EP 52: SaaS pricing models explained with SaaS pricing expert James D. Wilton

welcome back to another episode of SAS Buyers Club I’m your host Omid and I’m

the managing partner of Optimist legal which is a full service corporate Boutique Law Firm for SAAS Founders we

help SAS founders with all things contracts from incorporation to exit anything that has to do with contracts

is what we help SAAS founders with and I’m also the host of the SAAS Buyers Club

podcast and SAS Buyers Club podcast’s mission is to give SAS Founders value so

that they can increase the exit value of their business because I believe that anyone who can give value to SAAS

Founders will help them increase the values of their businesses so they can get great exits that being said I’m

pleased to introduce James Wilton from monate James helps sast Founders make

money that’s the best way that I can put it and uh I believe former McKenzie as

well that’s right um so thanks for joining James oh great to be here am

thanks for having me absolutely yeah so what what do you want sash Founders to

get from the episode today well I’d love uh I think what I’ve really dedicated my

career to probably over the last 10 to 12 years really is helping helping companies find better ways to monetize

their their products be able to capture more value through the pricing strategies that they that they build so

I’d hope that through our conversation some some SAS Founders leave here with a few different T tips and things to think

about that will help them capture more more value and be more more successful with their own monetization cool so how

do most SAAS Founders usually monetize their businesses well typically I mean I think

you see you you do see a lot of commonality between General SAAS models I think that you know when you

when you think SAS pricing strategy you immediately think users right pricing

based on on on seats so where there’s one two three four seats different prices for for that and you tend to

think good better best uh for for packaging so just creating a simple simple tiered structure and there are

you really good reasons why those tend to be the most commonly po elements but I think it’s really important to remember that it’s not those aren’t the

only options that you have and I think a lot of SAAS Founders when they start thinking about what pricing strategies

could be they tend to default to that because it’s easy and that’s the that’s within easy reach is there an aspect too

that maybe is um SAAS is thought to be the most

desirable um type of like Revenue generating business because of the

recurring Revenue yeah and so people maybe don’t

know that there are ways to optimize yeah within this kind of like best tier

of type of Revenue yep absolutely within that construct I do I think I think people are unaware of the amount of

optionality that they that they have and it’s true right I mean everybody wants

recurring revenue for a reason right I mean from the from the vendor side of it I mean it’s great to know that you’ve

got good stable revenues coming in you know you’re able to forecast better and so forth it’s very good it’s very it’s

very very predictable that’s why of course you get great valuation multiples on on SAAS because

you you know that that that ring revenue is coming in but it’s also in a lot of cases it’s good from the customer side

as well because you know it’s very um if you do have certain R revenue streams

like the sort of pay as you go usage base that people do talk about occasionally the amount of customer

could be paying on a month-to-month basis could be going up and down all over the place and that can be good if

it’s link to value that means you know I’m getting less value in month in month two then I pay less in month two so that

feels good from that sense but it’s also very difficult to budget for right like you don’t know what you’re going to be

paying every single month that and that becomes becomes difficult so actually we find that a lot of the times customers

would rather pay in that kind of recurring basis as well is that the model that you usually recommend for SAS

Founders to move to from that kind of basic approach in terms of seat-based

pricing and good better best I think is the way that yeah no exact I mean

honestly it’s not um it’s not that you always need to move away from that I would say seat-based pricing and good

better best I mean that is that is a model that is going to allow you to get recurring recurring Revenue right and

it’s something that’s very simple to set up everybody’s familiar with seats everybody knows what a seat means so

it’s very uh it’s very familiar and that means you don’t end up having to explain that a lot to customers so there are

some benefits from that from that point of view right the issue is that for all

its benefits in a lot of cases now you know per per user like the per user

metric is not aligned to how much value the the company actually provides you this the business provides it’s not the

case that if I if I give you five user licenses you’re getting significantly

more value than one user license in every case and that that kind of becomes a bit of a problem at some at some

points it means that can you give me an example yeah absolutely imagine you had like an online reference tool right like

let’s say there was there’s some SAAS founder has produced a tool which is this lookup tool you can search and

retrieve information there and let’s say that person has decided just to copy what most people are doing and charging

per per per license for it now search and retrieve uh tool right there is

you’re not getting value from that all the time right it’s probably not something that you are using day in and and day out and always need it’s just

like it’s something which is there when you when you need it so if I have one

person who has access to this you know that’s great do I get twice the amount of value if two people have access to it

maybe not right because maybe actually like one person could manage all the search and retrievals for the for for

two people or three people or four people so you end up in a situation when if you’re selling to budget conscious

customers if you’re monetizing on this per user basis then you know they may

not purchase more user licenses because they find that they can actually get all the work done with with one user got it

that is actually part of a a trend you’re seeing more and more now because we have so many more of these these

tools now which benefit from Ai and Automation in in general it means that

one person can do the work that many people could do could do previously so if you’re charging B on on a number of

seats you’re probably not going to be able to price differentiate very effectively and make sure that you’re

your customers with the highest willingness to pay are actually paying more because they’re going to be able to control their their costs it also

becomes a bit of a problem for your positioning right because because ideally your value proposition and your

pricing strategy should be self re reinforcing right you can say that I create value for you for you the

customer in this way and that’s the way that I’m charging you you know that all kind of rolls rolls together and if

you’re charging them based on how many users they have but the value doesn’t really SC scale that way you’re not

really talking about the value as being related to the number of people who are using it there’s a there’s a disconnect

and it it creates FR in that that sales proc it doesn’t doesn’t work as well so you really want to be thinking about

what are the other metrics that I could be picking that align better to value and might be better for me to be able to

price price differentiate across my my customer base with you can pick a different metric and it can still be

recurring Revenue right you’re just using a different metric to scale that uh that monthly or or yearly price okay

so I hear that a problem for SAS Founders is the value position and the

actual value delivered based on the pricing model need to align yep

absolutely so what advice do you have for SAAS Founders to align their value

proposition and their pricing model how do you help SAS Founders do that I think

the first step is to think about if you were you know not saying you have to do the math here I don’t want to put

anybody off with the word for the talk of equations but if if you had to produce an equation to calculate how

much value a customer got from your your product how would you build it you know

would you say it’s going to be you know based off the you know the amount of Revenue that the customer has multiplied

by a certain uplift that they’re expecting to get from you right or would you think about would you think about the number of people who are using it

plus then like a vanue per per user think about what really scales that scales that value and if you do that

you’re going to end up with some variable right which is either something about what they’re doing or something

about what they have as a as a as a company might be an element of their of their scale which dictates how much

value they they get and that’s a really good starting point for thinking about what your ideal value metric your price

met might might be right so you can think about that then and then start to think about what that price magic see

whether it fits all the other criteria that we would look for in building a a good a good pricing metric for a SAAS

pricing scheme we’ve already talked about value alignment which is really important and that’s you know that’s how

you got there so that’s going to drop out if you’re if you’re doing it this way but you also want the the metric to

be acceptable so it should really be seen as something that’s fair for you to set price based on ideally it would be

familiar if you have a metric which is very acceptable as well as being value aligned then that friction of selling to

customers is going to be quite quite low if the acceptability is not there you’re probably going to have to do a little

bit of Education before you get it to the point where customers are quite accepting of it doesn’t mean you can’t

do it it’s just something that you should you should know about you’d also ideally want it to be growth oriented as

well right because if you’re going to set a price for a customer based based

on the value of a certain metric whether it’s users or usage or whatever else it is if that number is the same on year

three as it was on year one then your revenue is not going to grow year over year right and a lot of SAS Founders and

businesses grow through this kind of land and expand approach so it’s very helpful if the metric that you tie the

price to is just going to naturally increase in number of units over time it

comes this natural Pathway to that so you’d want it to be growth oriented you’d also want it to be auditable which

means can you you know you can measure it and monitor it um exactly as an

example of that right if you were say say you were going to set price for a for a SAS company based on the number of

employees that they that they have like can you find out what their number of employees is is that going to be

published somewhere where you can look at that number and and see it and verify it because if you’re reliant on the the

customer telling you then a you know it’s gonna it’s going to slow down the sales process while they’re getting

they’re getting that information to you but also it does give them the the opportunity to lie in order to get a

lower price right like oh no we only have we only have 20 employees so that you’ll give them a lower lower quote

that’s going to reduce the viability of your of your pricing metric there and I say the last couple of things to think

about as well are how predictable and how how controllable uh a metric is like

again if I’m setting if I’ve decided that you know I’m selling to a company

and the company serves a lot of consumers if I decide that the amount of value to this company is going to be the

usage of those of those consumers that’s great that might be very value aligned

but also the company is going to have no control over how the users use it at all so like so this metric is going to be

then very un unpredictable and not and not controllable and means that on day

one when when the company is buying this it’s going to be very hard for them to know exactly how much they’re going to end up paying for it so ideally you know

you want a metric which is more more predictable or even if it isn’t through the architecture the way that you scale

price with that with that that metric you have a way of making it more predictable or controlling it there’s a

lot of things to think about when you’re when you’re doing that but I think starting with with value is a really good place to begin and you said some of

the pricing models that align with value proposition is how much revenue we’ve

generated for the company for example one of the you know considerations of

determining value Al what are some of the other ones that you mentioned there’s a few I mean hly I

think one of the great things about the SAS right now is that because um there’s you can really set price any way you

want so there’s this huge number of different metrics you could potentially pick you can create your own metrics in

some cases as well so it’s very difficult to sort of say here’s all the choices that you have when when when my

company monate is thinking about price metrics for for for companies we always start thinking about categories of

metrics as a as an anchoring point so okay so like what are some examples of the metrics and the categories

categories so the first one would be would be userbase metrics right so this is the classic we just talked about per

user per seat uh per named user which is a different spin on that right so you actually have to have a a specific user

license as opposed to a general one that you could you could share around you can also get into a hybrid usage metrics

there like number of active users so you know it’s literally I’m measuring the number of people who are actively using it there’s a whole bunch of different

metrics within within that space then there’s usage metrics which obviously are on the The Rise now you’re hearing a

lot about usage based yeah token based pricing you buy tokens uh use the

product exactly tokens you know API calls downloads transactions searches

you know it really depends on what what your usage looks like within your with your product but there’s a myriad of of

different um different options within within that I think closely related as

well there are kind of we call them capacity based metrics and I think of um Amazon web web services when I think of

that categories because it’s like you know per gigabytes you know it’s the amount of the amount of storage the

amount of capacity that you have to serve it so related but separate to to usage based then you get into the fourth

category then which is which is business-based if you’re serving a a B2B

company um and business-based is those things you would just talk talking about me right so you know number of employees

is a business-based metrics the amount of Revenue that they have is a business-based metric perhaps the amount

of spend that they have in a in a particular category all of those are viable price metrics in theory as as

well I will say with with Revenue itself it becomes a bit complicated because

people tend to think that they can’t set price based on a customers Revenue because it feels like they’re just

charging them different amounts based on how deep their pockets are essentially which it could be used in

that in that way but it doesn’t have to be I mean I would say if you were if you were if your product was a marketing

product it helps your your customers to increase the amount of Revenue or leads or something that that they have might

make sense to set price based on the amount of Revenue you have because that’s really what’s going to scale the value and then the last category would

be output based here and you’re actually starting to see a lot more of these now with with Gen there’s a couple of companies who have started to dip their

toe in this but I would say traditionally it’s an idea which is is aspirational like everybody would love

to set price based on the output that my that my product actually gives you but it’s just very complicated to do in in

real life right because you a you have to get your customer to agree that this is the right metric you then have to get

them to agree that any movement in this metric is due to what you the the the vendor is doing as opposed to anything

that they might be doing you have to Baseline it so that you can measure improvements from there and so on and so

on and so on right so it’s just it becomes um a little practically difficult to do but it’s kind of pricing

Utopia if you can do it because you’re saying I create value for you along this along this this metric and that’s also

how I’m charging you how is that different than usage based pricing well usage based may not be directly it might

be uh a step in the direction of value but not but not directly related to Value so for example you might say let’s

say you have a product which sits on company websites and helps them find the products that they are they are looking

for and then they will buy those those products uh when they when they find the right ones right a usage metric could be

number of searches so you know you might say that the amount of value that I get is probably related to the amount of

search activity that I that I that I have because I’m using it to I’m using your product to search which is what

it’s meant it’s meant to do but really the customer gets value every time somebody makes a makes a transaction and

spends money on that on that transaction right so the real the output based metric is probably going to be either

the number of of purchases or the total amount of dollars purchased but number of searches is a is

a value aligned usage based metric that’s kind of an input to that to that process okay yeah so so we just went

through all of the different characteristics of pricing models right

so there’s there was user based there was usage based capacity based business-based and output based got it

all right so you wrote a book called capturing value value yep I did and it’s

coming out on January 21st 2025 and tell me about the book what

what is the book about so the book is it’s really a guide to help SAS Founders

and Executives build pricing strategies for for SAS products right I mean I will say that I’ve been in this space for

about 12 years now and what I always find is you know you you have you have

SAS startups and it’s very common for SF startups to

have a ton of expertise in product right they have loads of really great product people who know how to build really

great products that’s often given within those and as they start to scale they often start to bring in really good

talent in sales and and marketing as well it’s very unusual for them to have

people in there who know how to price their price their products that’s not usually something that’s that’s invested

in so you know invariably as they start to bring product to Market they get to the point of like oh we need we need a

pricing strategy and they don’t know how to do that and if they start to go looking for it right there’s very little

good reliable information out on the web or anywhere else where you can find

stuff that tells you how to think about this but also just the practically how to how to do it and I think the result

of that is in a lot of cases they just end up copying their their competitors and just picking a pricing strategy very

very transactionally and that’s a mistake right because your pricing strategy really should be something you think

about strategically to help you achieve what your business wants to achieve and make sure that you really do do a good

job of capturing a fair amount of the value which your product creates which most of these cases these these products

are you know super differentiated and and interesting so there’s there’s usually a lot of value at stake you can

end up losing it all just by not thinking about your pricing pricing correctly so really capturing value what

that was was it’s a book that does sols for all of that really hopefully walks

SAS Founders and Executives all the way through all the steps and all the different components of pricing that

they that they need to think about it tells them how to think about those different areas what’s the mindset you

need to get into what are the principles that you that you need to to to lock on to what options do you have what are the

pros and cons of each one of those and then gives them practical steps of saying if you need to go and do this

these are the steps that you should walk through to go and do it so it’s hopefully you know it’s uh it’s a way of

arming everybody with the information that they need to go and build a pricing strategy which is going to do a lot better job of helping them capture the

the value that they they create that sounds like a perfect topic for this

conversation so let’s start with the steps what are the steps there are

different steps for all different sections right I mean I think I’ve what I’ve done for the for the chapters is taken through every every different part

of the process right every different part of the part of the the pricing structure so there’s firstly is about setting your objectives for for your

pricing what are you trying to achieve which sounds so trivial right but it’s actually really important because people

tend to forget about about that they tend people tend to think that if you’re in a particular Market space with a

particular type of product there’s like a right and a wrong way to be to be pricing and there really isn’t right there is there’s some conventions and

there’s things that are that are typically done but I would say you got two products that are within the same

space selling to the same customers everything’s identical about them apart from one of those products is trying to

maximize profitability right at out of the gate and the other one is more focused on getting early early volume

and worried about ramping up the monetization later those two products should have completely different pricing

strategies and I think that’s important because most of the time we don’t just have one objective right A lot of the

times we’re saying well you know we kind of we really want to focus on Revenue but I don’t want my profit margins to drop below this this point and I need to

make sure my volume St is like there’s a lot of different things that we’re trying to solve for and pricing strategies that are going to support

each one of those different uh objectives will often kind of be completely different from from each

other so if you really want to be able to build a pricing strategy that’s going to help you achieve what you want to achieve you have to be very clear on

what’s the most important objective what second Etc so that when you’re choosing all the different elements of your of

your pricing you’re thinking about those trade-offs AC across those different objectives if you can just this is my I

think big hot take here right like if you can just really think about your objectives you’ve immediately set

yourself up for building a better pricing strategy than you would do if you just didn’t do that so very very

simple and very powerful do you think that SAS Founders know how to think about their objective like how do I mean

I think okay if I were to put myself in the shoes of a SAS founder for example when I think about pricing I want my

company to make money what are the objectives are

there I think a lot of the time they do know honestly I think if you’re super early stage then yes you’re thinking

about wanting to wanting to to make money but I often hear you know relatively early stage SAS Founders

saying you know what’s really important to us is you know for the moment we just want to really build the platform and

get a base of you know really supportive users and then we’ll worry about monetizing them you know uh great that

like that’s part of their their strategy that they’re they’re following to grow their to grow their business and you do

often hear other other businesses saying well you know we’ve got really high cost to serve and you know we need to make

sure that whenever we’re serving anybody we’re at least crushing over this this profit threshold so I don’t really care

about how many customers I have I know that I just need to be able to charge at the level which is going to allow us to profitably serve them different

scenarios for both right but they usually they usually do think about that I think where for me the disconnect is

that although they have those OB objectives they don’t necessarily connect them to the pricing strategy and

think the pricing strategy is something that’s going to help me achieve these these objectives they tend to just think

pricing is like a tactical thing that I just need to slap onto my project to my product before I before I and this guy

over here who runs a similar company you know has this pricing strategy and you

know the let’s do that exactly Okay cool so first step in the

process is think about the objective and as you mentioned the objective you know it could be a number of different things

like many different things mult multifaceted exactly but like lay lay all that down get it get it super clear

and then you start thinking about different elements of your of your pricing strategy so you know you’re thinking about packaging you know we

talk about we talked that you know we said that there’s good better best is

very is very common and often is a very good option right because it is very simple customers get it if product isn’t

super advanced yet doesn’t have a lot of different widgets you know there’s usually a sort of a level of product differentiation that you can that you

can do there but it’s not the only option right it’s not the only thing to think about you can also guess the

simplest form of packaging is actually no packaging right which means just giving them a one siiz spit all take it

or leave it that’s usually not the right thing to do even if you’re super early stage by by the way but it is it is an

option and then you get into more complex models like sort of you know you have like a platform base plus modules

that would stack on on top of it you can think about just having a pure modular thing and you do start to see some um

more mature companies with just completely alicart packaging right so you can just literally choose at almost

a a feature level what level of um service you have but your objectives again are going to help to decide what’s

the right thing to do there you know based on how based on whether you’re trying to to grow volume or maximize

profitability it’s going to push you to different levels there but you also have to think about the way that your product

is is set up and and your customers you know and how they how they think about value and how much Choice complexity

they can they can tolerate there’s all these different factors that will that will come into it need to choose the

right system for you but then also build those packages the right way which really takes a very intimate un

understanding of how customers think about value of those of those different features like if you’re looking across

your entire base of of customers how frequently is a particular feature

valued and if it is valued what portion of those customers who who value it would be willing to pay extra to get it

if it didn’t come a standard you can start to do that then you can start to classify your features as being

foundational features that everybody needs versus premium features that probably belong in a higher tier versus

Niche features which you’re going to be better off actually monetizing as an as an add-on just giving it to those those

people that’s a deep understanding of customer like buyer psychology like to know these

are the most important features of the product you know and differentiate those

yeah exactly it is I think it’s really important you mentioned the customers

specifically there I mean I think it’s exactly right because I would say a trap that a lot of growing SAS companies fall

into is they assume that they know what the customers is going to think of us as important is like if we think that our

feature is going to be cool and worth and worth paying for customers will sometimes that’s the case not always you

know so you have to you have to understand how customers are going to think about it and package it according to to the way that they’re they’re going

to react to it so objectives packaging price metrics and architecture another

one as well so we talked about price metrics right what is the what is the metric or you know that you that you

scale the price of your product based on so usage user business output capacity

you got it that was that was pretty good exactly those are your options you know

and say these are these are categories right rather than individual ones so you want to really think let me brainstorm

some potential options across each of these these categories which I think could work for us based on the way that

we create value for our for our customers right get that list together get it down and then evaluate the short

list that you have against those criteria that we talked about earlier right is it value aligned is it growth

oriented is it acceptable Etc you can do that you can end up picking a really good uh really good metric that’s going

to that’s going to work for you and then you go to the next step where which I guess would be the the fourth one that’s

right right we’re on the fourth one um which is now saying now that I have this this this price metric I I still need to

understand how this metric is going to scale the price like is it just literally that I’m just going to have a

price per unit and you just pay for the number of units in this kind of very linear way or is it that there’s going

to be some kind of a sliding scale like the price per unit is going to decrease as the number of units increases or do I

do I band it right do I keep the price flat between certain certain numbers there’s a lot of different options that

you can you can pick for that and again it’s all going to come from again how

how predictable the customer needs the pricing the pricing to be and how value scales along that along that that metric

just because a customer agrees that the value is going to increase as the number

of units increases doesn’t mean that the the rate of value increasing is going to

be the same regardless of how many units that you have right it might it might taper off so you need to take that when

you’ve gone through all that you have your price structure now right so you have your way of of price differentiating you have your packaging

which allows your customers to choose what they what they want you have a system of scaling the price of those

packages to customers who are at different scales have different amounts of values then you need to set your

price levels as well right so now you have to think about for those like the uh I would say the list price which is

the sticker price that you would that you would set for your products at any any particular level of that of that

price structure but then also the Target price that you should be getting to when you actually sell it I think

understanding those two is really important as well because a you know your your list price that you said like

the price it should cost going to suggest value right so you don’t want your list price to be too low or to be

dropping or something because it suggest that the value is coming coming out of it but you know that in most situations

when you’re going to be selling a SAS product there’s going to be discounting you know you’re going to go into a meeting and put your price on on the

table the customer may not have had any idea what you were going to charge and they just know that whatever he says I’m

going to immediately ask for 20 25% 30% off it so if you can understand that Dynamic and there are different Dynamics

in different regions and different Industries then you can just set your list prices higher right so that after

that sort of expected amount of discounting you end up at the right at the right price level as opposed to

putting the this price at the the price level that you’d want to get and then everything from there is a loss at that

that point that’s your setting your price levels and then the last thing to think about within your price structure

is that you know it’s it’s not that your price strategy ends when you set those prices you then have to go out into the

market and get it as well so given that I’m trying to end up at this particular price level how do I make sure that I

don’t end up discounting that all the way through through the sales process so you have to start thinking about how you

how you support your sales teams and your go to market teams that’s usually a combination of of rules you know the

there like the the stick right you say that you cannot do certain things you only have this amount of Freedom there

are incentives so you have things in place to encourage them to to price at higher levels then they’re enablers and

these are all the things that allow them to believe that they can set they can get prices at higher levels and that

stops them from from discounting that’s the full gamut that you’d you’d walk through I mean cool those are the steps

right awesome thank you for walking me through that I have actually been like

thinking about it and I’m like yeah I see how all of the steps are connected

to to one another because every time I have a guest on the show like yes I run

a law firm and I’m a lawyer but I also see myself as an entrepreneur and I’ve actually launched two software products

as well so like as you’re walking through these steps I’m like all right what is my pricing of objective and then

I you know one of the big challenges with being in a service business is the lack of recurring Revenue so having to

continuously go out there and get more and more clients so I’m like okay you know that

for sure is like a pain point for the law firm and so my objective would be to create you know recurring Revenue which

then you know sets the the model right okay subscription base is the easiest

way to get recurring Revenue so the model would be subscription based based on the objective which is to create

recurring revenue and then from there then I can start to look at understanding the client well what is

most important to clients they love knowing that their lawyer is there they

just want to talk to them like they want and they want you to be like a genie

when they email you you better respond like immediately because they love that

because it’s a protection thing they want to know like hey can I do this is it okay like you know this happened what

do you think um and so availability and contact and connection

are really important um in terms of of of metrics those would almost be like premium

features that they would be willing to pay for so I’m like literally sitting here like like going through all the

things um so yeah awesome no that’s right yeah yeah exactly you know this is

I mean like we were talking about with with capture and value I mean it’s very much it’s it’s explicitly a book that is

written for SAS for SAS Founders and SAS Executives and SAS businesses right but it is I’m a strong believer that good

pricing is is good pricing you know you do end up you do hear certain people saying that you know B to C pricing is

completely different from B2B pricing and pricing in this industry segment is different from this this segment that is

true to an extent there are tactical differences you know you have to focus on slightly different elements but if you really just boil it down to the

essentials of the things you’re you’re thinking about it’s all the same right so you can really be looking at a book which tells you explicitly how to price

in one particular space if you really sort of go down to the core F fundamentals you can adapt it to other

industry segments as well as you just have to the legal industry I’ve had a guest on the show who calls it um

Service as a software like stop thinking about software as a service it’s actually more about the service that the

software provides and so it’s actually more of Service as a software um exactly

so in that same way you know being a lawyer is so much more than being a

lawyer we’re service providers and so yeah I’m always like trying to build up lawyers because everyone like shoots

down lawyers so much you know so I’m like trying to find a way to make lawyers cool I think it’s

working that’s good it’s a noble cause yeah I think it’s an important point to call out as well and you I really like

the way that you were talking about IM me because you you did this implicitly but I I think when you do start to see

some service providers try to get into subscription businesses right the mistake that they made they make is they

they try to provide something which is really kind of a one-time thing as a

recurring as a recurring offering right which doesn’t work because you’re you’re delivering the value in one fixed

component as opposed to delivering the value on like an ongoing basis like for example I mean you know we my uh firm

monate we provide pricing strategy transformation services and our core offering really is you know we come in

we change your pricing strategy and then we leave you to it and you you roll it out so it’s very much uh the value is

provided through that through that trans transformation it’s not that we are continually adding value over over three

years so if we were to come in and start saying hey we have a subscription for what we do it would be very difficult

for uh customers to get behind that as much as we would love to have recurring Revenue right that doesn’t that doesn’t

make sense but what you were just talking about when you’re a lawyer right and like part of it is the the availability and being there and

answering questions and this kind of consistent support that of course that is a service that has this recurring

component to it so it fits very nicely into that that recurring recurring model

so you kind of want to be want to be open to those um those subscription

offerings for maybe off maybe you know types of business you wouldn’t normally think about it but also at the same time

don’t force a square peg into round all yeah yes love that love that point um

interesting okay so just you know I can’t help it but like what would you

say your objective with your pricing strategy for movate

is wow you put me on the spot that yeah well you know it’s um it’s an

interesting one for us right because I mean modate will me you know I I founded monay back in 2021 really having been at

McKenzie for for many years where you know McKenzie obviously seen it’s very premium but typically works with very

large companies who can afford their you know quite High fees and although I you know I was in McKenzie working in a part

of McKenzie that was focused on surveying the startup space and trying to serve these these growing companies

and I always say you know firm did try to make some concessions there but there were it was always difficult making the

fees work with these much smaller companies who just didn’t have who didn’t have the budgets so I think with

our pricing motivate right what I what I wanted to be able to do was to be able

to work with these smaller companies who I was excited about working with so you want to be able

to have price levels that make it viable for them to to actually do the work with

you but at the same time you know we considered ourselves a premium service we’re still trying to do the work at

this you know this top level of Consulting mckeny level um uh standard of of Consulting and so you don’t want

to drop it so low that they start to think that the value is not there right because it really does the price level

price level signals signals value so that’s what we trying to think about is you know how do you how do you balance

that positioning piece to the realities of just being able to do business with those for those customers how do you

make sure you end up in in the right place thanks for walking me through that man I appreciate it yeah cool yeah so um

let’s talk mindset so in your book one of the things that you talk about in the

book is mindset and how to think about pricing how do Okay so we’ve talked

about some of the mindsets that SAS Founders uh usually have um you know

it’s they might say hey we want to based on the objective for example because I feel like the objective and the mindset

are somewhat related in terms of the objective emerges from the mindset one

mindset that we talked about that often sass Founders have is oh you know this competitor does it this way so I’m just

going to do it that way or the industry typically does it this way and so I’m just going to do it that way or you know

it’s like we just need to make sure that you know customers spend this much money

for example so that we can you know hit the threshold for example what are some other kind of mindsets that SAS Founders

may have versus the mindsets that they should have that’s a great question uh I

think probably the most the most frequent and well-intentioned But ultimately

destructive one that SAS companies has is this um the mindset they tend to have

around around product because many SAS companies are very product L right like

they want the you know they really want to create these great these great great great products which is amazing you tend

to find your Chief product officers and people working in there you know get very passionate about the things that they are they are producing the you know

the features and the capabilities their product has and the natural tendency is to want all the customers to have access

to those things right and say like oh you can’t get any value without with this product unless you have that that

is actually the enemy of price differentiation in many cases right because if you create these like great and special things and you just kind of

roll that in a standard to everybody then those people who would have paid extra in order to get that won’t do it

anymore because you because you you just you just included it so you really have to get into that mindset of like you

know I I have to I have to not just give away all the value that I am creating for too for too little uh and also I

have to realize that there are some customers who would be happy to not get

all the special stuff that I have developed in order to get a lower price because that’s more that’s more important for them I forget who it was

it’s um there’s a really classic quote around around this um whoever whoever

did the quote said something along the lines it was talking about about about class classes of seating in in trains

and he said you know I make economy class bad not to not to punish the poor

but to but to make the but to make the rich be willing to pay for the for the higher and that’s that’s really what it

what it is right like you need to have these systems of differentiation so that those customers who have higher

willingness to pay have a reason to pay to pay more for it that’s price differentiation is probably the most

important principle in all of pricing that’s what really helps you capture more value from from from the market

you’re serving so you have to be able to create those stratified options and so you said most destructive mindset is the

one where SAS Founders just give their features away yeah the the the mindset

of wanting to have of wanting their customers to have access to all of all of their features and all of the things

that they they’ve built probably oh go ahead I G say very very well uh intentioned but ultimately destructive

yeah do they just not know that they can charge for it do they just like not

think about it I think in I I think it’s a little bit of little bit of both in some cases there are times where I think

people like you hear this this point of view off well you know I don’t know why anybody would ever want this product if

it didn’t include this you know because they’re like they’re so sort of hellbent on the value of this thing that they

they’ve built that without that you know why would anybody why would anybody want it so that’s that can be a piece of it

the other piece can just be you know I’m Mission driven I built this product to help solve this to help solve this

problem this feature or this set of capabilities really help solve this problem I want everybody to have access

to this which again very you know nice nice and well-intentioned thought but ultimately uh destructive for

monetization it’s interesting though the first one seems driven by a fear of yeah

well if they if they’ve already got the product then yeah it could be like you know if they don’t give them this then you know everybody’s going to going to

leave but also a fear of not adopting right if I don’t include this then nobody will will buy it nobody will will

want it and actually most of the time that’s that’s not true like a lot of the times new new products are positioned as

a monolithic offering right like here’s all the stuff in there here’s all the stuff in this in in in this product take

it or leave it and you often end up in situations where customers will say well you know I I can’t pay what you’re

asking for and I can only pay pay this and in that situation then you know the

the company has no real lever they can pull except for price you know they can either just say no sorry you can’t have this or they can reduce the price for

the same offering and get you know and make it make it work but in many cases if you were to create a lower tier which

has some of those like those really premium things taken out in order to get a lower price not all of the time but a

lot of times customers would actually be willing to you know to lose those those things and just buy something which is a

little bit scaled back right not all customer needs are are the same and again you know we we talked earlier on

about getting customer perceptions about about value just because we consider a feature or a capability to be like

critical path for a product working doesn’t mean that the customers are going to see it that that way yeah makes

sense actually yeah this is the Crux of everything I mean SAS Founders need to know their customers in terms of what

they would be willing to pay for and how much they would be willing to pay how have you done that with SAS Founders

before how would you recommend that SAS Founders go and have those conversations is it as simple as saying hey we’re

thinking of launching this feature would you pay XYZ more than what you’re paying

now is it as just as simple as that can be I mean it’s certainly a data point that’s worth that’s worth getting uh in

those cases and I think a lot of times actually SAS Founders and and people who create new products don’t realize that

they if they don’t know how much customers will be willing to pay for something they can just ask them right I mean that that is that is great to have

you have to go in there and take it with a pinch of salt right because you know that customers are going to be slightly

biased in the answers that they give you they obviously have an incentive for you to be uh for you to think that they

willingness to pay lower than it it is that said I think a lot of times I’ve seen growing companies when they do have

a small amount of customers who are maybe using their their product or they have a a bunch of potential customers

who are really excited about their their idea they actually will say numbers that are higher than than the company was was

expecting so it’s definitely information that’s worth that’s worth getting when you are thinking about doing that don’t just ask what would you be willing to

pay for this you should really firstly sort of get them anchored on value you know try to get from them an understanding of like what would this

mean to you if this product could do could do this right you know how much value would you see this as as creating

what would it be worth to you to be able to do this and then start asking them questions which don’t just say like what

is the price point try to get a range from them and I think uh a van wendor technique style of questioning works

really well for this so instead of just saying what would you pay for this you say tell me a price level for this product I’ve just defined that you’d

consider to be a bargain or in inexpensive it’s it’s a good deal at this point now tell me a price point

that you considered to be starting to get expensive but you would still consider buying at this at this price

point now tell me a price point that is so expensive now that you would no longer consider buying it you’re out and

now tell me a price point that actually it’s so low now that you’d start to question the value of that that product

you’ve got that now now you’ve got like a really good idea of what the potential range for your pricing would be and you can probably back into a a relative How

likely would they be to buy it at these different price points right they’re probably going to be very likely between that inexpensive and the starting to get

expensive point they’re going to be less likely to buy it once you go past the the getting expensive and once the value

starts to get questioning you know you start to lose it there as well so if you can do that for a few different customers who represent a few different

segments you can start thinking about how well these different price levels are going to be perceived by those different segments that really gets you

a gets you into a good starting point for your overall price levels awesome that’s super helpful James thanks so

much for joining me on the show this week really appreciate all the information you shared oh very happy to

enjoyed the conversation am thanks for having me on the show Absolutely for everyone out there you’ll be able to find James’s contact information you

know ways to reach him in the show notes below and as always this has been another episode of SAS Buyers Club

thanks so much for joining and I’ll see you next week