How to hit that sweet spot: Get pricing *just* right: 3 Lessons inspired by India's first SaaS company to list on NASDAQ
I listened to the latest Harry Stebbings podcast while trying to bake a soufflé for the first time — the kitchen experiment may have flopped, but the insights from Girish Mathrubootham certainly didn't. Girish is the CEO of Freshworks , the first Indian SaaS company to list on NASDAQ (Respect!). At the time of writing, Freshworks boasts a market cap of $5.27 billion and annual revenues of $597 million.
Girish talks about my 3 favorite topics: Product, Pricing and People. I was most intrigued about how passionate he was about pricing. (I’ve never met a CEO who wasn’t!). Below is a summary of his thoughts on this topic:
This no doubt is great general advice - However, adopting such a strategy requires careful consideration by founders and product managers alike.
“In pricing parlance no pricing is high or low, pricing as a construct is a function of a customer's willingness to pay and the pricing boundaries set by competing and complementary products. Hence, strategy cannot always be merely about lower or higher prices, but about understanding the market and customer needs and problems deeply.”
On a side note: Assertive CEOs love to price their products to maximize what a customer is willing to pay and move the prices down if necessary… Apart from the obvious (--> more $$$), what are actually the advantages of pricing HIGH and moving DOWN,?vs. starting LOW and growing HIGHER??
Go High to Low (= Price Skimming) when you want to:
Make use of Low to High (= Penetration Pricing) to:
Real talk: How do you find the sweet spot between profit and growth?
Here’s a practical 3-step framework product managers/founders can use to come up with the foundations of their pricing strategy:
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The first thing to determine is - DOES YOUR PRODUCT SOLVE A REAL CUSTOMER PROBLEM? Only proceed to the other questions if the answer is a resounding YES!
1. How much does the problem cost the customer, can this be quantified in real monetary value? This helps in understanding the value proposition of your product.?
2. Does your product offer something unique or a viable solution? A high level of differentiation often justifies a premium pricing strategy as you scale. Also key to determine how long you can maintain that differentiation in the future.?
3. Are there many competitors who offer better value? If not, there’s a significant opportunity to capture a higher price.
Several companies have successfully applied this framework to huge success. Salesforce introduced its CRM with premium pricing, capitalizing on its innovative cloud-based model. Large enterprises, recognizing the value and scalability offered, readily paid the premium prices, propelling Salesforce to rapid leadership in the market.
The fundamental truth in business strategy:
At the heart of Girish Mathrubootham’s insights lies a fundamental truth in business strategy: however, really understanding your product’s impact, its unique value, and the competitive landscape are key to determining the right pricing strategy. Whether you’re a startup founder or a product manager, these considerations are critical in positioning your company's revenue for long-term success.
?? Footnote - Notice how I don’t talk about costs (or margins) while it's good to know your costs, these should really be a secondary consideration while setting pricing that will extract the most value for your organization.
?? I will cover how costs/margins and pricing are interdependent in a future article, so please do not forget to subscribe to my newsletter.?
?? Listen to the podcast on YouTube here.?
Strategy & Monetization
6 个月These are very insightful observations and the framework is simple to grasp! I think it also makes the point to be thoughtful about these decisions and not follow what you think is “best practice” in the industry.
Revenue Growth Management | Consumer Insights | Data Analytics | Cornell MBA | Helping midmarket CPGs compete using data & analytics, driving millions in growth
6 个月This is a great framework for helping to think through pricing structure for a new offering -- or, really, even thinking through restructuring an offering that isn't getting traction. What's tricky: Some companies have pressures coming from external forces, like investors, that twist the decision framework in a way that doesn't align with what's best for the business or even what resonates well with customers.
When trying to monetize new features added to a product, my experience has been that it's better to start high rather than be forced to raise prices after adoption by many customers. (e.g. due to increased for infrastructure costs for SaaS products). To drive adoption, one can always have promotional pricing but raising the list price leads to sticker shock and dissatisfied customers that are less likely to renew.