S5E30 – How to Set Perfect Prices: The 4 Proven Strategies from James Wilton

• (00:34) – Show intro and background history
• (08:09) – Deeper into his career journey
• (11:04) – Understanding his business philosophy
• (16:00) – Commercial break (TYKR mobile app)
• (16:42) – Deeper into his pricing strategies
• (22:07) – How to qualify sales with the right pricing
• (26:45) – Deeper into his career challenges
• (29:38) – How to raise prices correctly
• (35:40) – Guest hot tips
• (39:20) – One more key takeaway from the guest
• (43:50) – Guest contacts

Transcription

[00:00:00.000] – Show Intro

Introducing Payback Time, the podcast for entrepreneurs looking to build and scale their startups, gain access to actionable tips, proven strategies, and valuable data that can help you avoid mistakes, skyrocket sales, and optimize profits. Your business breakthrough may just be an episode away.

 

[00:00:17.560] – Guest Intro

If you are building a B2B or B2C business, you need to make sure you get pricing right, or you could set yourself up for failure. My next guest breaks down four hot pricing strategies to make sure you set yourself up for success. Please welcome James Wilton.

 

[00:00:35.000] – Sean

James, welcome to the show.

 

[00:00:36.970] – James

Good to be here, Sean. Thanks for having me.

 

[00:00:39.080] – Sean

Thanks for joining me. So before we dive in, could you tell us something about yourself that most people don’t know?

 

[00:00:44.950] – James

Yeah, I think something that most people don’t know, I guess at this stage in my life is that back in my earlier days when I was in college and in business school, I spent a lot of my time doing stand-up and sketching. When I was in college, I was part of a comedy troupe called the Cambridge Footlights. I did a couple of review shows there. Okay. Lots of stand up in front of my friends in college as well, which was nerve-wracking, but I pushed myself to do that. I really enjoyed it. And I left it And then I picked it up again. Back when I went to business school, there was a troupe there called Follies, which used to make funny videos at the end of every semester, we’d come in and get everybody to come in and watch this SNL-like.

 

[00:01:28.500] – Sean

Yeah, yeah. You mentioned offline, you used to live in Chicago, so Second City. Did you ever do anything there?

 

[00:01:36.040] – James

I never did anything. I did go and watch the performances a couple of times. But, yeah, Second City is massive in Chicago.

 

[00:01:42.490] – Sean

Okay. That’s cool. I would have never guessed. A stand-up background, a lot of courage, take some guts to get up there in front of people and try to be funny, because they say in the movie industry, you can do a lot of things. But if you try to be funny, that’s actually really hard to It’s tough.

 

[00:02:01.010] – James

But honestly, it is nerve-wracking, but it gives you really good habits for making presentations later on, I think. For example, I always found out when I was doing comedy, and I used to teach new people who were trying to do it this as well, when the audience comes in, they’re actually as nervous as you are, maybe not quite as nervous, but they’re almost as nervous as you are because they’re thinking, is this going to be funny? Is this going to be super awkward? Am I going to be sitting here not enjoying myself? So in those first couple of seconds, that’s what they’re thinking. And the sooner that you can settle them down, say something funny and get them laughing, it’s a lot easier to just continue to laugh than it is to change and decide that you don’t like it later. And I think it’s very similar when you’re doing presentations for business as well, right? How can I make it clear that this is going to go well and this is going to be valuable in the first few minutes? Then everybody settles down and you ease into it.

 

[00:02:54.730] – Sean

That’s fun. Well, thanks for sharing that. Now, this episode, we’re going to be focused on pricing. Before we get into that, if you could take a few minutes here and tell us about your background.

 

[00:03:04.540] – James

Yeah. So I had an interesting path through my career. I ended up here, but there’s been a few twists and turns along the way. I would say I left college really not knowing what I wanted to do at all. I wasn’t one of those people who came out, had all my career planned out and went straight into a job. I came out, I didn’t have a job lined up. I didn’t know what I wanted to do. I ended up taking a sales role out of college. I was basically be selling seats in conferences to business leaders. Basically, I’d be cold calling business leaders and getting them to come to these different events that this particular company would organize. And it was a great thing to learn. It was a different skill to build, but it’s not the way that I’m wired. It wasn’t the thing that I wanted to do. So I think that experience gave me a little bit of a kick to go and figure out what it was that I wanted to do and what I thought I would be good at. And I ultimately landed upon management consulting, really thinking about communication skills, analytical skills, getting to work on lots of different things rather than doing the same job day in, day out.

 

[00:04:12.790] – James

That all sounded pretty attractive to me. And I ended up going to work for a firm called Z. S. Associates for several years, went to business school, and then I went to work for another consulting firm called AT Kearney, which did more strategy and operations work right after business school. And honestly, I would probably I’d be at AT Kearney today if it wasn’t for the fact that I had my first kid in my second year at AT Kearney. And back then, this was around about 2011. It was very much a mandatory four day a week travel model for all consulting firms, for a lot of consulting firms. Certainly was at Kearny. And I had my first son, and I saw him probably at weekends for the first nine months of his life, which is really tough. I I wasn’t living my values through doing that. So I knew that I needed to do something else, but I didn’t know what it was. I was very identified as a consultant. But I ended up getting headhunted by this internal consulting team as part of a big company called Relix, which they own Lsevier and Lexus, Nexus, and so forth.

 

[00:05:22.380] – James

And this internal consulting team focused on pricing strategy, which I hadn’t done anything of at this point in my career. But I guess the value proposition that was put to me was like, look, you’ll probably like pricing. We will teach it to you. You’ll get to continue to be a consultant, but it’s internal consulting. The hours are better. You’ll be able to be at home far more frequently. You’ll be able to spend a lot more time with your family. So I ended up rolling the dice. And obviously, that’s obviously how I got introduced to pricing strategy in the first time. And it just turned out that I just found that I loved it. I think it was way more strategic than I was expecting it to be. And there was a lot more room for creativity within there than I was expecting. I think people look at pricing and just think it’s all numbers and playing around with profits and so forth. And it actually isn’t. There’s a lot of art in there. There’s a lot of thinking about the way the customer is going to respond. So I felt like it felt like something that was using my whole brain the whole time.

 

[00:06:20.040] – James

So I really enjoyed it. I stayed in that team for about four years, ultimately ended up leading that team. And at that point, I decided I decided that I wanted to go back into external consulting under slightly different terms, but I wanted to just to focus on pricing strategy. And that’s really what I’ve done ever since. I got deeper and deeper into pricing and deeper into pricing for B2B, SaaS, and tech, specifically. A couple of different roles. I ultimately ended up at McKinsey, where I was brought in to lead the pricing practice for fuel, which is the part of McKinsey that focuses on startups and scale-ups and fast-growing tech companies. And I I really love that for the most part. I really love the people I was working with. I love the way that we did the work. I didn’t like the way that my clients’ eyes bulged when we put our fees on the table sometimes. Mckinsey fees in startups don’t go particularly well together. So it was definitely a case that there were a lot more companies out there that I wanted to work with and I wanted to help than we were able to make it work with in terms of the fees.

 

[00:07:22.730] – James

So then in about the early 2021, I decided to found my own consulting firm, Monovate, which was purely set up to, let’s try to be the best in class pricing strategy consulting provider for smaller tech and SaaS companies. We spend all of our time now working for companies that are probably about 10 million ARR at the low end, going up to about 500 million ARR, helping them build new pricing strategies for newly launched products, transforming their pricing strategies for their products, where the pricing strategy doesn’t work anymore. And yeah, it’s been about three years. We’ve grown pretty quickly. We have about 14 full-time consultants now, and hopefully, we’re on our way to really being what we want to be within the space.

 

[00:08:09.530] – Sean

Awesome. Well, thank you for that background. That was perfect. Now, with pricing, do you focus on a little bit of both B2B and B2C, or just primarily B2B?

 

[00:08:20.360] – James

No, we do both. We do both, actually. When I initially got into pricing, it was all B2B, So it started doing more B2C work as time went on. I think we’re about a 70, 30 mix B2B, B2C at this point within Motivate.

 

[00:08:39.280] – Sean

Got it. Well, let’s start right from the beginning. Let’s say you were working with somebody who, and I know this is… There’ll be a smaller company. Then you gave us the nice range there between 10 million AR to about 500 million. Let’s say it’s a brand new startup, and they’re starting to think about pricing. And what I found is a lot of startup founders, in fact, I will say probably 90 % of startup founders I find don’t get pricing right. So how do you get close to the bullseye or in the dead center if you’re working on pricing?

 

[00:09:13.500] – James

Absolutely. Yeah, there’s lots of different things to be thinking about. I’ll give you a few thoughts that come to mind. I think the first important thing, Sean, is that it’s more often how you price that matters than what you price for a lot of wings. People are always very concerned about what is the right price point for my product, but really the mechanisms that you have for getting to the right price in a way that you position it tend to be way more important than actually setting up that price level. For example, if you’re in a B2B business, there There’s usually some price metric that you’ll use to scale your price levels to customers of different size. The most frequently used one is users. And sometimes that makes sense. But sometimes the number of users that a company has is not linked value at all. And if you’re pricing based on that, you’re probably going to end up with companies paying the wrong prices and also some resistance to buying the number of users that they need because they don’t feel like they should have to pay more for more users. That’s not where the value comes from.

 

[00:10:14.430] – James

So really thinking about how your customer gets value and how that value scales and picking a metric that aligns with that, it’s going to make a ton of difference to your sales process because you have this nice self-affirming cycle where the way that you’re telling your customer that they get value is the same mechanism that they’re paying for it. So it’s a self-reinforcing system. And your packaging as well, when you’re thinking about what those different options that you can be providing, how these different packages are structured, the different amounts of value that comes into each one, and really aligning that with the way that the customer thinks about value. So that’s super important, honestly. And I think when we do pricing strategy work at a month of eight, most of the time, that’s really where the focus It’s around that structure that gets you to that overall price.

 

[00:11:04.050] – Sean

Yeah. Before we go further, could you drill into that a little bit? What do you mean by structures? How many tiers you need to create, or if you set an anchor and then you’ve got one price next to it. Is that what you mean by structure? What do you mean by structure exactly?

 

[00:11:21.060] – James

It’s really your system for price differentiating across your customer base, right? Okay. In case anybody listening to this doesn’t know. So price differentiating Cliculation basically means charging different prices to different customers. And it’s incredibly important within pricing, because if you’re serving a range of customers with different scales and different amounts of value, if you’re charging them all the same price level, you’re leaving a lot of money on the table, right? Because you’re going to have some customers who would have paid a whole bunch more, but you’re charging this amount. And you’re also probably closing yourself off to a lot of customers because they would have paid something that would have been profitable to you, but the price level you’re charging is over there, their willingness to pay, so they won’t buy it. So you need a system to be able to scale the price to the willingness to pay for these different customers. That’s what your price structure does for you. And there’s different elements of it. There’s the price architecture, as we call it, which is basically, that’s what I was just talking about. There’s the price metric that you align your price to, and how do you scale the price with that metric.

 

[00:12:24.820] – James

There’s the packaging, which is how do you break your offering up into different different components? What is the system you use? Do you use that classic good, better, best that you see a ton of SaaS companies use? There’s just tiers of different packages. Or do you use something that aligns to the way that you might think about your product? You might have a base package which everybody gets, and then you have modules that you can opt into in different areas. Thinking about the style of packaging you use is really important. And then obviously within that, you You have to make sure that you have the right features, the right usage capacities, whatever it is that you’re breaking your package off. You have to make sure your packages are designed correctly within that. And then the last part of price structure is really revenue models. So there you’re thinking about the system of pricing. Is it subscription? Is it usage-based? Is it a hybrid? Is it perpetual? There’s lots of different ways that you could potentially be charging for the same thing.

 

[00:13:26.800] – Sean

This is good stuff. When I do the roll up towards as the end, we’ll have some fun covering this stuff. But I do see that, do you want to go the subscription model, which from my perspective, there are venture capital firms that are like, it’s not scalable enough. Saas can be very scalable, but they’re like, what about a usage model or a transaction fee model? So there’s no limitation. You pretty much let them run with the line as far as you can go. So, yeah, those conversations can be very strategic because if you don’t come out of the gates with the right pricing, you could either set yourself up for failure or set yourself up for a highly scalable enterprise.

 

[00:14:06.670] – James

Absolutely. And I think a big mistake that people make quite frequently, they think of usage-based and subscription pricing Pricing is being completely separate things. They don’t have to be, right? Obviously, everybody knows subscription is basically charging a certain amount on a recurring basis, whether it’s per month or per year. That’s what a subscription looks like. When we think about usage-based pricing, what we tend to naturally think of is a very transactional usage model where I’m going to use something and I pay for the number of uses that I have. And that could be high one month and low another month, and you pay based on that. You can structure usage-based pricing that way, but you don’t have to. There’s a lot of these hybrid models which marry some of the principles of subscription with usage-based pricing. For example, you might have a subscription model, so you’re charging people consistent amounts per month or per year, but the amount that you charge them is going to be set based on a certain usage level. So I might say, let’s say I’m charging you based on an expected number of transactions that you’re going to make on my SaaS system.

 

[00:15:14.170] – James

I might set the price for you based on that. You might end up going above that, and then you just go up a tier in that subscription model. So you’re still paying a flat monthly price. It’s just at a higher level than you were doing originally.

 

[00:15:26.800] – Sean

Yes.

 

[00:15:27.430] – James

That’s what’s known as a usage-based subscription. And there you get a lot of the benefits of usage-based pricing in that you’re tying your pricing to something which is naturally going to go up, and in many cases, does align to the value that the customer gets. But also you’re getting the predictability and the consistency and the multiples that that tends to bring in terms of valuation that a subscription model would offer. So that’s not the only example of a hybrid. There’s a lot of different models in that place that blend those two things and come up with something that can be super valuable for the vendor.

 

[00:16:02.300] – Sean

Let’s take a quick commercial break. All right, the Tykr mobile app for both iOS and Android is now live. It includes all the same features as the web app, including stocks, ETFs, crypto, a watchlist, watchlist alerts, so if something changes, you automatically get notified, a portfolio tracker, and a confidence booster powered by OpenAI. Plus, it includes learning modules inspired by Duolingo, in this case investing, learning modules to help you get up to speed as fast as possible. If you’re interested, you can go to Tykr. Com. You’ll see the Apple and Google logos right up top, or you can go to the Apple App Store or Google Play Store and download the app for free. All right, back to the show. Can you talk about how do you determine then what is the right pricing? Is it I’m going to shoot an idea out here, and then you can say if you do the same thing. But I tend to, number one, look at competitors to me or close or similar lookalike businesses. What are they doing? And then step two would be, go talk to your potential customers. How much would you pay? So do you take a similar approach when you first start out, or what do you do?

 

[00:17:14.980] – James

Yeah. I mean, thinking about price levels, specifically, there, Sean.

 

[00:17:18.540] – Sean

Yeah. And not only price levels, but everything you talked about with structure, like the different variances, the architecture, how do you package it? And then, of course, the model, should it be more SaaS? I’ll give you an example. For example, with Tykr, this is a good lesson learned situation. We came out of the gates with a pricing model that was similar to Headspace, one price. And we found that as we add more features that are dependent upon third parties, we would actually go negative. We wouldn’t make enough money. So we had to create separate tiers. And I started talking to customers about, would you like specific tiers? Think like a Netflix, or would you be interested in the usage model? And when I asked that question on the B2C, they were like, the response was definitively the set fee like Netflix, because the usage, they’re in the back of their mind like, Oh, am I racking up a tab here? And I’m going to get a charge. So I was like, Oh, okay. All right. We’re not going to do usage. But I wouldn’t have gotten that feedback if I didn’t talk to the customer.

 

[00:18:25.860] – Sean

Yeah, no, you’re right.

 

[00:18:27.570] – James

I think, directionally, what you’re saying is exactly Sean is actually very similar to the way that we would look at it. When you think of what the right pricing strategy for you is, there’s three major elements to consider. Firstly, there is the product component, which everybody thinks of. So what does our product look like? What kinds of features and benefits and so forth does it provide? How can it be broken up, et cetera, et cetera? Then there’s the market perspective, which includes all the the customer preferences. How do they want to buy something? How much tolerance for predictability do they have? How much tolerance for complexity do they have? For example, if you’ve got a consumer buying something, they’re going to be able to tolerate far less complexity than, say, a procurement person in a massive enterprise company. It’s very different buying processes. So knowing how that happens, what are their needs? How does the needs vary across the different customer segments that you might be serving? What’s the willingness to pay, obviously, across all those different segments, understanding all that, and then also understanding what the norms are within the pricing. That’s where I think you get into with the competitors you were talking about, sure.

 

[00:19:41.440] – James

If I’m competing against a set of other competitors, I don’t have to do the same thing as them, but I do need to know what they’re doing so I can understand what is going to be the default thing that customers are going to be expecting and what the alternatives are going to be when I’m building my pricing strategy. So how do they package? How do they price? What’s their price level, et cetera, et cetera. And then the last lens that everybody forgets about is your objectives, right? Just what are you trying to achieve with your pricing strategy? In your early days, are you really focused just on volume? Is it, I’m not too worried about ultimately maximizing my profits right now. I just want to get a whole bunch of customers and I’ll worry about profits later. Or is it, I really want to maximize revenue in the short term? Or is it, I want to be able to get a certain amount of revenue, but I want to have a pathway to really rapid revenue growth from my existing customers. There’s no real right or wrong answer there. It’s really just down to what do you want to achieve as a company?

 

[00:20:41.800] – James

And that might be purely coming from the executives in the company. It might be influenced by the board, but there’s going to be a set of things that you’re already thinking about there. And I would suggest, honestly, that if you have two companies that look identical, they sell the same product to the same customers, Everything is the same. If they have massively different objectives, the right pricing strategy for each of those two companies is going to be completely different. So it’s really important to understand how you’re going to do that. So really, what we do when we go through this is we look to understand all those areas. We’re going to make sure we understand what the company is looking to achieve, what are the constraints around what they would like to achieve, understand the product. As you say, we always do primary customer research and make sure we understand what the different segments want, need, and are willing to pay. And then based on all of that analysis together, you can come up with a set of design principles for your pricing strategy. And it’ll say it has to maximize revenue in the short term.

 

[00:21:45.790] – James

And it can’t be a usage metric because customers hate that. And so you get the set of design principles that are going to guide what you will build. And then you start to think about what are the different models that you can build that satisfy those Those design principles, evaluate which one meets it best, and then move forward with that and flesh it out and work it through.

 

[00:22:07.910] – Sean

Got it. This is a good transition point, too, because we like to get tactical on this podcast, is what Once you go through the process of really analyzing the product, the features, I’m just summarizing here what you said, you’ve got the features and benefits, then you get the market perspective, and then you drill into your objectives. If you want volume or profit profit. I like how you separated that because I have seen businesses that are like, we just want to lower price and get as many people in the ecosystem, and we’ll create other upsells later to increase our profits. But now it’s just volume game. I see that all the time. But now, to make sure you’re doing this correctly, do you dip your toes in the water, talk to a few customers, and say, Hey, here’s what we’re… You go through the sales process. We understand your pain. Here’s our solution. Here’s what we’re thinking of charging. What are your thoughts? Do you approach it like that, or what do you do there?

 

[00:23:05.480] – James

Yeah. Honestly, when you get into the customer research, there’s such a range of different things that you can do there. I would always advocate doing research upfront, just first, generally, just trying to understand for customers, if you’re buying something in this space and it can do X, Y, and Z, how much would you pay for it? And you have to pick the right technique to be able to go and do that. There’s Because generally, if you just ask customers, Hey, what would you pay for this? They’re going to low-ball you, right? Oh, yeah. There’s all these different techniques that will help you get a better read in it. I’d say one thing that’s an oldy but goody, but still use it quite frequently because it works, is the Van Westendorp technique, which gets into the idea of there’s not just one right price point for a customer, right? There’s a range of viable price points. You got to think about where you want to be. So with Van Westendorp, instead of just asking a customer, How much would you pay? You say, For this product, you’re buying it in this accountants, what price would be a bargain for you guys?

 

[00:24:06.400] – James

What would make this a no-brainer? At what price level would you now consider this to be starting to get expensive? At what price level now would you consider this to be so expensive that you would no longer have any interest in it? You’re not going to buy it above this price level. And then also tell me, at what price point would you now consider this to be so cheap that you’d start to question the quality of what it was that you buy? And if you You’re going to get that, you’ve got a really good range to be able to work within. And you can start thinking about, if I was to price at $100 a month, how many of my customers that I’m going to be going after are going to consider that it’s starting to get too cheap? How many people think it’s about correctly priced and how many people are thinking it’s right at the top end of what they would pray. And you can start to make really good decisions on your price levels then if you’ve also got a good sense of what your objectives are.

 

[00:24:54.030] – Sean

I love that. We actually, for context here, I didn’t know what’s the Van Westendorp pricing model or analysis or approach or whatever you want to call it. But we use that because we have courses. And I was like, I see course prices all over the world. I’ll keep this really short, but we have courses. We call it more of a want to have than need to have. If you really want a deep dive investing education, this is a want to have. You can certainly do that. And then I had to get into the print. What do I charge? Because some people charge $5,000. I’m like, no, we’re not doing that. But we We don’t want to charge 50 bucks because we see what happens on you to Me is nobody completes the courses. In fact, they have a starting rate, I think less than 30 %. So nobody’s going to take it seriously. It’s like, Hey, I’m going to Stanford, but my cost is 100 bucks a year. Are you going to show up for classes or you’re just going to go partying? I think, right? You got to charge enough so people pay attention.

 

[00:25:52.200] – Sean

But anyway, I used those four tiers, and I’ll summarize them at the end, but that’s brilliant. Yeah.

 

[00:25:59.920] – James

No, it’s super helpful. And there’s a load of different techniques as well. If you’re doing a consumer product or you might be doing a PLG motion, it’s often helpful to use conjoint because conjoint, maybe accurately is the wrong word, but I think it very well represents the buying motion that somebody is going to go through in a PLG. It’s like, would you buy this or would you buy this or would you buy nothing? And you can vary attributes and packages, which vendor would be charging it and the price points and just find out what the utility of all these different attributes are. That means if you start to build a particular package at a particular price point, you can predict with a pretty high degree of accuracy what portion of the customers are going to buy that versus buying something else.

 

[00:26:45.020] – Sean

Now, we talked a lot about pricing in the early stages. I think we really gave our listeners that are starting a business a really good starting point. But you work with a lot of well-established businesses. Again, they have revenues between 10 million ARR and up to 500 million. What are their common challenges they’re facing? Why are they coming to you?

 

[00:27:07.930] – James

Yeah. I think the really interesting thing about pricing is that the challenges that I was seeing customers or clients go through about 12 years ago are still the same ones that I’m seeing today, honestly. It’s the same challenges just in different places. I think what happens with pricing is that companies tend to go through this evolution. A new company is founded. They have to build a pricing strategy. They haven’t got many people. They haven’t got a bunch of time. They just have to do something. So they tend to copy their competitors, put something on the board and just go with it, and refine it and see what happens. If they’ve got a good product and everything’s good. They’ll grow anyway and things are good. But then at a certain point, things change, right? The product changes. They start to introduce more capabilities and get into different areas and things, and their customers change. They might get into new segments, and the segments is that they do have start to change what they’re interested in. And there’s new competitors that are coming in. And so even in a relatively short space of time, within two, three years, you end up in a situation where the market is completely different, your product is completely different, and you probably have different objectives as well.

 

[00:28:16.700] – James

You’re trying to achieve different things. So your pricing strategy should now be helping you achieve what you want to achieve and reflecting the current state of the products and a market. But it doesn’t if you You built your pricing strategy three years ago, even if you got it right then, which you maybe didn’t. And so they need to change it. But pricing is also very risky, right? There’s a big consequence to getting it wrong. If you end up building a pricing strategy which doesn’t work with your customers, you could end up with a whole bunch of churn. You could end up not growing the way that you were expecting to. Even if you’re identifying it quickly, then you have to walk back from your pricing and go back to something old, which is a PR disaster. But there’s There’s a lot at stake there. And I’d say also, even the companies that I’m talking about in that 10 million to 500 million range, you only really start to see dedicated pricing people at the higher end of that range. It’s usually the case that the smaller end of this range, they don’t have somebody on staff who’s gone through a pricing strategy transformation before or has experience of how to do pricing well and knows what to do to get it right.

 

[00:29:28.150] – James

So that’s where companies like us come in, because we’ve done this many times. We’ve seen what works. We know the process to go through to figure it out. So it’s a process of getting them to the right place.

 

[00:29:37.490] – Sean

Got you. What are your thoughts on raising prices? What is a tactful approach to go through? Because there are people that most people we talk to about raising their prices, anxiety is the first thing that comes to mind. I don’t want to raise my prices. We’re going to lose customers. How do you walk your customers through that no matter if it’s B2B or B2C?

 

[00:29:59.740] – James

Yeah. I know. And it is. I think this is one of the biggest questions that we get asked, and it always happens around the same time. It’s right towards the end of the year when people are thinking about price increases for the next. I think a certain amount of anxiety is reasonable because customers don’t like price increases. They really don’t. They get anchored to it. I tend to think that if you go through the process of setting your price level for your product, at that time, customers don’t really know what it’s worth. But you have to assume that once they bought it, then they’re going to feel that the amount of money they’re paying for the product that they’ve purchased is the right amount. That amount of value is worth that amount of money. So if you start to move the price level up, they’re automatically going to start to feel that this is now higher than I should be paying for it. And it’s difficult. So there are a few principles that are very helpful for navigating that. I think the first one is that we in the pricing community spend a lot of time educating clients that they should be thinking about value when they’re setting price levels, and that’s absolutely true.

 

[00:31:05.900] – James

But they shouldn’t necessarily be thinking about value first when you’re thinking about changing prices. Because again, if I come to you, the customer, and say, Hey, look, you were I’m selling this, but I think you’re getting a ton of value out of this, so I’m just going to raise the price on you. Your instant reaction is still like, Well, hey, no, that’s not fair. I was getting that amount of value previously. You’re just charging me more for the same thing that doesn’t feel good. So you’re actually better off leaning with a concept of fairness, and it’s really helpful if you can lead into the fact that costs have changed, again, which is completely counter to what you’re doing if you were setting the price the first level. You can say, Look, we’ve been providing you this product or service at this level. Our costs have gone up. In order for us to be able to continue to provide this level of service to you, we need to raise the prices. And that does feel fairer, right? Because it’s like you’re not just trying to take more the value surplus away from me. You’re just trying to maintain the bit that you were getting earlier.

 

[00:32:04.450] – James

Got it. Of course, costs do go up every year for companies, right? We have inflation, and there usually are increases in costs that companies are incurring as they’re starting to try to elevate the level of value that they are providing. So it’s usually best to lead with that and then reinforce through value. So you say, look, we have to raise prices because costs went up. And also, by the way, look how much extra value that we’re giving you because of all these extra things that we are doing here. That message tends to work a lot better. And then you get into a lot of tactical things about the way that you should communicate it. I think, firstly, there’s a lot of really good examples of bad price communication messages out there, right? But first off, you should come straight out and say we’re raising prices. Don’t bury it like midway down an email or something. Say we are raising prices for this reason, and it’s going to be this much. Be very clear. Provide the rationale, but don’t be apologetic about it. Just communicate why it is the price has gone up. At the same time, you want to be seen as being caring to your customers.

 

[00:33:07.440] – James

You don’t want to be callous about this. Depending on the product, it could be a big deal to the customer that the price went up so much. So it’s helpful to, A, have it come from a person. Don’t just sign it the Company X team or something. It’s better if it’s an actual person who’s communicating it. Obviously, if you’re dealing with an enterprise, important big customer, you’ll probably actually have someone deliver the message over the phone or in person rather than sending an email. But assuming it is an email, still make it come from a person. And just be… Yeah, Be empathetic about that. And I think the last thing is, give them as much notice as you possibly can. People don’t like to be ambushed with that. Give them, ideally, a couple of months notice. I think longer notice periods for bigger deals and larger customers. The biggest pushback I’ve heard about that is companies saying, well, but what if I give them a lot of notice and then that gives them time to go and jump onto a different vendor? And It’s true, but I think if you think they’re going to jump ship just because you increase the price by a year over year price increase level, which is probably somewhere between 4 to 10 % or something, I think you’ve got bigger problems there.

 

[00:34:29.090] – James

It’s more of a product in a relationship relationship thing. Really, ideally, if you want a good relationship with your customers, be respectful, give them time, and do all the best practices about communicating that effectively.

 

[00:34:40.040] – Sean

You have so many good takeaways here, and we’re going to do roll up in a second. I have to I want to give a shout out to a SaaS founder that… His name is Yuron Hoffman. He’s got a platform called Redditis that works with affiliates. It helps SaaS businesses create an affiliate marketing plan. He actually removed the free tier, and I loved it. He did a lot of things you said. He was clear in his communication. He let people know well in advance. He did not apologize. I love that. Don’t apologize. And he just was transparent on the reason why, which is essentially they’re not getting value add customers. They’re getting people in the ecosystem that sit. They’re not producing results for them or for Reddit. And I responded to him. I was like, I love this. It was the perfect… And I’m going to see an increase in pay, but I love when entrepreneurs have that boldness to say, I’m increasing prices, and here’s why. It was perfect.

 

[00:35:39.240] – James

Totally. Cool.

 

[00:35:42.040] – Sean

Well, what I’d like to do next is do a rollup, then I’m going to ask you for one more takeaway for the audience, and then we’ll have some fun. We’ll get in the rapid fire round. So here we go. We’re going to break the fourth wall to the audience. I collected four key takeaways, pricing takeaways here that I thought were brilliant. The first one we’ll touch on is structure. Make sure you have price variances, different prices for different customers, and also make sure… There’s a few points within there. Make sure your pricing architecture is set up correctly so you can scale. You also want to make sure you package things correctly with different modules, different features, all that strategy. There’s a lot of planning that goes into place. Another point within is, what revenue model do you want? We talked about that a bit. It could be a SaaS subscription model, either monthly or yearly. It could be usage-based. It also could be transaction fee-based. All right, moving on to number two, which is how to find the right price. Three ideas within or three strategies within. One is product. What does the product look like?

 

[00:36:47.710] – Sean

What are the features and benefits in your market? Who are your competitors and what do they do? Then there’s number two here is the market perspective. How do your customers want to pay? That’s me I’m talking to my customers. That’s how I quickly learned what they would do and would definitely not do. And then number three within this point is objectives. What are your objectives? What are you trying to achieve? We drilled into this for a minute. Do you want volume or do you want profits? That’s our two examples. All right. Then moving on to number three was presenting to customers. You mentioned the Van Westendorp pricing model. And to break that down, four different questions to ask. This is exactly what we did. At the low end, what’s so cheap that you wouldn’t touch it? And I think we actually phrased it that way. It’s so cheap. It’s like, No, this is garbage. We’re moving on. Then the second question you ask is, what’s a bargain? What’s a pretty good What is the price you’d pay? Number three, what is just a bit too expensive? And then number four is what’s way too expensive?

 

[00:37:52.250] – Sean

You want to go near it. We did surveys tactically to our audience. We use Airtable. You can use There’s a whole bunch of different survey platforms, but that’s an option. And then number four is raising prices. How to do this correctly. So you provided a long list here. Let’s go through. Number one, lead with fairness and be transparent that your costs have increased. That’s great. I added this little snippet to it because you touched on it briefly, but I thought I would touch on this, which is maybe consider adding what other things do you also get within your same plan or package So if you couple our cost of increase and we’re adding things to it, that does go over well. And I’ve seen that correctly by businesses, so I can confirm that. Be clear in your communication, be upfront, don’t hide it in a body of an email. We sent that out three months ago that we said, we’re raising your prices. There are businesses that do that. Don’t apologize. Maintain a caring attitude. Don’t sign it as the company. How impersonal can you get? Try to… If you’re the CEO or the CRO, make it from a person.

 

[00:39:08.620] – Sean

And then the last point here under raising prices is give them as much notice as possible. I 100 % agree. Hey, in two days from now, our prices are going up. No. That’s not going to work.

 

[00:39:20.200] – James

Asking for trouble.

 

[00:39:21.470] – Sean

Yeah. A lot of good points here. Before we get into the rapid fire round, is there one more good key takeaway you can give our audience?

 

[00:39:29.280] – James

Yeah. I think the last thing, and it transcends everything here, is just if you’re going to be pricing this way, you really need to understand value, the way that your customers get value, how much value that they would get. You shouldn’t be pricing based on costs. That’s a big mistake that a lot of companies make. They think about how much it’s going to cost them. They want to put a markup on top of that to make sure they get a certain margin. They set price there. That may be way more than your customers are willing to pay in In some cases, it may be way less. It’s not going to be the right way to capture as much value as you possibly can from it. So you should be thinking about the value and the willingness to pay us as, I guess, a fee for that value level.

 

[00:40:12.010] – Sean

Awesome. All right, let’s get into the rapid fire round. This is the part of the episode where we get to find out who James really is. If you can, try to answer each question in about 15 seconds or less. You ready? Okay. All right. What is your favorite podcast?

 

[00:40:27.510] – James

Smartless right now.

 

[00:40:29.260] – Sean

I’m listening to the episode today with Jeremy Renner.

 

[00:40:32.320] – James

Oh, yeah. I love Smartless. It makes me love.

 

[00:40:35.430] – Sean

Comedy guy, right? You got all the comedy guys right there. That’s awesome. Exactly. All right. What is a recent book you read and would recommend?

 

[00:40:46.800] – James

I’m actually reading a book right now called Nearbound, and it’s all about the fact that outbound marketing doesn’t work as well in today’s world as it used to. And it’s really now more about communities and trusted referrals from your in-group, which is really interesting. And it’s making me rethink the way that we engage our clients and customers.

 

[00:41:10.610] – Sean

Spot on. I’m actually going to add that to the top of my… I’ve got a long list of books as you can imagine, interviewing people like yourself, like where do I start? But that is so true. Outbound, it’s really not that effective. Nearbound, sounds like something I have to read. So thank you. All right. Movie question. What is your favorite movie movie?

 

[00:41:30.730] – James

I was going to choose between Pulp Fiction and The Godfather. They were probably the two that would be me when I was a kid. I’d probably go Pulp Fiction. I think that was the one that was… Yeah, that made the biggest impression of me when I saw it back in the day, a long time ago.

 

[00:41:43.820] – Sean

Classic Tarantino, right? All right, next question here. A little more serious. What is the worst advice you ever received?

 

[00:41:53.020] – James

So I got advice by somebody quite close to me when I was quite young, which was, max out all your credit cards, don’t pay off your mortgage, just pay off the interest all the time. That’s the best way to make sure that you manage your money. So obviously, that’s for obvious reasons. That was pretty terrible advice, but it’s like, you’re making it funny that somebody actually gave me that advice.

 

[00:42:17.450] – Sean

That’s ridiculous. Oh, my gosh. All right, flip that equation. What’s the best advice you ever received?

 

[00:42:24.190] – James

Best advice that I ever received. That’s a really good one. I think probably Probably the best advice that I ever received was follow your gut when you’re making decisions about career changes. I think we tend to try to be overly analytical about a lot of things. And I think with analysis and weighting benefits and stuff, you can make anything say anything. I think what really matters is when you have your gut pulling you in a certain direction. I think we should be more open to that, even if it takes you off the course that you charted for yourself when you were 22 and you were what you’re going to be on. If something just feels right, just take a chance on it.

 

[00:43:03.480] – Sean

Right on. All right. And last question here is the time machine question. If you could go back in time to give your younger self advice, what age would you visit and what would you say?

 

[00:43:13.020] – James

I think I would probably go back to my university days. I would probably go back to when I was about the age of 21 and say, James, spend some time thinking about what you might want to do and what you might enjoy doing for a career now. Because as I said at the beginning of this, I really did not even think about that until I was a good six months after university. And not that that’s a big problem in the great scheme of things, but I think I would have got to where I wanted to get to quicker had I been a little bit more purposeful at a younger age.

 

[00:43:42.550] – Sean

Right on. All right. And then if anybody wants to talk to you about pricing strategy, whether they have a new startup or startup that they’re looking to scale, where should they reach out to you?

 

[00:43:54.150] – James

Probably the best thing to do, Sean, is to connect with me on LinkedIn and message me there. We can take it from Awesome.

 

[00:44:01.430] – Sean

All right, James. Well, thank you so much for your time. Appreciate it.

 

[00:44:04.210] – James

Absolutely. Great to chat. Thank you. We’ll see you.

 

[00:44:07.110] – Sean

Hey, I’d like to say thanks for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. And if you have a moment, could you please head over to Apple Podcasts and leave a five-star review? The more reviews we get, the higher this podcast will rank. All right, stay tuned for the next episode. We’ll see you.