A Deep Dive into B2B SaaS Pricing

ABOUT THIS EPISODE

When should a B2B SaaS company change its pricing and how often should it happen?

How do free trials and freemium play within the pricing equation?

In this episode of Marketing Spark, Dan Balcauski and I explore the pricing landscape.

We look at who should be responsible for pricing, know when prices have to be increased and know when your pricing is working.

Pricing may not get the attention it deserves so Dan has great insight into its role and how to think about it. 

It's Mark Evans and you're listening to marketing spark. I've worked with BDB SASS companies for more than a decade. There's a huge amount of time, energy and money focused on product development, sales and marketing, but pricing almost seems like an afterthought. There's so much focus on attracting customers to validate the products viability. In some respects it's like making sure your hair is just right for a big date, but you go out wearing a t shirt and jeans. Now it goes without saying that pricing is important, so it needs just as much TLC as other parts of the business. Let's take a deep dive into pricing and to help me do that is Dan Bell Cowski, the founder of product tranquility, a consulting firm based in Austin, Texas. Dan Is an expert in helping be tob SASS CEOS defind pricing and packaging for new products. Welcome to marketing spark, Dan. Thank you for having me, Mark. I appreciate the INTRO and looking forward our conversation. As I mentioned off the top when we were talking, I got a lot of request from podcast agencies to have guests on my podcast. I reject about ninety five percent of them easily. Most of them get deleted automatically. But when I got the pitch from your agency the IT resonated immediately because pricing is something that is obviously very, very important but never gets talked about. First question. Do you think I'm being or overly dramatic about BBB, SASS companies and pricing, or does it reflect what's really going on out there? Yeah, I don't think enough companies pay attention to pricing. I was recently working with a SASS CEO on pricing as we're going through the proposal process. In the middle of that they had a threeday executive strategy off site. Monday morning I haven't follow up meeting with the CEO. I go okay, Hey, I don't we're talking about this pricing project. What's change in regards to this project based upon what you guys discussed in the meeting? And he said we didn't discuss pricing it. Can you imagine that three full days with your entire executive team? This is a very successful silk and Valley Company in series. Be Company, incredible amounts of momentum and intelligence. It's not for lack of skill, but just was not paying any attention to that lever, I guess, and given the impact that I know pricing can have, I guarantee in that three days there were less important items that were discussed to spent time on. Well, you had the entire tension of the executive team and I don't think it really gets enough attention at any stage. You know, I don't want to pick on early stage companies. I was recently at the Professional Pricing Society Conference, actually just last week, and that was one of the topics we were discussing even among, you know, the largest of companies. We've made progress over the last decade in terms of even the largest companies. Have you dedicated your pricing teams and professionals? But I think they're still work to go and convincing the Urse the world the pricing is actually a thing and deserves bore attention. There's so many places we can go from here. It is interesting to me because I spend a lot of time working with BB SASS companies on positioning and website copy and messaging about pages, for example, are almost in a sense the equivalent of pricing, because a company will do all this great marketing and they're about pages and afterthought. You go there and it's like this is so confusing, it doesn't even reflect the brand stature and the people and the excitement of of the company. And then you go on to the pricing page and it's the same kind of thing. It's like that's it. They really didn't think it through that well. And I guess the obvious question why? Is Pricing almost like that child that's gets shoved into the corner, like it doesn't get a lot of attention when other parts of the business are obsessed over? Is it...

...just something they don't think about as they just they so focus on getting the product to sales period? Explain that to me, because it's a it's a mystery. It's a great question and I wonder about this a lot myself, so I could give you my theories, but you know, I think every each individual company would have its own reasons. I think there's really three ways to grow, especially a SASS business, customer acquisition, Montization and retention. To acquire more customers, you know, keep those customers around, continue to pay you and sell them more or change how you're monetizing. And I think that acquisition sucks up all the oxygen in the room and it's really not until folks hit some structural break where maybe they have a brand new product or they're going after new market segments or something else breaks in their they would do competitor that shows up that's like, oh, we actually need to focus on this other monetization lever. I think it's just all about acquisition and I think part of that, as well as there's not really pricing, has this black box Vodoo aura to it. I guess you would say where you know people are. If you're a manager and you're asked to control your costs, well, I can go count my costs. I can ask the finance team give you all the costs for my aws infrastructure and how much we pay in the engineers, and let's make all that more efficient. We'll talk about pricing. It's very there's not really good academic root camps. You know we have. I guess we've made progress in the world of product management over the last I would say twenty years. There wasn't much training in the world of product management. Is Sort of a go do it yourself. The worlds of data science and even programming have now shifted. All these BOOT camps. But I think pricing still doesn't have that that background. And so when if you're a marketer, like okay, I know how to go use hub spot, I don't mind demandagin engine tools. That's very concrete to me. This other thing I'm not so sure about. It's scary, so let's let's put it in corner and not talk about it. If you're a BTB SASS entrepreneur or CEO, you obsess over Kpis, like cost of acquisition, lifetime value, those in those matter. Do you look at those numbers all the time if you're trying to scale your company? And those are all predicated by revenue, which is obviously driven by pricings. So there seems to be a disconnect, because key metrics are front and center, but the fundamental, the underlying pillars of the business are ignored, and that again, I'm just curious about why you think that happens. They don't even think about it. It's almost like that's something that they sort of make up on the fly. Yeah, so there's there's a couple of different things. I've I mean I've talked to executives who are just scared of touching pricing. It's like we have the thing, it's working, I don't want to touch it. They feel much more comfortable touching, you know, breaking something else. I think there's also what I found is some amount of skepticism that you can do actual research and provide a structured approach around pricing. It's funny because I've talked to many folks in like the User Experience Research World About Pricing Research, specifically looking for help for folks to come on and do some of you help me with some of the pricing projects I work on, and interviewing some of these folks, it's interesting responses. I get where they have this mindset. We're hey, we can't ask people about price because we're only going to get a biased response. And I get that at one level in that okay, yeah, that's a that's a fair objection, but you know, that was the first time that anyone's ever thought of that. They're a bit academic researchers for fifty years who have realized that, okay, there's bias and what are the different ways we could ask these questions, etc. And just mind blowing because I I spent a long time in the product man for product raggy world new. I went to these UX research experts and said, well, you can't get good feedback from a mock up because that's not the real product, and so you're going to get biased input.

Is like, okay, yes, you are, but you're going to get enough it put to move the ball forward. You're going to resolve a lot of uncertainty that you have today. So I think it's a combination of those factors of we don't want to break what's working and maybe some skepticism that you know there's there's actually some science, some structured way to unravel this black magic voodoo that you know. If you don't, if you haven't looked at it closely enough, you just maybe assume that there's nothing to be done there, or you know it's just all just guess work anyway. So I might as well shoot from the HIP. If we operate into the assumption that pricing doesn't get enough attention, and it should, the obvious question is how should companies approach pricing, both early stage, where they're trying to find product market fit, they're trying to attract customers, and then ladder stage where the business is rolling? You've been operating with a pricing model for a number of years but you're not sure whether it's actually optimized or not. Is there a common approach that different types of companies should take to pricing? Yeah, so let me just touch a couple of different subquestions in there. Let me just touch on first back going on life cycle or company stage. I think it's important when you're very early to charge something. Don't just give your product away for free, but charge something, and the reason why that's important is because if you just give your product away, you're actually not getting validated market feedback. We might touch on this later. I'm not a big fan of Fremium, but one of the problems in a fremium, as well as just giving your product away as you tend to attract a bunch of users who will never become customers, and those folks may have different needs and steer you in the wrong direction with their feedback. Also, you're not forcing people to actually make a tradeoff. So we're talking about you. I'll give you this product. That's pure value. What I ask you for a price. That's pain. They've done neurological studies. The price actually activates the pain centers in our brain, and so it really forces our brains to think about a decision differently and so you're not really getting validated market feedback if you're not charging anything. So charge something. Going back to your think broader question, pricing is a process, like anything you do in your business could be thought of as a process. Has Inputs, there's outputs. Aligning on the expected outputs and what goals you want to get out of that is critical. So understanding for the beginning how important for relative priority of this project relieved everything else that we have could possibly do. The discovery internally related to what is the work we've done, aligning the team on, what is the goals that we're trying to accomplish, executing some amount of research with that's with internal data or external market data, testing, in iteration and eventually decision and implementation. I have a four part model that we could apply sort of that basic sort of process to us as the well, it's the ACARADYM svcs. So services. It was a happy coincidence. I didn't plan this, but it works for SASS pricing specifically. So starting with your customer segments, then the value create your competition and strategy. So the F the svcs. How does that. How does that work? So understanding your customer segments first is incredibly important. Why? Because your market is not homogeneous. Your customers will have different value drivers and they'll rank those different value drivers differently, which will cause them to value your product differently as well as they have potentially different competitive alternatives that they may have available to them. Value and competition are incredibly important. Obviously, like you can only charge, you know, a price in line with the value create, but in a market economy, specifically the differentiated value that we create for customers is where our pricing power comes into play. filtering. If we think about those, those first three components I talked about, your customer segments, understanding the value create for those events, the competitible turners you up against that. We filter those...

...as sort of the research inputs into your overall strategy. This is where you come to make decisions around the things, like you mentioned, given the segments exist our market, who we best suited to serve, play and win? So who we're going to target? How we go to position ourselves in the minds of those customers so they understand are unique, differentiated value? How do we create the packaging such that we aligned to the value drivers, that that those segments understand and that we have offerings potentially for different subsegments of those customers. So really bringing that together and understand your pricing is not just a single dollar value. It's a set of interrelated decisions that all have input from those different components I just mentioned. If we agree that pricing should involve a structure, process, research, competitive analysis and the fundamentals of making the right decision using the right inputs, then ultimately, who should be responsible for pricing? Is it the CEO, the head of sales, marketing, customer success or is it a group decision where everybody within the company, like they do for positioning and messaging, needs to be aligned so that you can move forward in in rocks and locks down? Yeah, it's a great question, in one that comes up often because, you know, we could have the best research in the world in that runs into an exact team that is not aligned and no one has decision making authority and the best research in the world is not going to move that a group to a decision that will get implemented and we'll just get lost in the beginning. Founders own pricing because there's no one else to do it right. But, as we discussed, many companies and many founders aren't spending a whole lot of time on that process. In larger established companies, I would make the argument that product marketing should own it. I would say product marketing or product management. The problem with product management is usually the chief product officer VPA product has so many other priorities on their plate that they are unable to give pricing the attention it deserves. I think both of those positions are closest to the customer in term of deep customer insights, but they also have a strategic position inside the company. They understand the company goals at a deep level. They understand the value that they're creating through the product. Obviously, PMM has a very strong role in owning the positioning, which I think positioning. Your pricing is a function of your positioning, and so having that shared ownership is quite valuable. You know, they understand these ideas we talked about before of segmentation, targeting, a positioning all together, which is core of the pricing process. Now you ask this is a group decision. I believe that you should have a pricing committee or pricing council because everybody at the executive table is a stakeholder in that decision. Sales, finance, customer success, product management, they all have a incredible amount riding on the outcome of that decision and so I don't think that it works to have one function, I guess is the CEO, but the CEO usually is have enough time to do the research either. So to see CEO to come in and dictate to the or see organization. But I do think, you know, that product marketing person should have decision authority but be leading in incorporating the feedback from the rest of the pricing council and that make sure that all the stakeholders use are represented. We do this with if you think about product mands, but this is the whole role of product management. You have engineering team who saying, all right, what do we go build it? A lot of different opinions in the building, including those of customers outside the building, and the role of the product manager is to be that walking persona of the product, listening to all the opinions, balancing all the tradeoffs that need to be made in order to achieve the objectives the business is outlined and move forward,...

...because otherwise decisions are we made. You got a bunch of engineers sitting there burning time, not building the things they should be building, and it just sort of bottles my mind. We don't treat pricing the same way. It's because it has an incredible impact on moving the business forward. One of the things I wonder about when companies are trying to get a handle on pricing is how they can tell whether it's working or optimized. Obviously they can look to customer acquisition, if we're getting a healthy number of customers, and that's a sign that are pricing is attractive. The other is is is obviously revenue. So if we're getting the revenue or hitting our revenue goals, then that means our pricing theoretically as working. But if you take a step back and look at it from a higher level perspective, you know, what are some of the things that companies need to think about a to make sure it's working, to make sure that it's actually competitive and it's it's attractive and be it's optimized, because companies could sell a product and they could be twenty five percent below optimized price but not even know it. So what's your what are your thoughts on those two. Yeah, it's a great question. It's a difficult question. I don't think that there's any one perfect answer for your price point or your packaging. You're always balancing different tradeoffs, a different decisions based upon your competitive alternative, sort of the market dynamics, the strategic imperatives your business, where you know where your product is in the life cycle, the type of customers that you have, as you talked about you. Are you hitting your goals? Is Pricing getting away of those goals? I think I'd be sort of the first question. Also, are you having sort of regular conversations about pricing? Is it being brought up in your quarterly exact strategy beating for at least? What are the thirty minute sessions? I think is worthwhile of having that conversation. Some of the metrics that you might take a look at, things like understanding your discounting percentage, can help inform if your prices is too high or too low. One thing is I'm of the opinion that if you don't have any prospects complaining about your price, that's a problem. So you normally should. Somebody's going to be, you know, relatively unhappy, but you know it's shouldn't be everyone, but you. You know, if you have no one complaining about your price, you're definitely undershooting the market with discounting. You know. You can look at at those numbers purely and then you can also look at like price band. So identifying customers that are paying significantly more or less than a peer customers of a similar size and ten you're worth a company wide price bands are often a signal of a significant pricing opportunity. Looking at things like churn and net revenue attention. So are your churn and net revenue attention in line with similar companies? And I've written a lot about churn. It can get very complicated to compapare to the proper peer groups. So a one size fits all a chart number, if I quoted it now, would not fit for you know, some percent large percentage of the of the audience. But making sure that the feedback you're getting from customers are you aligned to the value that are the perceived value that customers are actually experiencing from your product, and are you seeing a healthy amount of expansion from those existing customers? You know I'm a big fan of using your windlass data and win loss analyzes. You're going out and actually talking to lost prospects to get sort of their perspective. I think wind lost codes or they're good start, but it's all too easy, especially to be to be context for a prospect, to tell your sales team, hey, price is the issue. When you go out and dig a bit deeper, you usually find the price wasn't the number one issue. So really trying to understand behind the scenes what is the the real cause of their of you not winning that particular deal, because I and a be tob context, price ends up usually being somewhere in the third to seventh most important decision in the in the in the buying process. But...

...you don't see that usually when you just look at the windlass codes. It usually is like the number one bucket. But would you go a dig in there, you obviously find a bit of a different story. And then also turn customer interviews, going out and make you know, having those conversations with customers, trying to figure out what are what are they doing now to solve that problem? You know, maybe it's you losing some insight on a new competitor or you know, we think about competitors very rigidly a lot of startups are actually competing with spreadsheets and email. Right. So was your did your did your software not even beat the spreadsheets and email? There's went back to having joey the intern maintain some spreadsheet. You or they did? They choose some other way of doing it right. So it can give you a lot of product innovation insight, but then also your understanding where your value is relative to your price. In the marketing world, marketers traditionally have relied on the four peas, but in the pricing world one of the things that you mentioned before this interview was the three seas of pricing. Can you talk about each one? Our marketers, we love our our handy acronyms, the STP, the four seas, the we will get you got porters, five forces. We love all of our little handy mnemonics. So yeah, the in the three seas of pricing. Real quickly, I'll just I'll talk to them and then I'll explain them a little bit more. So it's cost based pricing, competition based pricing, customer value based pricing. Often refer to as just valueas pricing, but if we just said that it wouldn't be three season. The Way I look at this is it's a progression. It's totally fine if you're starting at cost base pricing. You've got some cost of good sould, you've got to keep the lights on, you got to pay the rent. How much does it cost you? You know, if we're going to sell this product to maintain, you know, a a profit, so we continue to deliver value. Or if you're going out the door the first blush, absolutely like solely fine. Not The place you want to stay long term, but it's a starting point. It's relatively simple, clear cut data you need is is easy to find within your company. I will say for each of those the way I think about this as a progression or a ladder is because you really can't get to like valuates pricing. You still need to understand your cost even if you get there. So you need to sort of understand all of these things along the way. You don't get to just ignore it, just be like, Oh, I only focus on customer value. Well, maybe customers want to pay you below what your costs are. You're not going to be in business very long, so you better have an understanding of your costs. Then you get to competition based pricing, which it's like, okay, before if you're considering costs, you know you just add some some mark up to that. Well, you're living now in a very insular reality. You're completely cut off from the reality that your customers are facing, because your customers are evaluating other available turners in the market and comparing you to them and so looking outside of your firm at what are the other possible alternatives that customers could use. How are they pricing and trying to understand, you know, do we believe, given our life cycle, our maturity of our product, are we at a premium or discount to those competitors? So using sort of now those two inputs of cost and competition to help inform your overall pricing, pricing and packaging approach. And then, finally, the value based pricing, which I would say is the North Star. It's a destination never to be reached but always to be struck strived for. You know, the value here is, you know, it's customer focus, directly aligning the company's profitability with companies value, or the customers value. Rather, the idea here is with competition based pricing, much like we were talking about before, the focus on demand generation. You would never give your competition control of your demand generation strategy. So, but what? People just stay at competition based pricing. They're basically outsourcing their pricing function to their competitors, which no CEEO whatever consciously do, but affect believe that's what they're doing. I've been on the product manager of...

Product Raategy side and one thing I learned very early on was to be very cautious when you see competitors releasing a set of new features, being like, Oh, this is what the market wants, because you're making this underlying assumption that their product managers actually have a have a process that they've been following. Same if you follow their pricing, was like, Oh, they've actually done their homework in the correct way. So you don't want to do you know what, to stay there, because you're then at the mercy of your competition. The other question that I wanted to ask you is how companies should approach price changes. I was working with a client recently. I am working with a client one of I spent a lot of time looking at the product, the competition and we got to pricing their pricing. You know, the sniff test. It seemed wrong. Now in this case. What was happening is they had they had a free product for students, they had a cheap product and they had an enterprise product, and the gap between the the pricing bands was dramatic and from a outside in looking perspective it seemed off. So what we did is we adjusted their price. Now be it, and I'll concede this as a any is something we did wrong, is we meet an educated guess. We were trying to be agile, we were trying to reposition the company, so we guessed on pricing. Part of all was that the top tiers enterprise and like a lot of companies, it's called a call to get the answer. So we're not going to tell you cause until you tell us what you need, and then we'll make it up as we go that's along win did question about how often should companies change their pricing and how did they determine if they should do it and when's the right time? There isn't one magic number that specifies how often to revisit pricing. It generally makes sense to revisit at least once a year or whenever a change in the product or the market would necessitate or review companies product managers, engineering design teams are constantly evolving your product. You're constantly changing the value. It makes sense to reevaluate your pricing in line with changes of value. And maybe you're not doing that with your shipping in an agile fashion, pushing code multiple times a day to production. I'm not saying changing your pricing every day as a recommended thing, but you do have step changes over time. of We are significantly different product that we were, you know, a year ago. Our competitors have significantly changed and therefore it's time for us to revisit. But you know, I saw some day, I don't remember where it was, but companies that did more pricing changes, and again I'm not just talking about the number, but this could be creating new add ons, doing pricing localization, making tweaks to the display of their pricing pages, showed higher growth over time. So there is some correlation. Again, causation correlation unsure, but companies that are using your pricing more often are showing higher growth over time. You know, if you're talking purely about pricing increases again, I'd mentioned this before. If you don't have any prospect x pushing back on pricing, you know that could be a signal that it's maybe time to look at it. Customers maybe explicitly. You know, if you're in a product manager they might not say this to sales, but if you're a product manager and you know customers are telling you how cheap you are, that might be a good signal. You know, if you have a very clear understanding of the return on investment, or Rli that you create for customers and you've validated that with customer data and you can bring that to the executive team, that might be a good opportunity. Again, if you haven't touched pricing in years, this is coming back to bite a lot of people because now people are there's some real concern about inflation and now people are like, oh no, we haven't touched our pricing for years and all of our cost just went up because of wages and cost of goods. It's so now we need to make another, a bunch bigger adjustment that we were even we were planning on touching it, and now we have to do all this catch up work and like then, forecasting what's happening in the future. We didn't touch on this before with metrics. But another thing is most companies in the SASS world have different offer bundles or configurations, which is like...

...a good, better best. In those situations you'd like to see a somewhat balanced purchasing across your different offer configurations. So you know, there's not a hard rule of thumb. But you know some people will say like twenty five, twenty five. You know, so twenty five percent. It's at the, you know, the least expensive version, fifty percent in the middle and twenty five percent at the high. You know, if you start seeing ninety percent or buying your highest, that could point they're like okay, well, actually, you know our highest baby under priced and you know there's order. There's not enough value at atur lowest. We need to balance those things. Want to ask you about to pricing related sales and marketing approaches that a lot of bbbs ass companies take. One is free trials. Seventy trial, fourteen to trial, thirty day trial. What are your thoughts on free trials, because in many cases what I find is that it's hard for a prospect to determine the value or price of a product because they don't get the full experience. They may get a truncated view with its free trial. So when it comes to making a bind decision, they've got a taste, but not really. So do free trials? Do they work and how? What's the relationship between a free trial and pricing? Yeah, so. So I think of free trial as almost in acquisition strategy, less so a monetization model. I do believe free trials work and there's good data that shows this. Now the we're good nerd out for a second. The idea of a free trial comes from what economists would term a software. Is it experience good? So it experience good is a type of good that your perception of the value changes as you use it. So if you imagine, you go to a restaurant, you might see what's on the menu, but it's not until you taste that Wolfgang puck and stuff by your dish they're like, oh my God, now I see why this you know, Salad was ninety five. That's alwly makes sense to me. Now you know, and you know we talk a little bit about about tactics, but you know, I worked for several different companies had free trials and the ideal from from there, is a lot of other research I've seen, is a fourteen to thirty days and the benefit of a free trial is there's an expiration point. So your go to market motion is very clear, where customers see the value or they don't, and then they make a decision, and that decision might be any more time, in which case you've got a salesperson who maybe has a trial extension key that they can hand over or based upon how the how the conversation is unfolding. But it creates a decision point at which you know makes sense to either you go with the software or not. Now there's a lot involved in making sure that those free trials are optimal, everything from on boarding flows customer education right. So it's at that point it's not really a pricing decision. It's really being sure that the value is very clear and that, you know, the entire marketing, growth product management team is doing everything they can to support the value proposition of the product. The end lever that a lot of PB SASS companies pull is fremium, which are touched about earlier. It strikes me that fremium was a lot sexier and captured a lot more attention a few years ago. You maybe it's because fremium has become old hat it's just part of the sales and marketing and product landscape. What are your thoughts on Fremium, because in some senses you're giving away your product for free, trying to win people the low or by showing them the value and then hoping that some of those people actually like the product enough so that they'll upgrade and they'll find the pricing to be acceptable because they've seen the value. Any thoughts, or I'm sure you have thoughts on Freemium, how and when it should be deployed? Yeah, I absolutely hate fremium. So thank you for the question. So my so, but it is actually my first foray into the pricing world. So I did my MBA and during my nba I went out to Silicon Valley. Works for...

...very successful silk and valley start up. There they had a problem where they sold apps like for your phone, but they went to market through these four large go to market partners. One of the go to market partners was incredibly concerned about being the perceived as the low cost player and made all of their APP developers have a fremium version of their APP on the table. A CEO. Is a strategic choice that he had to make when I showed up, which was hey, we have to do this fremium version of our APPS for one of our go to market partners. Should we have it for all of them? Dan Go so I threw me into research for a good part of that summer. Among others, several other projects completed for them. Really it turns out to be generally a terrible idea for a whole host of reasons. Most of the arguments that people make in favor of fremium are better suited with a fourteen to thirty day free trial instead of fremium. It's a very bad idea, accepted a few rare cases. So the first thing to think about is that it's very challenging to move customers from free I was talking before about the free trial. The end of that free trial there's a decision point. There's no decision point in fremium. It's sort of this lingering, continued usage at which you there's a lot of hope involved in the fremium strategy. I would say, of like Oh, eventually these people will become paying customers. This is an illusion. Best in Class FREMIUM. You're going to convert one to three percent of those users into customers, which by definition means you have to have a massive market, like millions of potential customers. So when I talked about you know, some rare cases, people are like, oh well, zoom has free and like okay, would covid. Every person on the planet was a potential customer of Zoom. So they have a massive market. In their case it's the free works as well as they have in embedded network effects, because I invite you to a zoom call, then you use zoom. So so there's a couple of these situations where it does make sense. There's an incredible amount of energy misspent inside of businesses because again, you look at these ninety nine percent of users who will never become customers and look, growth teams are working incredibly hard to acquire new customers. Right they're going out every day work in Seo, social, paid, paid search, etc. Trying to acquire customers, and you're looking at this giant pool of potential users like Oh, if we just tried a little harder, I'm sure this giant pool of users would convert. And then you spend all of this energy and money trying to move those people who never will actually convert. And so it's a it's a mirage and I think it's a giant waste of energy and I think that there's some debate going on right now that will it improves your customer acquisition costs. I think this is a playing games with the income statement. The reason, so those of you who aren't aware of the cost of acquiring customer is your sales and marketing expense divided by the number of customers you required a suit, as you do freemium. It can look like your customer position costs went down, but that's because you took a giant portion of the engineering and product design teams and put them into marketing and didn't account for that when you did your CAC calculation. So if you did that, I'm pretty sure actually the numbers wouldn't look as rosy as they're normally do in that situation. Again, you know, there are some rare cases. For the vast majority of arguments, I would say free trial works. And here, when I'm talking freemium, I want to be very explicit because some people would be like, oh well, we could do an ad supported model and that case that's very different. Ould say that's an ad supported model right, like I don't call facebook fremium. It's a two it's a multisided network with an ad supported model. So freemium is purely like, oh, we get no money. You know there's no revenue from these free users. But going back to what I was saying before, in terms of some cases where it can work, I think zoom, where you've got this network effect from a marketing perspective and giant, giant addressable market. If there's like developer focus products, where you have your potentially developer needs to use your products in Dev and staging for money,...

...sir, maybe a year before they could move it to production, and you want to be able to give them that opportunity to do so. It doesn't make sense to keep on renewing free trial keys. So some of those type of products make sense, but if you move into production, the free version wouldn't be enough to actually use it there. Or something where it's like a built in community. I think slack is a good example, where you don't want to show up to a party and no one's there. The product doesn't is it useful less all of your teammates are on the same time, and so just the the fact that has to be social in order for the the product to actually function, makes it so that they need to have sort of a fremium, a free version of their product. There I guess I could really I could ask you. So how do you really feel? Love for you em pretty out. I'm going to ask you actually a favor and some from free consulting advice. I've got a client. What we're trying to do is create a new category. Like a lot of bdbs, as companies, you know the the Nirvana is you don't compete in an existing category. Is You actually create your own subcategory or a completely new category, and once you do that, you sort of put yourself off to the side against all the other traditional competitors that you've battled against. What are your thoughts in terms of pricing when you're making that transition, when you've got this legacy product with legacy pricing, but you're trying to reinvent yourself and, in the process, maybe trying to position yourself as a higher value premium product? How do you manage that journey? There's a lot in that statement. What I want to do first is call everyone's a tension to the idea of how bad idea it is to go try to create your own category. I know it's the market thought of as the marketing panacea, but I do not recommend it. I highly recommend if folks haven't checked her out, April Dunford she wrote a book called obviously awesome. She's a positioning expert. Absolutely love her stuff. She actually went and was talking on I can't remember where it was, but she had actually does some research, because she gets this all the time, just being a positioning and people in like Oh, well, like if we go create our own position will be in a category of our own. And then looked at data of how many companies sort of when they went IPO, had like created a market versus not. Right, a cub spot is the one that's always held out of like they created the whole idea of inbound marketing and became the number one leader in that space. But then there's also all of the also rans you never heard of, right. I mean think of the creative and Sony, MP three players that just got destroyed by the ipod, you know, and the list goes on where actually, I think from her research she did or something like ninety ninety five percent of technology companies at IPO we're playing in pre existing categories. So very, very smallse liver of IPO stage companies that actually gone and created biling categories. So putty that aside. So you go down this road. The I think the other question you sort of asked was, you know, how do you change your your price positioning? I want to go from the low cost player, or maybe the average market player, to a more premium player. It takes time and it takes investment. Customers perceptions are sticky. So this is where the real work comes from. It's not that it's impossible, but this is the reason why, for example, Toyota created the Lexis brand when they went up market because while toad a might obviously Toyota Alexis are the same company, but they realized it was easier for them to compete if they just created an entirely separate brand. There's ways you could do it and you can potentially move there over time. People do transition, but it's very difficult if you're Toyota to then go compete with Lamborghini, like I don't think you could even create another brand. You're like, okay, this is still a Toyota right. So so there's I think there's even limits there in terms of the the levels you can you can compete at. What final question in terms of how people can find you and and as important, what are the triggers that would cause a VDB SASS entrepreneur or CEO to wake up one morning and decide? You know, I got to called Dan because my price some things off with my pricing. Like what do you what do you find? Happens the week before, the day before,...

...someone reaches out to you and says I need some help. Folks can find me at product tranquilitycom. I'm also happy to connect with folks on Linkedin at Dan Blakowski. Just let me know you heard me on the podcast so I could separate it from the rest of the Linkedin spam. So usually, where my clients come to me, there's it's usually some sort of structural shift. What's happened is, I guess, inflation, as I mentioned before. We can think of that as a pretty big structural shift. It's highest inflation we've had in forty years. So it's usually not been a topic that anyone has had to think about for a very long time and suddenly becomes top of mine. For a lot of executives, especially if you're on the finance side, watching your your gross margins and your wages increase incredibly and trying to maintain some profitability and runway for your company. There's often, you know, if we're growing to a point where we're now starting to talk to new market segments and the way are pricing and packaging has been structured in the past is not working for that new segment. Potentially I've either built or acquired another product and now I'm starting to manage a portfolio of products and now need a rationalize pricing and packaging across those. Perhaps I've even built just a significant new piece of functionality and now it's time to start thinking about okay, could this be a separately monetizable add on? So those are a couple of the different areas where folks start to experience of friction and realize, okay, maybe we need a little bit more rigorous approach as we start to juggle this. Well, this has been a fascinating conversation and it's a conversation that I wanted to have for a long time. I've talked about Linkedin, I've talked about different marketing approaches, Seo and pricing certainly doesn't get the attention it deserves. I want to thank you for being on the podcast and I want to thank everybody for listening to another episode of marketing's far. If you enjoyed the conversation, leave a review, subscribe by Apple podcasts for your favorite podcast APP and share biosospia. To learn more about how I have MEDB SAS companies as a fractional CMO, strategic advisor and coach, send an email to mark at Mark Evans Dotsa or connect with me on Monday. I'll talk to you sin.

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