The Ultimate Map to B2B Pricing Strategies
Let’s talk about price — the monetary value you link to your product or service. From a simplistic standpoint, price balances your company’s profit and revenue goals with what your buyer is willing to pay for your solution.
But a simplistic standpoint never leads anyone to success or greatness. And in this month’s newsletter, we want to get into the nitty gritty of the inputs, elements, people, considerations and decision making that feed a powerful pricing strategy.
We have thought about pricing a lot at Mereo. In product launch or go-to-market engagements, we often end up providing outside counsel and advice to what can become an emotional, heated point of debate among leadership and operational teams.
Recently, too, our solution management experts at Mereo independently researched more than 20 B2B companies’ approach to price and their outcomes — a study that included in-depth buyer and seller interviews focused on C-suite executives. Insights from both buyers and sellers may have started at different points on the map — but they soon converged into a clear route that serves both parties.
This is a key point too: The proven approach we turn to at Mereo does not just feed into a selling organization’s profit dreams — it is designed to serve buyers for the long-term. All this amounts to committed buyers who rarely churn and a stream of sustainable revenue performance.
Are you ready to chart your ultimate pricing strategy map that will lead your organization to steady revenue? Let’s go.
4 KEY POINTS TO CONNECT ON EVERY PRICING MAP
Through our pricing research, we identified four key points to any pricing strategy.
1) An Approach That Encourages Growth
As obvious as this seems, in both our clients and the companies that we researched, we uncovered numerous examples of pricing models that in fact discouraged user growth and adoption.
In those cases, it was necessary to revamp pricing strategies to:
2) A Pricing Pathway That Is Predictable and Understandable
Whereas sellers want to have predictable revenue streams, buyers too want to predict how much a solution costs now and in the future. The sellers in Mereo’s research also did not want models that created buyer confusion and objections that could derail a deal.
As part of aligning to this principle, selling organizations need to think in terms of pricing structure versus the price itself. Keep the structure simple to understand for the buyer and seller, and consider how predictable it will be for you as a vendor and them as a buyer. Can the buyer see how future costs would be impacted, for instance, by a merger, acquisition or?other growth strategy?
3) A Pricing Journey That Reduces Churn
Sellers must make it easy for buyers to?remain?a customer. Providing flexible models for consuming the software from both a technology and pricing approach (e.g. modules, users, transactions) is critical, but, as a provider, you will also want to think about what will make your solution “sticky” in the long-term. For example, a seller could provide built-in concierge service for specific tools to ensure they are rapidly deployed. The strategy varies between solution, market and customer, but is important to consider from the onset.
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4) A Pathway to Recover Fixed and Variable Costs
Providers, especially those in rapid-growth mode, often talked about the “surprise” factors associated with using third-party hosting services (e.g. Microsoft or Amazon Web Services). These providers had not considered all the associated costs related to storage, transactions, integrations and more. As such, they often were put in a position of having to go back to customers upon renewal with significant cost changes.
In the software as a service (SaaS) world especially, you have to have a deep understanding of your true cost basis for the environments, maintenance and support, and transaction/input and output activities. Many organizations that enter this arena have little actual operational experience and often realize, too late, they have in fact underpriced the solution. Be careful not to make that mistake.
No buyer wants to be surprised by data and storage charges, unexpected transaction fees or costs of integrations to other mission-critical systems (see No. 2). Do your up-front research and do it well to make this part of pricing transparent to the buyer. Also, consider approaches that allow you to recoup these environment charges early to reduce cost absorption risk on your business.
>> With these four principles guiding your way, learn the step-by-step journey to your ultimate pricing power with the new Mereo B2B Leader’s Guide to Pricing Strategy Workbook!
DRIVE PRICING FORWARD ALONG YOUR STRATEGY MAP WITH VALUE
People do not ultimately buy based on a number, though. The number you attach to your solution is just part of the equation. More times than not, a deal will not be lost based on the price but, rather, because of a lack of value communicated with the buyer about the solution itself. Successful companies align their pricing strategies with their differentiated value proposition to accelerate deal negotiations and contract closing.
This compelling value proposition story helps your sales force clearly articulate the value the solution will deliver your buyers — by overcoming their greatest challenges and leading them toward their own revenue goals.
BUILDING YOUR PRICING STRATEGY MAP
With the guiding principles to a successful pricing strategy, it is time to build out your leadership team that pulls together people from key parts across the organization and to define roles and responsibilities. ?
Then, you are ready to get started along the six steps to build out your pricing strategy: