It may be safe to put a twist on the oft-cited phrase about software and instead say, “SaaS is eating the world.” A BMC Software blog states that by the end of 2021, 99% of organizations will be using one or more SaaS solutions. Looking at technology deals this year, this PwC insights report observes that capital continues to flow easily in the tech sector, with the record-breaking raise of $62 billion in the first quarter of 2021 by US-based, VC-backed companies. With this kind of potential, it is imperative that companies price well, and ensure that no money is left on the table.
But how does one nail pricing? It is not a one-time only activity and as you grow, your pricing must evolve.
Do you need a pricing consultant, or should you work towards building your own strategic pricing organization internally? What value or differentiation do you want to see, and how should you get there?
When asked which companies need consulting firms for pricing, Managing Partner, North America, for the global strategy consulting firm - Simon-Kucher & Partners, Joshua Bloom has this to say (Originally published in author Ajit Ghuman’s book, Price To Scale) -
When it comes to Pricing Challenges across company sizes and stages, Joshua observes that they (consulting firms) contend with different challenges at varying stages of the company’s life cycle. In the very early stages of development, a lot of questions are asked on how to price.
At this juncture, companies are often still struggling with the underlying measure of pricing and what their business model looks like.
As they develop into the growth stage or become multi-product and multi-segment entities, consultants get a lot of questions around packaging and pricing, and how to pull together a newly complex product portfolio.
In conversations with really mature companies, they get into more of the pricing operations piece or think about discounting and channel management.
On which companies need consulting firms to help with pricing, Joshua says, “This may be a bit of a controversial answer, but actually large public companies often have teams devoted to pricing and do a very good job with it. To some degree, the highest leverage we have is getting in with earlier stage companies, where we really usually have the pricing experience to turn the knobs on their business model — and the returns can be huge. It can transform the trajectory of the company, at a point when it is fairly unknown.
If you’re a large public company, you sort of know where the ship is headed. If you’re a startup, you still have to deal with how much more equity must be raised, how much dilution will be faced, what the business model looks like, and what the revenue rate is going to look like, say in two years.
If we get in early, we have a really strong ability to change the trajectory of the company, which I find rewarding and I think others do as well.
To be blunt, usually the first pricing is set by the founder of the company — but most such founders are technology experts. They are technology founders. So that is usually another key point — what is the first inflection point where the founder is willing to give up a little control or look at outside advice and say, “I set this based on research that I did a few years ago when we were first launching. But now that we have a robust product and we’ve proven product-market fit, what is next in monetization?”