as of January 1st, but we’re going to hold your price constant until April 1st. So see if you can do something nice. And then the last new content slide, what do you do when someone says, hey, I want to leave you? Usually they just want to be heard.

And so if you say, hey, we appreciate this, we’ll honor your old price for another 90 days before we raise your price, oftentimes that’s just enough to keep them. Or you can always say, oops, we didn’t mean it, and just say, we’ll hold the old price and we’ll keep you as a customer. Your customers have switching costs. They don’t want to switch. So there’s no reason you have to lose a customer. All right. We can open this up for questions. There was also, there was the question in the beginning on what do we do with multi- year contracts?

So first off, you can’t break a contract. So if you’ve got a multi- year contract that dictates this is how you will behave, then that’s how you will behave. One thing you can do with multi- year contracts is all new major features go into a new product that you can then upsell to these customers. If you’re putting all new major features in your existing product, then you just have to honor whatever that price point is and keep that price agreement going.

If you start creating a new product line or a new product level, so good, better, best, and you’ve essentially sold them the good, we’ll say, you now start creating the better product. You have the opportunity to upsell them in that respect. Now I personally do not like multi- year contracts in the following sense. A, if you’re in the subscription business, if you want a three- year commitment from a brand new client, then you’re giving up one of the real positive reasons for having a SaaS business.

One of the real reasons to have a SaaS business is that a buyer can get into your platform quickly, easily, try it, that doesn’t work for me, I quit, I’m going to bail out. That’s awesome. We want someone to join us and try us easily and quickly. And if we put in a three- year contract commitment, we’ve just lost that. We now force them to make a huge commitment.

On the other hand, I’m a huge fan of, if I can sell month to month, and that assumes, of course, I don’t have a huge implementation cost, but if I can sell month to month, then I’m happy to give a small discount if they want to make an annual commitment or a three- year commitment because then I get the cashflow and I get the commitment from the customer as well. As far as prices, if you can avoid this, don’t put prices into the contract.

What I like to say is I have the ability to raise prices with 30 days notice, you have the ability to quit with 30 days notice. I had a lot of clients a couple of years ago that had 3% price increases built into their contracts and we had inflation at 9%. And they couldn’t capture that because they had 3% price increases built in. So if the clients who didn’t have that and just said, Hey, I can raise prices when I want, they could capture more of that 9%.

How to handle customer perpetual to subscription motion and options that should be on the table. So this is a hard question. If I want to move someone from perpetual to traditional, I’m sorry, to subscription, first thing I would do is I would stop developing any new features on my perpetual product. So all new features only go in the subscription product line and you have to deliver enough value in the subscription relative to the perpetual license that makes it worthwhile for someone to pay you.

So, you know, as a general rule, let’s say you’ve got a million dollar product and so you’re going to sell 20% maintenance, you’re getting $ 200, 000, but you’d really like to get 400, 000 from the subscription price. And so you’re trying to double your client’s price. Are you offering them double the value? Are you offering them enough value to justify that increase in price? And so that’s the way we want to think about it is what are we offering our clients? How much value is that? And is it worth it to them?

Nobody’s going to change just because they like you or you want them to. They’re going to change because you offer them more value than what they get today. All right, I got a few more minutes. Any other questions? Somebody had brought up procurement. Can I talk about procurement for a second? As a general rule, when you sell a new product to a company, you sold it to a, I’m going to use the word committee. There were multiple different buyers. They all got together. They said, hey, here’s the one that we want. And then they take it to procurement.

Now I was part of one of these committees. I had a job as a director of pricing at a company and I had a committee of people and we were trying to buy new pricing software and we had chosen the pricing software. We took it to procurement and I got to sit in the room the first time procurement talked to the vendor that we had chosen. And the procurement guy said to my vendor, you know, we’re looking at two other companies. Yours is most expensive. If you expect to do business with us, you really have to lower the price.

I knew for a fact that was just a lie. The decision was made before it ever made it to procurement. And so what we have to do as we’re selling products is know where the decision is being made. How much power does procurement actually have? And when people buy products for the first time, often procurement has almost zero power. Although they never let you know that. They pretend to have all the power in the world. So do you have the guts to negotiate with them? That’s really where the question comes in. Any other questions, thoughts, comments?