These pricing strategies
can help
you double your revenue without adding
anything to your business.
I know that's a big claim,
but I learned this
from one of my mentors.
I remember one time
I was chatting to him
about some of the struggles
of hitting our revenue
levels and profitability,
and he kind of smiles and he looks at me,
he goes,
If somebody that knew your business,
your industry, bought you,
what would be the first thing
they would change in your business?
And I thought about it for a second
and I came up with like a bunch of ideas,
and he said, nope, none of those.
The first thing they would do
is change your pricing.
Most people do not charge enough
for their software
or their products
in their business or services.
Period. Full stop.
So here's the strategies.
The first strategy is using
the Van Westendorp survey to understand
your pricing willingness to pay
and sensitivity
of pricing your customers have.
You know,
I remember this one time
I was working with one of my clients
and he had his pricing set up
so that it was like
really cute, the packaging.
He had a software company
and like
the packaging of all of his software
was super simple.
It was like one price per month
and everything was included.
It was like all inclusive
for each package,
for different types of customers.
And he wanted to keep it simple.
The problem is,
is that when you don't have pricing
flexibility,
like I'm going to share with you,
then it's hard to create
what's called expansion revenue,
where the more customers
you get,
they expand their,
their share of wallet,
the amount of money
they give you, the longer
they stay with you.
And it got to the point
where it was causing a growth ceiling.
So he did a Van Westendorp survey,
worked with a team
to execute this survey.
You can go Google it online.
There's a bunch of different articles
that talk about how to set it up.
And one of the things
that he got back
as feedback
from his target customers is they
didn't like the fact
that they didn't do per seat pricing.
So even though you may think,
my pricing is simple, my pricing is easy,
everybody understands it, it's one price.
I don't gouge people by charging them
per seat for this.
You may find out that
the market would prefer to buy.
They have an experience
that they assume would happen
because the way they do budgets and etc.,
that's the way they think,
that would change the way you price
to make it actually
easier and convert higher
the customers that are buying.
The Van Westendorp survey
will teach you everything
from the willingness to pay.
Are they willing to pay
for certain features?
It'll give you rank order of the features
that your customers appreciate,
which might give you information
into how to package and tier it.
It will also tell you
what the price sensitivity is
in regards to certain packages
and what you're charging either per seat
or other value metrics
to help you get it clear.
So if you're not using
this survey strategy
to inform your pricing,
you are doing it way wrong.
It is a must.
So please go online, learn
how to do it, send it,
let me know the results.
The second one
is using a histogram analysis
for your features.
Essentially what this means
is in your product,
in your business, in your agency,
it doesn't matter what business you have.
People are buying and consuming
different features
or different
aspects of your business
at different levels.
You might have 100% of customers
use this one feature
and only 10% use it over here.
And for a lot of CEOs
or product managers,
they just assume that they understand
what the buckets look like.
They think, well,
most people use this
and maybe half the people use this.
The truth is,
you don't know
if you're not pulling in that report.
So you can literally do a database query.
That's what it's called.
You can pull a report
from the usage in the database
or get your accounting team
to do an analysis
and figure out what the breakup is,
who's using what,
what are the natural break points?
Because you can learn so much.
You may find out
just like my client Mark
did, that you have a feature
that's only being used
by enterprise clients.
How did he know that?
Well,
very few people are using
this feature
based on the histogram analysis.
And then when he looked at the customers
that were using it,
he realized it was only bigger customers
and essentially
it was an integration to Salesforce.
So because of that, here's what you do.
You literally move that feature
all the way to your top
tier package in your pricing
so that, you know,
if somebody needs Salesforce integration,
they have to buy the high level package,
which a Salesforce - you know,
if somebody is using Salesforce,
they have the money.
These are for big companies, right?
It's an enterprise software
and it'll pull them up your pricing tier
to force them to use a package
that’s most appropriate for them.
That's just one example.
You might do the analysis
and realize like,
you know what,
there's people at different levels
that are using this feature
and I don't want to make it exclusive
to just the top feature.
I might make it a paid add-on, right?
Another client
who did this with their software
where they had a connection to QuickBooks
and they said, look, if anybody at any
part of the tiers
want to use this QuickBooks
integration and synchronization,
we're just going to make it
an extra $20 a month subscription
on top of what
they're currently paying
at whatever package they're at.
And that was totally fine.
So understanding
the plotting structure of like where
the features lay
and who's using what and,
and then understanding that information
to inform your pricing is a must.
Number three is tiered pricing.
I've already mentioned a few times,
sometimes we call them packages,
but when you go to a website
and you see the three tiers of pricing,
there's a reason why people do this.
I had a client once,
Jesse had a video marketing software
and he had one pricing for his product.
He— his product,
did a lot of things, but he's like,
I just want to make it easy
for people to buy.
It's one price, right?
It's like,
this is a subscription every month.
If you use it, great.
If you don't you can cancel.
He just wanted to make it easy.
You know, a lot of people
have these beliefs
about their pricing that stops them
from actually increasing the yield
and honestly
selling to the customer
in a more appropriate way.
You know,
when I looked at it and I was like,
A) we need to do a Van Westendorp survey,
we need to
look at the histogram analysis,
and then we also need to understand
the psychology of the customer.
See, people coming
may be a bigger customer
and they may not buy your product
because you set the price too low.
So the reason why
we want to have packages and tiers
is so that we can actually do
a bunch of stuff we want to price anchor
the top pricing package
is there to make the other one
look cheap.
The other thing we want to make it easy
for somebody
that's on a lower level
to come into your world.
If you're mid pricing only
and you don't have a lower price item,
then you might be losing
20, 30% of potential revenue
because you haven't
made it more approachable.
Now, those smaller businesses
might come in
and only use a small subset of features,
but over time
they'll grow into the higher
end packages.
And that's how you keep them
from going to your competitor
and growing with them.
They're going to grow with you instead.
It is so important for you to understand
how to package the tiers
so that there's a natural motion, right?
You want to set the caps
and set the limits
so that each one allows
a person
to get a ton of value at that level.
But there's this natural pull forward
into the next level
when they hit these caps,
it might be the number of seats
in the first level package,
which is like three.
Once you get to four,
you got to go to the second tier package.
It might be some other value
metric like limits on either
the number of contacts, etc.,
but you want to design the tiered pricing
so that there's this natural break point
of how the size of a customer
and the use cases of their needs
is mapped to those packages
to pull them forward.
But tiered pricing,
if you don't have at
least three different tiers,
it could be the same product
with the three different pricing.
And you just have like premium support
only available on the high end
and like email only support
like it can literally be that simple.
But doing that alone, price
anchoring and allowing people
to come in your world,
it will change your revenue
yield in a big, big way.
Number four is a value metric.
A value metric is essentially
measuring something the customer does
that tells you
they're getting value from your product.
Let me explain it this way.
My— one of my clients,
Darryl, has software
that allows companies
to reduce their credit card declines.
You know, out there in the world
as people use credit cards,
essentially like cards
will just decline for no reason
because of
not having enough information
or the banks,
the issuing banks are just
being super protective.
And all of a sudden, as a business,
if you have thousands of customers,
you're not paying attention
to all the credit card declines.
And if it's 15% of your billings
every month getting declined,
that should have went through.
The credit card
isn't blocked
and Darryl's company,
FlexPay, can help you reduce that by,
you know, three, four, 5%.
That can mean tens of thousands,
if not hundreds of thousands
of dollars of revenue
and time
added to your balance sheet
that you wouldn't have to spend
going and collecting
and bugging
customers and having customer support
or your account managers involved
and what they do
is there's two different
types of value metrics.
There's a functional value metric
and an outcome based value metric.
The outcome based value metric
is what Darryl does, where you pay him
a percent of the amount of money
that they're able to recover
above your baseline.
So if you know that
you currently have 12%
credit card declines on a monthly basis,
they can reduce that down to 9%
you'll share in that savings with them.
That is a beautiful business model
because it scales infinitely like
think about
it could be like from 10,000
a month
all the way to 10 million a month.
It scales naturally.
It keeps it very simple and it aligns
the outcome.
The customers wanting with the service
or the value your product delivers.
The other one is functional value metric.
A functional value
metric
is limiting the function of the product
and usually it's in the number of seats
that you might give to somebody
in their business to use your product.
It could be the number of contacts
in your system.
It could be the number of...
storage
that you're allowed to use or upload.
And by having a value metric,
along with all the other things
I've shared with you around
packaging and tiering and whatnot,
it allows you to create this natural
way to monetize
so somebody can be on a low tier package
and then still have a value metric
that allows them
to use more of your product.
But for you to capture...
a higher share of wallet
without having
to make your pricing page complex.
And the beauty of that is,
especially if you have aspects
of your business
that has lower margins
that you would like.
So it costs you money
to have people consume
more like storage, like,
you know, customer support
or other things
that have like real cost to it.
Then the value metric alignment
there, can be a double benefit
where it keeps your,
your expenses and your costs
linear to the revenue
you're collecting from the customer
so it doesn't get out of whack.
Number five is upsells and cross-sells.
This is one of my favorite topics
when it comes to pricing because again,
all these strategies
will make you more money without adding
anything new
to your business,
without changing your code
or changing your service.
And what's great about upsells
and cross-selling is
you can literally— I had a client, Bob,
use this exact strategy.
They had a software
that sold to consignment shops
and they had a sales team
and they were selling their software
and I think it was like $3,000
a year, you know,
break it down to monthly
if you want to pay upfront for the year.
And what they were trying to do
is increase their average order value
because they're already
having a conversation
with the customer buying the software.
But they wanted to make more money
so that they could afford to pay more
to acquire customers
through paid channels
and pay their sales reps more
so they could hire
better trained, higher caliber sales rep.
So when I shared this with them,
I said, Look,
you can just upsell or cross-sell
something else
that you didn't even build.
So the question
that you should ask yourself is,
what are the other things that are
related to buying my software
that a customer
is going to go have to buy
at the same time
that I might be able to go partner
with those companies and put it together
and package it up as a solution.
One solution, one price.
My sales team sells it,
I collect the revenue
and many times you can keep,
you know, 30, 50% of the sale,
give the, the delivery
aspect the fulfillment to your partner,
and they're responsible
for doing all the heavy lifting.
So that hits the bottom line
as pure profit.
That's why I love this strategy so much.
Sometimes
I'll call it monetizing the sawdust,
because a lot of people
don't realize that in their business
there's sawdust generated
from the activity of
just being in your business
and you can monetize that.
One example
recently is,
you know, somebody on my team
came to me and they're like,
you know,
I know we're trying
to reduce our expenses
for running our events,
because we have hundreds of incredible
SaaS founders
that come to our intensive these,
these incredible events that we host.
And they said, well, instead of trying to
you know,
like cut expenses
or choose different venues or whatever,
why don't we allow sponsors to come
that are aligned
with the biggest problems
that our customers
are having in their business,
and then they pay to sponsor
and it creates value for our customers
and it's win-win.
And I was like, yes, that, more of that.
Because all of a sudden now
we had this sawdust
which was an event
and we get to monetize it and align
with partners
and create value for customers.
The upsells
and cross-sell opportunity is all around
you, you know,
just even creating another package,
which is the same thing you're selling,
but just add a little bit more.
So it's more expensive
so that you can upsell it,
to me is a huge benefit
and it's funny because it works
the other way as well.
I had my buddy Michael Litt from Vidyard.
They did a deal with ExactTarget
because they needed a complete solution
for their email product
that incorporated video
for the sales process.
And that's what Vidyard did.
So they literally did a deal
where the sales team at ExactTarget
sold on their paper, that’s
what it's called,
as a channel partner, Vidyard to the,
the customers
they were dealing with to get the deal.
They had a complete solution.
And then Michael got more customers
for Vidyard
through their sales team
without having to add
any extra overhead,
any costs to acquire customers
just by trying to be strategic
about the upsells and the cross-sells.
So for me, this strategy
to help you with your pricing to monetize
is a must
to increase the yield of your pricing.
So as promised,
five strategies to boost your pricing
without adding any new features
or changing your service whatsoever.
If you want to take
your pricing to the next level,
be sure to download my FITT
Pricing Scorecard™.
It's literally the scoring system
that when I sit down with a client,
and I want to understand how
well they're doing these things.
I use this scorecard
to help them prioritize
and assess their opportunities, it’s
helped my clients add $200 million
in new recurring revenue
to their software businesses.
You could probably apply it
to your agency or other business,
so be sure to click the link,
download your copy.
I hope this finds
you well and I'll see you next week.