Why B2B Tech Companies Leak Revenue Through Pricing Operations
Gregory Denedo
Partner@PXQisR | Revenue Growth Pricing | Helping B2B Tech Companies Scale Through Intelligent Pricing
B2B tech companies are consistently losing revenue through an often-overlooked source: their pricing operations. While the exact impact varies by company, these losses stem not from market competition or failed products, but from ineffective pricing mechanisms within their own organisations.
Picture this: Your sales team offers a 15% discount to close a deal quickly, while another rep gives 25% to a similar customer. Your product team launches a groundbreaking AI feature, but the pricing model hasn't evolved to capture its true value. Your enterprise customers receive the same pricing structure as small businesses, despite drastically different usage patterns and value derived. Each of these scenarios represents a crack in your revenue pipeline, and together, they're creating a steady drip of lost profits.
The implications extend far beyond simple pricing decisions. This isn't just about setting the right price point; it's about the operational backbone that supports how we monetise technology. From inconsistent discounting practices to outdated value metrics, the mechanisms behind how we price and sell technology are often stuck in the past while our products race toward the future.
Lack of Understanding Customer Value: The Foundation of Effective Pricing
When MongoDB launched their Atlas platform in 2016, they initially priced it based on infrastructure costs and competitor benchmarks. Within two years, they discovered their largest customers were generating millions in additional revenue through the fully managed service's ability to accelerate application development – value that wasn't reflected in their initial pricing model. This scenario illustrates a critical challenge in B2B tech: understanding and capturing true customer value.
Customer value in B2B tech goes far beyond feature lists and technical specifications. When your AI solution helps a manufacturer reduce production errors by 60%, or your cloud platform enables a retailer to scale operations across three continents, you're delivering transformative business impact. This value manifests in multiple ways:
However, many B2B tech companies struggle to accurately assess this value, leading to significant revenue shortfalls.
The challenge often plays out in two ways:
First, companies underprice their solutions by failing to recognise their full strategic impact. A security software provider like CrowdStrike might focus on basic metrics like the number of threats detected, while overlooking how their solution enables customers to enter highly regulated markets or win enterprise contracts with stringent security requirements. This tunnel vision leads to pricing that reflects only a fraction of the delivered value.
Conversely, overpricing occurs when companies fail to recognise that value varies dramatically across customer segments. An AI-powered document processing solution like Antworks might deliver million-dollar efficiency gains for a large insurance company but offer only modest benefits to a small legal firm. Without this nuanced understanding, companies risk pricing themselves out of valuable market segments or missing opportunities to capture premium pricing from high-value use cases.
The most damaging aspect of this value blindness is its impact on customer segmentation.
B2B tech companies often default to basic size-based pricing tiers (small, medium, enterprise) instead of aligning pricing with value-based segments. For instance, a mid-sized fintech company might derive more value from your data analytics platform than a larger traditional business, yet traditional segmentation would miss this opportunity for value-based pricing. Even when companies understand their true value, another challenge emerges: consistently capturing that value across multiple sales channels and customer segments.
Pricing Inconsistencies: When Value Meets Reality
Inconsistent pricing across different channels, customer segments, and even within individual deals can significantly erode net revenue and damage customer relationships. For example, enterprise software providers like Salesforce and ServiceNow often sell through multiple channels - direct sales teams, reseller partners, and marketplace platforms. Without centralised pricing control, each channel might offer different pricing for the same enterprise solution, creating confusion and potential arbitrage opportunities.
This lack of price harmony often stems from several factors:
But even perfect consistency isn't enough in today's rapidly evolving tech landscape
Market Evolution: The Final Pricing Challenge
Change is the name of the game in B2B Tech. Consider how Atlassian transformed their pricing model from traditional perpetual licensing to cloud-based subscriptions, or how Snowflake pioneered consumption-based pricing in the data warehouse space. You either technologically keep up with the Kardashians or poof, you can disappear.
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One of the biggest risks of rigid pricing models is their inability to respond to rapid technological advancements. For example, when Twilio introduced usage-based pricing for their communications APIs, it changed market expectations. B2B companies that stuck with flat-rate pricing for similar services found themselves struggling to compete with this more flexible model that aligned with actual customer usage patterns.
Companies like GitLab and JFrog have successfully adapted their pricing models to accommodate both self-service developers and enterprise customers, offering pay-as-you-go options alongside traditional enterprise agreements. This flexibility helps them capture value across different customer segments while remaining competitive.
Turning Insights into Action: A Framework for Modern Pricing Operations
The success of these adaptable companies points to a clear framework for improving pricing operations. By studying their approaches alongside other market leaders, we can identify four essential elements for building a robust pricing operations strategy:
Companies like Stripe have mastered value-based pricing by deeply understanding their customers' payment processing volumes and offering tailored pricing tiers. Similarly, DataDog's pricing evolution shows how a company can successfully scale pricing based on infrastructure size and monitoring needs.
The revenue impact of ineffective pricing operations in B2B tech extends far beyond simple pricing decisions. Through our analysis, we've seen how industry leaders like Snowflake, Twilio, and Stripe have transformed their pricing models to capture true customer value, while others continue to struggle with pricing inconsistencies and rigid structures that fail to adapt to market dynamics.
Key Findings:
The path forward is clear: B2B tech companies must treat pricing operations as a strategic capability rather than a tactical function. This means investing in robust pricing infrastructure, developing deep customer value insights, and creating adaptive pricing models that can evolve with market demands.
Looking ahead, several trends will shape the future of B2B tech pricing:
The time to act is now. Begin by auditing your current pricing operations for inconsistencies and value capture gaps. Establish a cross-functional pricing team that brings together product, sales, and customer success perspectives. Most importantly, invest in understanding the true value your solutions deliver to different customer segments.
Companies that master their pricing operations today will be better positioned to capture value from future innovations and market opportunities. Those that don't risk watching their revenue potential slip away, one missed pricing opportunity at a time.
The question isn't whether your company is leaving revenue on the table – it's how much, and what you're going to do about it.
Want to take the first step in optimising your pricing operations? I help B2B tech companies identify and plug revenue leaks through strategic pricing operations assessment and optimisation.?
Connect with me on LinkedIn Gregory Denedo to stay updated on pricing operations and best practices in B2B tech, or reach out directly at gregd@psxqisr for a confidential discussion about your pricing operations.
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Head of Operations
1 个月Very informative
Turn the power of pricing to your advantage: scrap time-based billing and cost-plus pricing | Fractional pricing manager
1 个月Indeed Gregory Denedo pricing is a process. As soon as you recognise it as such and implement it, you can identify leakages and start optimising it. Well written article ! Thanks for sharing.