Unlocking Scale Through Pricing

Ashley Minogue
Kyle Poyar
Unlocking Scale
Through Pricing

Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved 2
Pricing is your most powerful lever
2%
5%
10%
12%
22%
R&D costs (-5%)
SG&A costs (-5%)
COGS (-5%)
Revenues (+5%)
Price (+5%)
IMPACT ON EBIT FROM A 5% IMPROVEMENT IN…
Source: Hinterhuber (2004). Towards value-based pricing – An integrative framework for decision making. Industrial Marketing Management 33 765-778.

Proprietary and Confidential ©2017 OpenView Investments, LLC. All Rights Reserved 3
Yet, pricing is
a blind spot.

55%
“No one in the company
owns pricing”

36%
“A piece of someone’s
responsibility is pricing”

9%
“We have a dedicated resource
for pricing”

Pricing is even more important in a
product led world.
You can’t rely just on sales to
communicate value.

Unlocking Scale Through Pricing

0%
23%
68%
25%
40%
15%
41%
30%
12%
34%
7%
5%
0% 20% 40% 60% 80% 100%
Field sales
Inside sales
No touch / self-service
<$5k $5-25k $25-100k >$100k
Source: 2018 OpenView SaaS Metrics Survey, N=420.
Dominant Sales Channel
ACV Distribution
Product led growth pricing isn’t just for small deals
These companies
employ a bottom-up
sales model to efficiently
sell larger deals.

1. Freemium
2. Enable bottom-up sales
3. PQLs
3 elements of pricing to consider in a
product-led world

Freemium
1

17%
28%
29%
47%
83%
72%
71%
53%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Freemium
Product-qualified leads
Customer referral programs
Free trial
% of Respondents
Adoption of product led growth strategies

Freemium is not always impactful
New ACV from Freemium Leads
Source: http://tomtunguz.com/images/2015-PC-Survey.pdf

So when does freemium
actually work?

• You have a massive market
• Your product becomes more valuable the more its used
• You have enough product differentiation to make freemium a
“positive” experience without giving away everything
• You have a low cost to serve
Signals that your business is right for freemium

WHY IT WORKS:
• Calendly has a massive TAM with
use cases spanning sales, recruiting,
entrepreneurs, etc.
• Solution is robust enough to offer
clear rationale to upgrade (i.e.
new event types, reporting, etc.)
• Freemium drives lead gen – free
version has Calendly branding and
user analytics inform what’s important.
Success case study: freemium as a catalyst for growth

WHY IT DIDN’T WORK:
• Free users quickly surpassed
paying users which led to
performance and database issues.
• Furthermore, support resources
became spread thin impacting the
level of service for both free and paid
users.
Failure case study: freemium comes with risk
Source: https://baremetrics.com/blog/freemium-saas-implode

Are you thinking…

“Freemium isn’t right for
me, but I still want to
take advantage of the
benefits of free. “

Website grader offered value for free (without
giving away their product)

And it served as a successful lead generation tool

JumpCloud differentiates with free full-feature
solution for first 10 users

Enable bottom-up sales
2

Design your pricing to be a
bottom-up machine.

• Build champions to sell your product internally
• Capitalize on paid lead generation
• Skip procurement or IT
Rationale for a bottoms up sale

3
3
Individual employees
download the mobile app for
free and start using it. Then
they promote it internally
to the decision maker and
the decision maker reaches
out to us basically already
sold by their employees. And
then we have order takers on
our side to help them get to
the buying process.
D AV ID B AR R E TT
F O U N D E R & CE O
E X PE N S IF Y
“
“

Blog focuses on individual sales reps who
become paid lead gen for large accounts

Pipefy offers packages for teams as small as 5 users
and offers templates to get started

Best practices for designing a bottom up sales
• Entry price point needs to be low enough to put it on a credit
card and can bypass approval
• Pricing needs to be a landing point that allows for expansion as
usage increases
• Package features need to be robust enough to appeal to an
enterprise when they want to expand

PQLs
3

The old world

Product led world

PQL
A prospect that signed up and
demonstrated buying intent based
on product interest, usage, and
fits your target customer criteria.
Proprietary and Confidential ©2018 OpenView Advisors, LLC. All Rights Reserved.

Developed 3 different types of PQLs
for Freemium CRM:
• Hand Raise PQL: Offer assistance in product
with a particular task and users could interact
with the CTA to reach out to HubSpot.
• Usage PQL: Triggered a CTA based on product
usage (i.e. using all of your email templates)
with an option to upgrade.
• Upgrade PQL: Showed features only available
to paid users, they would send users to an
upgrade page.
HubSpot developed PQL funnel to drive meaningful
revenue from free users

LinkedIn also uses product engagement data to
upgrade free users

So what now?

Don’t be afraid to experiment
Experimentation is a huge part of our growth
infrastructure. In 2012 we were running 2-3
experiments per month. These days we’re doing 80
per month. We’re constantly running experiments.
This is driving more than $100M in incremental
revenue every year.
TODD JACKSON
Former VP of Product
Dropbox

Approaches to price experimentation ranges in
intensity and certaintyIncreasinglevelofintensityandcertainty
Approach Description When it works best
Expert
judgment
Rely on internal expertise and analysis of
existing data (e.g. discounting, win-loss
reasons)
• Limited time and resources
• Have (relatively) clear signals from
existing data
Qualitative
interviews (focus
groups, interviews)
In-depth interviews with customers and
prospects to understand needs, value and
willingness to pay
• New product introductions
• Small number of customers who
are highly engaged
Quantitative
concept testing
Short online survey to customers and
prospects, including direct questions around
value and price expectations
• Large number of customers across
different segments
• Some time or resource constraints
Quantitative:
Simulations &
trade-off exercises
Longer, more robust online survey to
customers and prospects, including
advanced trade-off exercises like conjoint
• Strategically important decisions
• Large number of customers across
different segments
Market testing
(pilots, A/B testing)
Test new pricing online or with sales reps
and measure performance versus the
current pricing
• Have a clear idea on what to test
• Need to measure the exact
financial impact

What I’ve heard from real-life customers
The price is not material enough to be a factor in
the decision. It is not even a blip on the radar.
I’m curious to see how they will monetize… It’s
inexpensive now, I don’t see how they could
be making any money.

Most common pricing research methods
Direct methods
§ Simulates purchasing decisions and forces respondent
to make tradeoffs between products or sets of attributes
§ Provides information for the calculation of price-
response functions
§ Directly asks respondent about their interest in a product
and purchase likelihood at different price points
§ Establishes willingness-to-pay for one product
Van Westendorp pricing
Price perception
Gabor Granger pricing
Indirect methods
Conjoint Measurement
(ACA, DCM, CBC, MaxDiff, ACBC)
A/B Tests and Shopping Carts
Pricing research methods

Sample method: Van Westendorp
0%
20%
40%
60%
80%
100%
$0 $500 $1,000 $1,500 $2,000
%ofrespondents
Indifferent
price: $300
Acceptable
Expensive
VAN WESTENDORP RESULTS AMONG PROSPECTS
$500
$1,000
HOW THE
QUESTION
IS ASKED:
Thinking about a software
solution from Company A,
what price per month
would you find…
• ACCEPTABLE, a great
buy for the money $___
• EXPENSIVE, you would
think twice about
buying it $___
• TOO EXPENSIVE, so
expensive you would
not consider buying it
$__
Price per month

14%
42%
17%
12%
12%
2%
DISTRIBUTION OF RESPONDENTS
40% of the time,
pricing changes
positively increased
ARR by more than 25%
Impact of pricing changes on ARR growth
Decrease in ARR
0-9% increase in ARR
100%+ increase in ARR

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Unlocking Scale Through Pricing

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