Ep.19: Chris Hopf – PricingWire: You are Worth the Price You Accept
Mark Stiving, Ph.D.
I help investors convince their portfolio companies to raise prices ... more | Founder @ Impact Pricing | Author, Speaker, Pricing Expert
Chris Hopf worked for more than twenty-five years as an owner, employee and as a consultant with small startups, mid-sized mergers and Fortune 50 Corporations such as Microsoft and United Technologies.
He helps client companies clearly communicate their value advantages, convert more prospects, keep more customers and capture their markets’ full profit potential. His experience spans a number of industries including software, technology, IoT, AI, ML, digital media, retail, publishing, general and specialty contractors, industrial suppliers and wholesale distribution and more.
In this episode, Chris shares his pricing journey, all about his decision guide tool for pricing that helps determine business profit, and the importance of understanding the customer to help you increase your pricing confidence.
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Why you have to check out today’s podcast:
- Discover how Chris Hopf’s pricing metric decision guide can help you evaluate your options and confirm your existing pricing approach
- The difference between pricing metrics and value metrics and discover why not all value metrics should be used as a pricing metric
- Know how understanding your customer better through metrics can help you achieve your revenue goals faster and with more confidence
“Pricing confidence comes from value clarity.”
– Chris Hopf
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Topics Covered:
01:10 – Chris’s pricing backstory and how he got involved in pricing in every company he worked for
02:37 – The story behind his ‘Decision Guide for Pricing Metric’
03:26 – The difference between value metric and pricing metric
04:15 – Mark’s insight on value metric versus pricing metric
11:20 – Different evaluation example using his ‘Decision Guide for Pricing Metric’
19:45 – How pricing metric encourages per use or charging per user
22:40 – Examples of what a company don’t measure in terms of internal execution
23:49 – Creating your pricing metric, differences and cost impact
26:08 – Chris valuable advice: “Give your pricing a chance. One of the best ways to really inform your pricing should always start to understand your customer.’”
Key Takeaways:
“Pricing metric is what we look at the seller side and the value metric is what we look at the buyer side.”– Mark Stiving
“Pricing confidence comes from value clarity. So the more you increase your value clarity the better you understand your customer and the difference you make and what they care about what they’re trying to accomplish, you will simultaneously also be increasing your pricing confidence.” – Chris Hopf
Connect with Chris Hopf:
Connect with Mark Stiving
Full Interview Transcript
Chris Hopf: Pricing confidence comes from value clarity, so the more you increase your value clarity, the better you understand your customer and the difference you make and what they care about and what they’re trying to accomplish, you will simultaneously also be increasing your pricing confidence.
[Podcast Intro]
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value and when it’s done right, the really close relationship between them. I’m Mark Stiving and today our guest is Chris Hopf. Here are three things you want to know about Chris before we start. He’s been consulting for 18 years. He’s been a pricing consultant for 11 years and he created a pricing metric decision guide. This is an excellent tool that we’re going to dig into a little bit more today. Welcome, Chris.
Chris Hopf: Hi Mark. Thanks for having me.
Mark Stiving: It’s going to be fun. Hey, how did you get into pricing?
Chris Hopf: Well, I’ve been involved with pricing quite literally at every company I’ve ever worked for. Somewhat a unique, but I’ve worked in a number of different industries. My very earliest experience in pricing was at a grocery store. I started as a courtesy clerk and had a manager that, uh, you know, we really got along well. The company was really growing fast here in the Seattle area. It was considered the high-end grocery store at the time it’s called QFC but since has been acquired by Kroger. But um, yeah, he gave me opportunities to really be curious and experiment with pricing in the store itself and then really at every company since then, I’ve been involved in some level with thinking about pricing, changing pricing, the pricing software being used, as well as, really every functional area in a business.
Mark Stiving: I thought you were going to say at the grocery store, you got to man the pricing gun.
Chris Hopf: I did that too. Yeah, there weren’t many guns back then. We were scanning back. That was in the late eighties, actually and the early nineties, but there was still some gun, you know, those tags that were on the roll and you, you know, and they stuck onto the product. There was still some of that going on. Yeah.
Mark Stiving: Uh, I’ve never got to handle one of those. You know, I feel like as a pricing guy, I’ve have not lived a full life yet. Let’s talk about the decision guide for pricing metrics that you put together. First off, why did you put that together?
Chris Hopf: Well, it’s, it’s just been part of something that’s evolved and been part of what I do as a pricing consultant. So as I’ve worked with a number of different companies and number of different industries and really trying to think through the different trade-offs and the rationale around why you might choose a pricing metric over a different option that might be available to you. How to think about even the difference between… I think of there’s a distinction between a pricing metric and a value metric. There are a lot of value metrics, but you have to be really selective around what you use as a pricing metric.
Mark Stiving: Let’s dig in just a little bit. What do you think the difference is between a value metric and a pricing metric?
Chris Hopf: Well, it, it quite literally is again, pricing is always in my, from my perspective, pricing is always tied to values. There are many sources of value. It doesn’t make sense to necessarily use all of them as a way to determine whether or not your customer pays you more or pays you less. And so there are some, and that’s really what the guide helps you think through is what are the things that I need to think about and be aware of how it might drive behavior, how it may affect the overall business schools that I’m trying to achieve as an organization, but also how it might affect how our customers perceive our value and how they use our solution and whether or not they’re willing to continue to use it or even use even more of it.
Mark Stiving: So can I share my definition?
Chris Hopf: Oh, of course.
Mark Stiving: I absolutely think they’re two different things. I think a pricing metric is what we look at from the seller side. This is what I’m going to charge for. And the value metric is what we look at from the buyer’s side. Here’s how I measure the success of your product.
Chris Hopf: Uh, so I see where you’re going with that. I would just suggest that there’s some overlap there that we just need an in some nuance there that we just need, need to remain aware of. So if we keep the two separate like that, like you just described, you may miss out on some value communication that is really important. So for example, if you don’t assign a pricing metric to a value metric, it’s really important for you as an organization though, even though it isn’t necessarily affecting what the customer pays you, it certainly is affecting how they perceive your value and whether or not they will buy more from you and how they will just associate and understand their value experience with your organization. Does that make sense?
Mark Stiving: Yeah, I think we’ll agree 100% on we need to understand where value comes from and our company has to communicate that value to our customers. Absolutely.
Chris Hopf: Yeah. And remind them, yes, I’ll take it for you know, for example, as far as using the term unlimited on a value metric or a pricing metric is really setting yourself up for, In a sense, what that tends to do is devalue that value they associate with whatever that might be. A recent, even today, you know at the recording of this conversation, Drift announced that they’re going away from and they’re moving to unlimited contacts and so it will be interesting to see how this plays out, but when you use the word unlimited, your customers will start to take that for granted and so even though you may not be pricing on it, it’s up to you to make sure that you continue to reinforce the value of how in this case drift is helping them manage, you know, and understand their contracts.
Mark Stiving: Yeah, I could see how having unlimited takes away the fact that I don’t, I don’t think about this often. Therefore, I don’t think about the value of using it as often as I would if I were managing, oh, I’ve only got a thousand contacts or 10,000 contacts that I could use. Yeah. Oh, I’m watching the value of those contacts. But on the other hand, I think that there are, there are features like contacts in a CRM by the way as a drift to CRM company. I’ve read your article but I didn’t know who Drift was.
Chris Hopf: Oh really? Yeah. So yeah, it Drift is a software solution that basically, I’m sure you’ve seen on many webpages websites wherein the lower right-hand corner there’s an opportunity to chat with somebody.
Mark Stiving: Yes.
Chris Hopf: In some cases when you interact with that functionality, you may be interacting with a bot which is really just kind of some very deliberate flow in which they want to walk you through. Or you may actually, somebody could be live and actually you may interact with them and live. But the idea is that it’s sales and customer conversations rather than maybe the old way or the prior way of primarily thinking about marketing and is really kind of moving them through. And getting them into your gated content and that type of stuff. So
Mark Stiving: got it. And so to Drift a contact is whenever I use one of those chat buttons?
Chris Hopf: That’s right. Because one of the first things they ask is what’s your email address? And so, so many people, especially people in perhaps our work or my work or people that work with software solutions, it’s a, you get so used to them, you kind of know what to expect when you encounter those. And so over time, it will be interesting to see how that functionality evolves as well, from a marketing standpoint. Sales standpoint.
Mark Stiving: obviously not part of the podcast, but I always type in, are you a real person
Chris Hopf: I do too. Some form of that. Like, you know, are you really, you know, are you there? Will you be able to answer my question right now? And, and oftentimes, right when you do that, you realize that the response that, nope, that’s not really a person and I’m, you know, it’ll be interesting to see, you know, their approach to making it free. So there’s a lot of that out there. And that’s one of the ways that they’ve grown so fast is through that network effect that a lot of websites have these on there. And so they look at the bottom and they say it powered by drift, right? So that’s how they get additional free users, but then they’re trying to convert them to paying customers.
Mark Stiving: And so when we come to the pricing metrics, let’s, let’s, um, I’m not exactly sure… I want to take this conversation in so many different ways when it comes to choosing a pricing metric, I love what you put at the top of your decision guide because you essentially said these are the things that you should be thinking about as you choose a pricing metric. Um, so think of those as the characteristics of the metric and you’ve broken that up into two big halves. One half is things that are really driving from our customers’ perspective and things we want to look at from an internal company perspective. Um, and so I thought this was really well done because you’ve thought through these a lot.
Chris Hopf: That’s right. Yeah. And those are the conversations, you know, these discussions, just pricing in general. These are, these are hot topics within organizations. Everybody has an opinion where those opinions are coming from and what they’re based in may certainly vary, you know, across the board. But this is… There really are tradeoffs that you’re making when you’re making these, these are really business critical decisions. These are, these are decisions that, you know, we’re talking about pricing metrics and value metrics, but ultimately what they really are in a sense, is they end up being a big part of what is impacting your revenue metric. Uh, cause they have a lot to do with both acquisition, retention, sales cycle. All of this comes into play when people are evaluating and considering your solution or your company. And so when they understand what it is you’re charging them for, what they are paying for and when they will need to pay you more, these are all in a sense presenting either question in their mind or you’re helping them move them and give them more competence around choosing you. And so that’s why, um, you, we need to think of it not only… Oftentimes I’ve worked with a lot of clients where they’ve gotten a little too clever with their pricing metric and they’ve really created a lot of challenges if not on the front end as far as acquisitions. Certainly, on the, uh, when it comes to retention and time for renewal, they get a lot of pricing pressure. There’s a lot of, it’s really a long gating and stretching out that whole renewal process because people start to say, well, why do we have to pay for this? Or you know, we’ll renew if you do that and so forth. And a lot of times it’s about how they’re being charged. Is that helpful?
Mark Stiving: Yeah, absolutely. Absolutely. I was looking at the example that you had on your website in terms of using the, the decision guide. And one of the things I loved that you said, because if you score something a three, then it turns green. And one of the things that’s great about that is you say, look at the customer side versus the company side. Which one has the most green? Are we really pricing with
Chris Hopf: Yeah. Again, to describe it in for, because this is audio, you know across the top there’s a number of different, what I call, criteria in which t evaluate different options, different pricing metric options and that could be a… Which example are you looking at? Are you looking at the Drift example or the one that starts with the viewer hours?
Mark Stiving: Viewer hours is the one I’m looking at right now.
Chris Hopf: Yeah, so again, it could be you could have a pricing metric around viewer hours, a concurrent viewers bandwidth, number of channels or event pages, data retention term, you know, whether it’s number of days, number of months. Again, those are different ways in which, based on that metric, you could either charge your customer more or less. A common one that most people are certainly aware of is again, number of users, number of active users. If you’re kind of within aware of how Slack has approached it and how just Slack’s approach to that has affected how other people maybe think about their pricing metrics and so forth. So, but yeah, so again, when you are evaluating, if you think of each of these criteria is almost like a test. Uh, it’s a question, uh, perhaps a tradeoff that you have to just be aware of. And then like you, as you go through, and you don’t have to overthink it, but you should have a reason why you’re scoring. Number three is you just strongly agree and you can, you can actually maybe give an example or make a case right with one of your teammates around why you think this should be a three and a one would be you somewhat agree. Maybe you struggle a little bit. It may not apply in all cases and zeros, just, you know, you have a reason. It’s not that you just disagree that it applies, but you actually have a reason why it doesn’t apply. And when you start to use the tool, it really, it ultimately isn’t going to tell you just like magically, this is the right answer, but you’re gonna feel a lot better around the decision you make. There are a very deliberate and intentional approach and awareness around the tradeoffs you are or are not making. And so back to your point just a moment ago around visually looking at it once you’re done with just taking an initial first pass, let’s say again just with, with the um, conditional formatting that’s common in excel. If you see more green on the customer from the customer’s reflective side, then you do on your company’s perspective side. Again, that’s just kind of an overall tradeoff that you have a little bit more awareness around. But it also can bring to light if you start to see it the other way too. It’s like, you know, really we’re focusing on making this decision more on us and we’re at spending enough time to really, really think about it and understand it from our customers’ perspective.
Mark Stiving: And it feels to me that understanding from the customer’s side is way more important than understanding it from our side.
Chris Hopf: It is, I would say that it’s way more important, but not that your company’s side isn’t important. Right. But we could walk through some of them and we could just kind of touch on some of those, those tests or that criteria that I mentioned. Yeah,
Mark Stiving: Yeah, absolutely. I’m going to push back on a couple because there’s a couple I don’t like. Is that fair?
Chris Hopf: Oh, of course.
Mark Stiving: So I’m going to do the first two columns, relevant to the business of most buyers and applies across the range of most used cases.
Chris Hopf: Yeah. This is your on your customer’s perspective side, correct?
Mark Stiving: Yes, absolutely. And, and what those both say to me is, I haven’t done market segmentation. And so I would think that if a company has done market segmentation now what I care about is what’s the used cases in that segment. And that’s what I really want to focus on as opposed to going across all these segments. In fact, you even write that in the top supports differences in value across segments.
Chris Hopf: Yeah. So this is more overall from your overall customer’s perspective. Again, it may be somewhat, um, too subtle. But, uh, at the top you can actually unhide uh, between columns, ENL and it actually gives you an opportunity if you wanted to think about it more specifically for a customer segments and you can think of segments or personas in a number of different ways.
Mark Stiving: Oh, okay. I did. Yeah. Didn’t dive into that one.
Chris Hopf:: Yeah. But what I’m trying to do here is just again, you want to form your company’s side. Even though we’re looking at the customers perspective, it is important that you don’t make this too complex to actually execute as well.
Mark Stiving: Oh, absolutely.
Chris Hopf: Right. So, so you want to look at it overall. And so, uh, you want to perhaps put yourself in the best position to narrow down the options or the pricing metrics you may be considering and make sure that you aren’t maybe going down a path where you have a pricing metric for this segment and you have a different pricing metric for this segment. There may be reasons to do that, but you should have really good reasons if you’re introducing not only that level of complexity to your organization, but also, you know, your customers are going to be aware that your price differently for different types of customers. So is that really worth, you know, introducing that set of questions in their mind?
Mark Stiving: Yup. Yup. Understood completely. Easy to understand. No brainer, right? Easy to estimate or forecast to requirements. Although I agree with that. Let me hear your thinking.
Chris Hopf: Yeah. And so also just to describe for those folks that maybe aren’t following along visually is, I also write below there, I have the option to wait for these differences. And, uh, and as you can see in here by default or at least the way that I, I have set this up, those two that you just mentioned around simplicity from the customer’s perspective around easy to understand and easy to estimate and forecast, those are weighted at 1.5 each. And the reason for that is time and time again, this is what we’re seeing actually play out in the real world. This is what we’re seeing is one of the biggest contributors to why sales cycles are so long or why people are holding off on renewing or expanding, doing more business with you, is because it’s not easy to understand and it’s hard for them to kind of get their head around, well, how would I even forecast this even at this age of a lot of data at people’s fingertips? Uh, you’d be surprised, Mark, at the I work with and certainly companies you’ve heard of or perhaps have used or use. And, uh, how sophisticated they may seem on the outside around where they are with their, their data and their metrics and analytics. But oftentimes it’s not the case as far as them actually being able to retrieve this and come up with meaningful insights around how it directs or decisions.
Mark Stiving: Yes. I’ve heard of companies who, one of their biggest complaints from customers is that their users want to use the product so much that they can’t forecast their costs.
Chris Hopf: Yeah, that’s exactly, that’s why I have it in here. That’s is to try to capture that and bring that to light as you think through these different pricing metrics. Because for example, if we look at the example here around viewer hours in this example, I have scored that as a zero. I do not agree that that’s easy to forecast because most people don’t think in terms of how many viewer hours and they don’t really know. Cause again, think of this solution here as maybe like a, I don’t know if you recall Ustream or live stream or you know, a video related type software solutions. And so again, people don’t necessarily know that or track that. Um, and so therefore it would be very hard for them to estimate or forecast it and therefore it’s very hard for them to de-risk the purchase decision because they really don’t know where that pricing could potentially go.
Mark Stiving: Yes, Yeah. Let’s jump over to the company side for a couple of minutes. Revenue scales with customer success. I think that one’s a no brainer. That’s the one I think of when I think of, uh, pricing metric has to be correlated with the value metric. So as the customer’s getting more value from us, they’re paying us more money.
Chris Hopf: Right.
Mark Stiving: And, and I think that one’s just, you know, spot on. Encourages increased use. Let’s chat about that for a few minutes. I have the hardest time thinking about how a pricing metric could encourage use. Do you have any examples?
Chris Hopf: Here’s one perhaps example in there. It’s probably all sorts of different perspectives on this. There’s certainly, you perhaps have seen different blog posts are mentioned in social media on this topic around having the per user as a pricing metric, are charging per user. And from my standpoint and from my experience, it seems to me if you’re willing to do it, you can always make a very compelling and convincing value case around why somebody should pay for an additional user. Right? It’s because at the very core of it, why would they even want another user, if they didn’t somehow value using your, you know, having another user in the organization use your software solution, right? Or technology. So,
Mark Stiving: Yeah, but I think that’s true with any metric, right? So, so let’s say that we were going to use gigabytes. Why would I use another gigabyte? Well, because I get value out of using another gigabyte.
Chris Hopf: Right. That’s true. And so it’s important as you’re scoring and thinking these through and having these types of conversations as we are, is that you think of these in a relative term as well as far as his viewer hours perhaps encourage more, uh, encourage increased use more than maybe gigabytes or bandwidth.
Mark Stiving: Yeah, maybe. What I often think of here is, when I think about encouraging more use, I think, okay, if I paid this company a dollar, I’m going to get $10 back. I want to pay you $100 million so that I get $1 billion back, right? That encourages more use. But if every time I use something, you charged me money, now I’m trying to figure out how do I use less of it. So I pay you less money.
Chris Hopf: Yeah. And in back to the per-user scenario, what people often will do is they’ll kind of game the system, right? They’ll share a login, right? So that they don’t have to pay for that additional user. Yeah. But that also goes into how you’re framing your value and messaging and so, and also ultimately to how you price, right? So if it’s significantly more to add additional user, right, then that’s going to be different, you know, value conversation and people’s heads around whether or not they’re going to share that password. Because hey, we don’t want to have to pay for another user. Or whether they just say, hey, you know what, we’re going to, you’re going to probably be using this a lot. It’s this much more to add this user. It just makes sense. Right? Let’s do it.
Mark Stiving: So I tend to think of that as discourages use less.
Chris Hopf: Well that’s, that’s a good point. That is, that is another way of thinking about it. That’s true. Yeah.
Mark Stiving: Um, okay. Internal execution, as simple to measure and easy to enforce. These seem reasonable.
Chris Hopf: Yeah. And just a quick note on that. So that simple to measure, again, surprising. I work with a lot of companies publicly traded the VC backed startups and you’d be surprised at what they don’t measure. And what they seemingly tell me is, will what we have, we just can’t do that now. And their reasons for not being able to measure things, but then also the easy to enforce. And so a lot of times with software solutions, they, they, they haven’t thought this through proactively. And so they may have a certain plan that you say, Mark, that you choose. Uh, and so you’re using the software and they really, you could upgrade yourself or use functionality that really isn’t available to you because they actually haven’t put in ways to enforce, you know, that you’re, you’re on this plan. So there’s a lot of that out there. A lot of times users don’t discover that and oftentimes they do on their own as well.
Mark Stiving: Yes. And then the last one, I, I’m not sure when I think about it yet, attracts to differences in costs to serve. Now the reason I’m not sure what I think about it yet is that I am always telling my students, my client’s costs don’t matter to pricing.
Chris Hopf: So here’s the thing is that costs don’t matter, but it is something to be aware of. So, again, these decisions that you make around these pricing metrics and how people pay for and really invest in the value that you deliver, it’s going to drive behavior. But it also can have a big impact on how much from a cost to support standpoint, how many inquiries start going through to your support staff and your customer success teams. And so forth. So it’s just something, it certainly is something to be aware of from your customer’s perspective and it can really make a big difference. So…
Mark Stiving: I could see all these make sense in the following way. Let’s pretend that we didn’t have that call and then we weren’t saying does it track with our costs to serve? What we do want to do is we want to say, okay, here’s the price, here’s how much revenue we would get. Does that cover our costs? And we might have to go through lots and lots of scenarios to make sure that we’re not giving money away to certain market segments or clients. And if you could simply say, yes, this tracks with our costs to serve, then we can be pretty confident that we’re not giving money away to our customers.
Chris Hopf: Right. Or opening yourself up to unnecessary increases in your cost to serve. That’s the key question because just so you know, to make sure we’re on the same page, from a cost standpoint, cost in my mind only come into play after you truly understand your customer and the value you deliver in your advantages over alternatives and that ultimately put you in the position to think through how to assert your value into offerings and then-then that will ultimately put you in a position to kind of think through how you might approach pricing and the value case you can make for your prices and how to communicate that. And once you’ve done that, then costs really is only does this make financial sense for us to pursue this type of customer, this type of business, right?
Mark Stiving: Yup. 100% agree. Absolutely. Chris, this has just been fabulous. I’ve got to ask one last big question for you though. Okay. What’s the one piece of pricing advice that you would give our listeners that you think could have a big impact on their business?
Chris Hopf: Yeah. I actually answered a very similar question. It’s in a blog post from 2018 this charge, if I did a blog post around, you know, the, I think it was titled something like Most Important Pricing Advice For 2018 or something like that. And that advice still remains today is that gives your pricing a chance. And so one of the best ways to do that, and one of the best ways to really inform your pricing should always start with really understand your customer. So pricing confidence comes from value clarity. So the more you increase your value clarity, the better you understand your customer and the difference you make and what they care about and what they’re trying to accomplish. You will simultaneously also be increasing your pricing competence. So one of the best ways to do that is to contrast life with and without your solution or whatever you’re offering the marketplace or your customers, that not only sets you up to better understand and better discovered the value that you deliver and better understand your customer. That also sets you up as an organization to actually execute and deliver that value, which is super critical. That execution side of actually delivering and reminding and reinforcing the value that you deliver your customers. That all comes into play into whether how people think about your prices when they choose you initially, when they choose to renew with you, and when they choose to do more business.
Mark Stiving: Excellent. One of the things I love about talking to pricing people is we all think the same. I never talked to a pricing person who doesn’t have the same underlying beliefs and concepts. It’s just a matter of how we talk about it.
Chris Hopf: That’s true.
Mark Stiving: I agree completely. Hey Chris, thank you so much for your time today. If anyone wants to contact you, how can they do that?
Chris Hopf: Well, I would say just go to my website, go to pricingwire.com if any of what I have there, it looks interesting to you or it seems to make sense. It gives you an idea of kind of how I think and uh, my approach. Uh, then there’s all sorts of ways to reach out me out to me from there.
Mark Stiving: And I do want to point out that the pricing metric decision guide is on there available for free.
Chris Hopf: Yeah, that’s right. So that’s pricingwire.com it’ll probably be in the show notes, I’d imagine.
Mark Stiving: Yes. It will be in the show notes. There’s no doubt. No doubt. So, all right, episode 19 in the camp. Woo. Correct. This was fabulous. And I can talk about pricing with smart people all day long. You get value out of our podcasts. Would you please help us out? Subscribe, leave a review, tell a friend. Everything you do helps and we’re extremely appreciative. Also, if your B2B company needs to better understand subscription pricing, check out our new subscription pricing course. If you’d like to learn more about the course or have any suggestions or comments about the podcast, please drop me a note at [email protected]. As always, don’t forget to listen to next week’s episode of Impact Pricing.