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Since this post was originally published, FastSpring has published more on this topic thanks to an updated presentation by CMO David Vogelpohl. For more information or to view content from the more recent presentation, check out the additional details at the end of this article.
It’s hard enough to guide a company through a period of heavy inflation or during a recession. But it becomes much more difficult when they’re occurring at the same time.
This is stagflation — and economists are predicting a period of stagflation to last into 2024.
You may already be thinking about ways to reduce your expenses and shift your overall growth strategy.
But what about pricing?
When FastSpring’s former Chief Product Officer Kurt Smith worked with growth-stage to Fortune 100 companies at Accel-KKR, he consistently saw pricing as one of the most essential growth levers they employed to meet their next revenue goal.
And Kurt believes that iterative pricing can be a highly effective strategy during volatile markets.
In two one-hour interviews, FastSpring sales leaders Todd Stellfox and Tony Markov each interviewed Kurt about pricing strategies that work in volatile markets and beyond. Stream both interviews below and see highlights from each.
Note: From global payment processing to global VAT and sales tax management, FastSpring is the easiest way to sell around the world. Schedule a demo to learn how we can help you scale across borders to go farther faster.
Why You Shouldn’t Trust How Your Competitor’s Price
What your competitors might get wrong about their products’ value (2 minutes):
Strategic Pricing for Inflation and Foreign Exchange
Pricing positioning based on regional purchasing power (2 minutes):
Note: Check out our Recession-Proof Pricing Report for a collection of data from the 2009 recession and the global inflation surge in 2021 to look for trends. This includes internal data we pulled from 271 global SaaS and software sellers using FastSpring to process transactions last year.
How to Price a New Product
How to write a formula for business value when launching a new product (4 minutes):
How the US and Europe Think About Pricing Differently
Historically, early-stage US-based companies cared more about capturing market share, and European companies felt cross-border pain points more acutely — but things are changing (2.5 minutes):
Pricing Strategies to Break Into New Markets
Strategies for horizontal vs. vertical expansion models (18 minutes):
Iterative Pricing With FastSpring
How FastSpring’s platform allows companies to test their pricing (2 minutes):
Full Videos
Stream the full interview between Tony and Kurt for more on global pricing strategies:
Stream the full interview between Todd and Kurt for more on finding the right value metric and more revenue opportunities in different markets :
Note: FastSpring supports all go-to-market strategies for SaaS and software, from sales-led invoicing or quotes to self-serve checkout. No matter what your business model, we meet you where you are. Schedule a demo to see if we’re a good fit to be your next global commerce partner.
About Our Presenters
Kurt Smith, Chief Product Officer at FastSpring
Kurt is the head of product, payments, strategy, and corporate development at FastSpring, as well as the General Manager of Interactive Quotes (IQ). Prior to joining FastSpring, Kurt spent over a decade advising and investing in growth stage software companies around the world. Throughout Kurt’s career, he has demonstrated a passion for helping people and companies identify and scale their unique capabilities to reach their fullest potential. He’s worked with some of the fastest growing software companies in the world as an Operating Principal at Accel-KKR, and he’s worked with Fortune 100 companies while an Engagement Manager at McKinsey. Kurt started his career in FinTech as a PM at Envestnet (NYSE: ENV) while the company scaled through an IPO.
Todd Stellfox, Sales Manager at FastSpring
Todd serves as the Sales Manager for North America at FastSpring where he leads a team of Account Executives that sell FastSpring’s solution globally. He has over 12 years of industry and product experience in the payments and SaaS industry, and he enjoys sharing his knowledge with others and helping customers and colleagues succeed. Todd currently lives in Charlotte, VT with his family.
Tony Markov, Sales Team Lead at FastSpring
Tony is the founding member of FastSpring’s EMEA operations, and currently serves as a Key Account Executive and a Sales Team Lead in Amsterdam, the Netherlands. With over eight years of experience in SaaS, the large majority of which are within SaaS payments and billing, Tony is constantly immersed in growth driven projects and dialogues with SMB and Enterprise SaaS companies looking to scale.
About FastSpring
FastSpring’s secure payment system has everything SaaS developers need to securely process payments, collect taxes, manage chargebacks, and much more — all while remaining compliant with tax regulations around the world. Sign up for a FastSpring account or request a demo to learn more.
Full Transcript
Kurt Smith 00:03
Inflation is not, you know, the same amount in every part of the world. In other words, your buyers, your customers, your prospect’s buying power is has now shifted pretty dramatically.
EJ Brown 00:15
That was Kurt Smith, the former Chief Product Officer at FastSpring responding to a listener’s question during a live discussion we held on pricing strategies to combat stagflation. Stagflation is an economic condition in which high inflation overlaps with slowed economic growth, and many global economists are seeing signs of it in 2023. In this episode, you’ll hear tips on how to price in volatile markets. But the conversation also widens to include how to successfully enter new emerging markets. I’m EJ Brown, Senior Content Strategist at FastSpring. We help SaaS and software companies scale around the world. And you’re listening to the growth stage podcast where we share stories from global SaaS leaders that you can use to inspire new growth strategies in your own business.
Matt Marcum 01:10
From the FastSpring side, welcome to pricing strategies to combat stagflation. Excited to have everyone in attendance today, I’m going to kick it over to our host, Tony Markov, from the FastSpring side of things to get introduced, and he’ll get us rolling here.
Tony Markov 01:25
Thank you. And hi, everyone, good to have a chat today hope we’re going to have a good, interesting dialogue. I’ll get started with a quick intro to myself, and then I’ll kick it to Kurt. My name is Tony, I have been part of the Amsterdam FastSpring team for the last five years. I’m the founding member, the first person in our office. And over the last five years, I’ve worked with hundreds of software as a service companies of different sizes, as well as companies that are focusing on the virtual side of things within FastSpring. Currently, I own the enterprise segment of the media as an individual contributor. And at the same time, I’m also a team lead for the sales team here managing a team of a couple of people helping us grow and helping us advance. So really, really excited to chat. And in those five years, I’ve had tons of conversations that are making me very excited to have this dialogue today with Kurt. So super pumped.
Kurt Smith 02:11
Hey guys excited for the discussion. Kurt Smith, I’m the Chief Product Officer here at FastSpring. I’m based in our Santa Barbara office. But today I’m actually in our Halifax office in Nova Scotia. Finally getting some blue skies peeking out behind me after a bunch of days of rain but excited for the chat. Yeah, look forward to digging in and trying to you talk to more SaaS companies than even I do so anxious to hear your questions on what’s top of mind for people. And then hopefully folks in the audience can throw in some good questions for us. And we’ll have a discussion because pricing is tough, particularly in a time like this with recession, environment, inflation, ripping, it’s a complicated world.
Tony Markov 02:50
So I have some burning stuff in here, which I’m really curious to know about. But let’s pull it back a little bit before we jump into that. So Kurt, I guess what would make sense is tell us a little bit more about your background, and McKinsey and Accel-KKR. What I’m thinking about there is, you know, what kind of companies did you work with? And maybe even more importantly, what kind of lessons did you bring with you, as you’re now with FastSpring for a while?
Kurt Smith 03:13
Yeah, sure. You know, before I was the Chief Product Officer here at FastSpring, I spent about a decade of my career as a consultant as an investor in growth stage software companies, both at McKinsey and Accel-KKR. You know, there, I spent a lot of my time helping companies figure out pricing a couple of reasons why, number one, you know, I personally found it really interesting. It’s kind of the intersection between qualitative kind of psychology and quantitative math, right, really measurable ways to understand and kind of break down problems. So personally, it’s always been something that I’ve been drawn to and interested by. But more than anything, right, like I’m getting really excited about helping companies unlock value. When other I was at McKinsey working with some of the biggest companies in the world, some of the biggest tech companies across sectors of the technology industry, or Accel-KKR, where I was working with growth stage software companies, pricing continued to come up as a main pain point for executive teams and businesses really trying to unlock new value. So I think it’s really an interesting insight that pricing is always an important lever in a business, whether you’re a startup and you’re using pricing to figure out how to communicate value, or you’re a more mature company, and you’re trying to expand your margins and realize full monetization potential, if you will. I’ve probably worked with close to 50, 60 software companies over the years on helping them think about pricing and come up with new strategies, tweaking their models, testing new things in a variety of ways. We can talk about some of those today. Everything from a startup all the way to mature companies, but really my sweet spot in where I’ve spent the most of my time is in growth stage software. Companies all around the world, is you know where I spent about four years while I was at Accel-KKR, helping those companies find product market fit and accelerate it. And pricing is a huge lever to do so. Happy to share some of the insights that I’ve picked up along the way and see what is relevant to folks.
Tony Markov 05:12
In growth stage, they’re really starting to see which levers should we pull to get extra growth? What I’m curious about, as my experience has always been within EU, EMEA, and in some cases, APAC, and I don’t know you have also the perspective of the US as well. So when you’re thinking of the organizations that you’ve spoken to that are thinking about pricing, do you feel that the let’s say European organizations approach pricing conversations in a different way? Were pricing strategies in a different way than American ones? Do you sense that there’s a pattern there?
05:42
I think the one big thing that sticks out to me is, you know, just by the nature of the market structure in the US, a lot of pricing conversations I have are oriented around market share, right? We’re trying to grow super quickly, we’re trying to get as much market share as we can. I think that’s generally driven by the fact that the US market is very large, right. And a lot of growth stage companies are not yet thinking globally, at least in the early days. When I have conversations with European companies, I think some of the more tactical complexities with selling across borders selling into the US market, selling intra-Europe, managing currency, some of those complexities, they feel those pain points much earlier. Those are two very big buckets of pricing issues that people have to deal with. But I think that’s one of the key distinctions between the two markets. I think the other observation is, you know, if you think about just the evolution of the tech industry, in the software industry, in particular, the US has had a bit of a head start, particularly with regards to kind of venture backed institutional investment into growth stage and startups. Because of that, I think there is more of a urgency to sort of grab the market. Be the first mover. How do I price to accelerate the growth? Historically, there’s been a little bit more of a land and expand type of a mindset where they’re not trying to price overly aggressive in the early days, they just want users being a little bit more aggressive and kind of innovating on models like freemium and PLG and free trial models. And you’re starting to see that now in Europe. So I did a swing through Europe when I saw you, Tony, and had a bunch of good conversations with folks. And I think that was one of my big takeaways is starting to see a lot more European companies than I have historically, that are thinking a lot more aggressively about growth and unlocking potential through pricing to sort of accelerate that growth.
Tony Markov 07:40
Yep, absolutely. And the conversations I’m having as well, I’m getting asked a lot more about pricing than I have been in the past. And I think what I have spotted is a lot of thought leadership. If I had to connect a pattern would be to the startup hubs of Europe. You know, if you’re talking to somebody in the Netherlands, let’s say Amsterdam, specifically, there’s just seem to be a different drive — same as some spots in Germany. And then if you’re talking about places like Israel and Tel Aviv, there that thought leadership is super huge as well. So it’s really interesting to see how that is getting reflected. And then as you know, that snowballs as well.
Kurt Smith 08:11
Yeah, that’s a great point. I mean, I learned about so many incubators, accelerators, that I was completely unaware of, learned a bunch of about some of the subsidies happening in France, particularly in the city of Montpelier, a Yeah, it’s incredible. It’s fueling a really awesome resurgence and like energy in the tech community there. So I’m very excited to spend more time and learn more. It’s nice to have you as sort of boots on the ground to kind of be a good touch point.
Tony Markov 08:40
Absolutely. So speaking of pricing, it seems to be becoming more more of a presence topic for a lot of software companies, both in software and services, but also not. And I know they recently you gave a talk at SaaStr Europa over in Barcelona back in June about pricing. And as far as I know, it was one of the most well attended of the entire conference, which is kind of suggests that we know what we’re talking about is very relevant. So what do you think is driving the interest in pricing today?
Kurt Smith 09:08
Some of that response even surprised me. Here’s what I think’s going on. I mean, I think one is pressing is really complicated. It’s particularly complicated in SaaS and software, because we have very few limitations. Right? When you learn about pricing in business school, you know, or in an academic setting, they teach you, okay, understand your costs, understand the willingness to pay a price somewhere in between. When you’re selling toothpaste, generally speaking, that range is not very big, right? So pricing is generally not that complicated to figure out. When you’re talking about SaaS, right? We’re talking about 80 90% Plus gross margin businesses. So you have a tremendous amount of flexibility and range in terms of your cost, and then understanding the willingness to pay of your customer. It’s really challenging. How do you do that? How do people quantify business value for your product? And that’s generally speaking, something that I don’t think people have a clear understanding of. So back to your question, you know, why is pricing top of mind? Why is there a lot of interest around it? It’s complicated in general, and it’s really complicated in SaaS. And there’s a lot of optionality in ways you can pursue it. And I think people get, you know, when you’re faced with too many options, sometimes you get stuck, even taking that first step, because it is so daunting. So I think that’s one thing is people are looking for how do I simplify this? How do I think about it? What’s the framework I need to apply? I think the other thing is, you know, look at the macro environment. I think we’re in a recession technically. And the definition is certainly debatable, but it’s certainly not a consistent downtick in the economy everywhere in the world. So you have this really dynamic, complicated macro environment from a recessionary standpoint. And then you’ve got the inflationary picture, inflation ripping, generally everywhere, more so in certain industries, sectors, and parts of the world. But you put these two things together, and I think people are sort of scratching their heads about what to do. And then I think the other point, I’d say that I believe a lot of SaaS founders and companies realize is, you know, pricing is just a huge lever for growth. Pricing is the way you communicate your business value. It is the primary way you explain what the business impact is of your product. And if you’re not doing that well, it will stall your growth. If you’re doing it in a very smart, articulate way, if you have a really clear value metric and pricing metric that links that value, and makes it very real for your customers, it can really accelerate the pace that customers pick up and try, adopt and scale with your product. It’s a big lever. The macro environment, super complicated. And solving this problem and figuring out how to do it optimally is it’s daunting. And so I think people are looking for some guidance. And hopefully, we can share a few things today to give people some ideas on how to carry this back to their businesses and make good use of it.
Tony Markov 12:08
The thing that I faced is the mentality of a lot of early-stage organizations is we’ll think about you as the we think about Euro, we’ll think about a couple of currencies and the rest, they’ll sort themselves out, and then shows our mentality towards those currencies, and therefore countries in their four regions, which there, they’re kind of missing out on that level of mental energy or spending towards it. So when you think of good examples, and also maybe bad practices on approaching successful pricing strategy, what would one of each be?
Kurt Smith 12:38
So I think, you know, one of the biggest mistakes that I see people making is sort of jumping steps. And what I mean by that is, there’s a lot of pricing best practices out there, there’s a lot of pricing models, people can read about consumption base usage based. And sometimes it’s hard to know, based on your stage, what you should be solving for and what aspect of pricing you should be thinking about. So I think one of the best examples of this is people obsessing over the price level of their product, should it be 19.99 a month? Should be, you know, 29.99 a month? And then a lot of cases, you’re not really ready to dial that in. Because, let me be very clear, the very first thing you need to be doing when you think about pricing is making sure that your pricing model is an effective communication device for business value, full stop. How do you do that? The best way to do that is coming up with the right value metric or pricing metric. What is your pricing model based on? Is it per seats, per gigabytes, per API calls? What’s the billing frequency? Is it per month, per quarter, etc? All these things have a massive impact on how your prospects understand and interpret the value of your product. In many cases, people haven’t dialed that in just right. And so that’s why I really encourage people to obsess over the early days, once you feel like you’ve gotten that right. And you start to build and scale your business, you really need to be focused on the objective of your pricing model, and more generally, just your overall growth strategy, are you kind of racing to capture market share? Are you trying to sort of increase profitability and expand your margins, there’s a variety of objectives that are going to have really important implications on how you think about your pricing. And so those two things are the place that people need to start. So I would just encourage folks don’t get too obsessed with dialing in the finer details of your pricing model until you’re really clear about some of the bigger fundamental aspects of what your business value is and how it maps to your pricing model. Yeah, and going from there.
Tony Markov 14:48
I mean, you have to build it on a on a very solid base as well, but I think value and communicating it through through pricing is something that’s gonna that’s going to speak to a lot of folks. Now, typically, at the moment where where I take over conversations and you also sometimes loop in, is once they’ve nailed down the base pricing that that makes sense. And one conversation we’ve been having with a lot of organizations is, what are some pricing strategies that companies can apply in order to break into markets, which are either economically growing maybe five years ago, they weren’t really interesting. But now, things are changing, or just volatile from a couple different standpoints. So to give you an example, say you’re a Canva, or Miro or Evernote, and you’re trying to break into Latin America, or Eastern Europe, or even, you know, Asia Pacific. So what kinds of new market or customer segmentation aspects should companies consider to find new opportunities in volatile markets or emerging markets as well?
Kurt Smith 15:47
So two things there that I would sort of split apart, but ultimately, they’re based on the same premise of really being clear about the objective and the business strategy. First, you need to understand the end market that you are targeting, right? Is it a global, sort of what I would call a horizontal market, meaning Canva would be a good example of that, you know, they’re selling to users across every type of industry, big companies, small companies, there’s not a lot of sort of focus and who their ideal customer is right? Very large, what we would call horizontal market. In that case, they have such a large market, that they need to capture share, they need to get massive amounts of users, extracting a lot of profit from every individual user, for them, especially in the early days, is basically irrelevant. Because you’re trying to get stickiness, you’re trying to get customer loyalty, you’re trying to get market share, and you’re trying to grow super, super quickly. The second piece is understanding is it a low velocity or a high velocity model, and a high velocity model? Generally speaking, in more B2B context, you’re likely going after a more vertically oriented vertical. What I mean by that is, you know, you’re targeting a certain industry, a certain sector, and there, the addressable market might be a little bit smaller. So you have to be really thoughtful about ultimately, you have to have a plan to extract a decent amount of margin per customer. And that doesn’t mean you necessarily have to price super aggressively. When you initially when a prospect, you could sort of land and expand, if you have plans to build a product portfolio and sell more products to that customer, right, you can sort of expand your margin that way. But I think the broader point here is giving you a few examples, like be really thoughtful about the structure of the end market that you’re selling into, and then sort of start to back into how can I design a pricing model that’s going to achieve this objective? You know, am I in a big horizontal market? Or am I in a relatively constrained vertical market, where I need to be thinking about, you know, the profit margin per customer in the near to medium term, whereas in a horizontal market, generally speaking, it’s basically infinite, right? So you can think about just getting to velocity faster, right? And so how can you price to increase velocity? What are the kind of the freemium and PLG type motions, where you can just crank velocity, and then ultimately, the scale will produce the business results that you want, I think is really important on other kind of innovative models that I think are really interesting. And some of them to me kind of come off as a little bit buzzword II, because I think some of the principles come back to these fundamentals that we’re talking about, but you look at things like consumption based and usage based, I think these things are, these are really smart models. Why? Because a lot of these software products today, they’re creating new categories, right, looking at a mirror, mirror is generally, my guess, is very rarely displacing an existing product. So you’re not only like educating somebody on this new sort of concept. And if it’s a business, you’re saying, hey, this needs to be a chunk of your spin, because it’s going to unlock this business value. They also sell, I’m sure to individuals, you know, who are using it. And so you’re creating this category. And so they don’t really understand what the business value is very likely at the onset, they might be interested and curious. And they may resonate with the pain point you’re helping them solve, but they don’t really have an existing budget to spend on that tool. Miro is probably acquiring customers, it’s the first time they’re spending money on a digital whiteboard. And so if that’s the case, pricing at a very low level, and then being smart about okay, how can I increase my revenue per customer as the scales and so in a B2B context, can you start by giving away trials or selling to one division of a company and then hopefully have that product sort of grow naturally as the company expands, but to slowly expanding the usage into other departments of that of that customer. That’s where things like it doesn’t have to be just proceed, although I’m a big fan of the Proceed model, because it’s very easy for people to just quickly estimate how much it will cost, and then how much it will scale. But usage base and consumption base can be really slick tools to effectively create new categories. And in a lot of these product categories, you’re really at the early days, you’re struggling to find that product market fit. And when you’re trying to get product market fit, the play areas, err on the side of pricing too low, because you need users, you need usage, and you need to learn very quickly. And so that’s where I see some of these more kind of creative models being really effective. We’re in the early days, in my view of the SaaS industry broadly, it’s really cool all these new product categories being created. But when you’re creating a new category, you know, it’s hard to get people to buy in. Some of these creative pricing models allow you to land and start with a customer at a lower price point, but then expand over time and kind of generate the revenue that way, which I’m a big fan of
Tony Markov 21:11
What’s coming to mind is buying power and economic buying power of markets. So specifically, Europe is a very interesting one. In the sense, it’s not really homogenized, it might be the euro currency, and in a lot of countries, but the buying power between Bulgaria where I’m coming from, which is using, you know, love, and then the buying power of Germany is entirely different. So what is your view on tailoring pricing to the buying power of a market in order to penetrate that market better, and maybe having higher prices in France, where people have money and having lower prices in Bulgaria or some other great market like Poland, where we don’t make as much so what’s your view on that?
Kurt Smith 21:52
You know, it’s one of my favorite things of about getting to work with you, Tony, and when we get to work with a customer on something is like, just learning about the, you know, dynamism in the European market. And a lot of the International, you know, SaaS companies that we work with, like you say a lot of these in markets are very different. So make sure you understand which markets you want to target, what their buying power is, this kind of goes back to the macro point around the economic uncertainty is variable across the world, really understand that if you’re targeting certain pockets, and ideally you are, and also just the inflationary environment, you know, the other aspect of what you’re talking about, which is just buying power generally can be considered through the lens of currency. That is a really clever way. I mean, there’s a lot of ways to make sure that your price levels are at an appropriate point for the in markets that you’re targeting. And that you can differentiate to make it more palatable. Ultimately, the words that I use to describe that is the willingness to pay of customers in different markets. By the way, it’s not always just geographic markets, where the willingness to pay will vary. It could be different kind of personas or archetypes where that willingness to pay can vary. So there’s other ways to sort of differentiate your pricing to effectively get more share. But it’s a really clever way. And so on the geographic side, if you’re selling across, you know, multiple countries, you can differentiate your pricing by currency, which is a clever way to sort of set levels that are higher or lower based on the buying power of that particular and market. There’s other ways to do it. If you’re selling online, and the more of a B2C self-service motion, where people are buying straight off of your website, you can differentiate your pricing by IP address. So there’s ways to sort of differentiate based on that buying power, it’s an important consideration. I think, every single time, I look at the opportunity size of differentiating, and A/B testing the incremental share every single time I’ve done that, it’s exceeded the expectations. So I do think it’s one of those things where you don’t want to do this in the first year of your company’s business very likely. But as you start to get more mature, as you’re looking for new ways to unlock growth, right, this is one of those things that’s pretty, I think, uncommon, and it’s not obvious that the buying power, and then saying, oh, you know what, I can price 10% higher in this market, and I need to price 10% lower in this market, because the buying power, your currency environment, whatever it is, the things that can do to your conversion rates and your customer acquisition can be pretty meaningful, you can get very real growth impact from managing this on a regular basis. Right. And that’s the other piece is it’s not something that is best managed ad hoc. You want to set up the infrastructure to be able to evaluate this on like a quarterly or even monthly in some cases, if your business is at scale basis, so that you’re constantly kind of tweaking and optimizing these things. I think it’s a really important play. People can use.
Tony Markov 25:05
Yep, absolutely. And that’s something I’ve been geeking over the last five years a lot. It’s one of my favorites. That’s why I’m asking it. I think one of the first examples I picked up from it was Evernote. Evernote is one of the first ones that went out and did the research and did the studying of various European markets to figure out, what are you willing to pay? They had massive dividends from both reducing and increasing price in those markets. They’re one very good example for the people listening for somebody, you want to study how they do things, they’re very interesting there. Now, once you set up the base price, you’re communicating value through it, maybe playing around with certain willingness to pay and other strategies, different pricing models, what is your view on different ways to test pricing within various markets or within various models? What are some best things you’ve seen there?
Kurt Smith 25:52
So I mean, I think the first point to make on testing your pricing is like, clearly I’m a huge fan, I think it’s very important. Pricing is one of those things where your pricing is never perfect. It’s a never-ending journey, it’s just kind of consistently trying to see a better outcome is the way to think about it. And how you do that. And by the way, it’s because your market is consistently evolving, right? Your product is evolving, your customers are evolving, your markets evolving, your competitors are evolving, nothing is static in this world. So you have to consistently have signal on what’s going on and how you can tweak things to make it better if you want to continue to improve and keep up or outpace your competition, and capture more share and continue to grow. So that’s the foundation of why testing. And just generally iteration is so important. A couple of points, make sure you understand very clearly, your sales velocity, which is generally tied to you know, if you’re a B2B, higher price point, probably have a lower sales velocity than something that’s more B2C Self Service, lower price point, higher velocity, the strategies on testing differ company to company product to product market to market. And just in that very simple kind of binary example, let’s think about B2B, higher price point, slower sales velocity, it’s very unlikely that you’re going to be able to run some type of statistically significant ad test, you’re probably just not going to have the sample to go out and run something. So what should you be doing? Well, you should make sure that you’re running sort of qualitative tests around how you’re communicating your pricing. Like that’s the first thing to take away is like, if you’re in more of a B2B sales lead motion, make sure that you have that talk track and your sales team is armed with a pricing model that clearly allows them to communicate, there’s a fair trade here between monetary financial economic value, and business value. And that communication device is the pricing model, test ways to communicate that test ways and even value metrics to use and test ways to help your customers quickly and simply understand the total cost to them. So they can budget for it. So they can forecast the increases as they grow. All of these things really, really matter. A lot of that testing and iteration now is a little bit more qualitative, because you just don’t have the sample and the velocity to do something statistically significant. And that’s okay, on the higher velocity side. And this is one of the benefits of having just more sample is you can set up statistically significant AV test. Now, to be very clear, there’s a lot of ways to do that wrong, you have to make sure that you’re thoughtful about it. And I see a lot of kind of pricing tests that when you really peel back the onion are not statistically significant. That is a bit of a pet peeve of mine. But if you have the volume and the sample, setting up an AV test, my biggest source of advice here is or piece of advice is make sure you’re testing one thing at a time. That could be I have three tears, I’m thinking about going to four. Well, that’s one aspect, one dimension, so AB test three tiers and four tiers. Or I have this new feature, it’s a great new feature, should it be in the gold tier or the silver tier? Okay, great. AB tested in either Tier. But don’t a be tested in either tier with a different price point. It’s going to create too much noise when you’re trying to evaluate it. And so test one thing at a time, and depending on your volume, and how many, you know, data points you need in order for that to be statistically significant. I mean, there’s quick little calculators you can use online that’ll give you a sense for statistical significance and what the sample is to be relevant. I love the idea by the way of having a champion sort of challenge your mindset in a higher velocity motion. So if you got a three-tier model, have a group of folks that come together every, every so often, and brainstorm and hypothesize like what is our best idea of one change we could make to have an impact stack ranked that list and start at the top and go test one thing a quarter, add that feature to a different tier, go from three tiers to two tiers, increase a price, increase the price 20%. And look what that does to the overall impact. Those are some of the things that the best companies that I see do. And then you know, it’s always great for me to see companies that I’ve worked with, and I look back after a few quarters, and they’ve evolved their model even more. And so just continue to iterate, continue to tweak it. That’s the way to get better consistently. And that’s the, that’s the way to continue to unlock growth.
Tony Markov 30:48
Yep, and you and I both know, within FastSpring, the companies that we’ve seen kind of hit the ground running and grow the most and 12 to 24 months are the ones that I was talking about. And they were just on and on and on about AV tests and testing and iterating. I really second what you say there that within those organizations, there’s always I call them the fire and ice people. So the fire person is the one that just wants to throw out ideas and challenge and approve and an ice person is the one making sure that the methodology is correct. And when you have those two, that kind of leads to a lot of growth. So on that one topic I wanted to pick your brain on because I saw all the news come through about a month was in the market slack increased its pricing for the first time in nearly 10 years. Right. And ironically, I was doing my best not to slack you about it just to keep the question fresh for this. But I’ve done a little bit more research on it, because I got curious. And this price increase seems to be coming after Google announced last March, that its cloud offering will also be priced higher, starting this October. And then Microsoft as well, last year already announced, there’s gonna be significant increased into the sauce line. So slack really isn’t alone in this. So from their standpoint, from what I read, this price increase is all based around value, right? Our product has been getting better, we’re going to increase the prices. There is no specific mention around this change coming now because of inflation. With inflation expected to reach I think, at this point is nearly 10% in the US and UK this year, and it’s not very dissimilar in Europe. What is your view on what may be driving slex price adjustment here?
Kurt Smith 32:23
Hardest sort of hypothesize on the motivations, but their for-profit business? And so assuming it is to increase their revenue? Yeah, I think you touched on a couple of really key points. I think there are some things that stood out to me. You know, first off, I thought the blog post announcing this change was well written. I think it’s a great case study for folks looking for how to communicate a pricing change. And something you said, Tony, I think is exactly right. You know, they didn’t hide behind. Oh, we’re we’re doing this to combat inflation, our employee costs and our internal costs have gone up. So we have to pass that through or customers don’t care. Like they don’t care. They don’t care. I mean, I’m sorry to say, if you don’t know already. Now, you know, like, they don’t care about your problems, you have to frame it in their terms. And I think they do a really nice job of communicating it on a customer’s terms. What does a customer care about? I think that’s kind of point number one. The other thing is, so they went from the free plan being limited by number of messages, and gigabytes storage to being limited by 90 days, you used to be able to have free access up to 10,000 messages and up to five gigs of storage. Now it’s 90 days on unlimited. But then after 90 days, you lose that history. So I think this is a really clever and a smart way. And actually something that I had sort of scratched my head about a few times, which is I’m not exactly sure how I’m supposed to estimate when I’m going to hit a 10,000 message limit. I think they even acknowledged it in the blog post. Right. So when you’re thinking about your value metric, and in this case, it’s effectively, you know, when does the free tier expire? It has to be linked clearly to value. So in my mind, you know, messages are probably pretty linked to value, but it’s not terrible in that dimension. But it also has to be when done well simple and estimable, or for castable. Because your customers need to understand, you know, how far will this take me? When will I run out of this thing? How much will that cost me next year? Of course, these are questions that they’re asking themselves in the back of their mind. And 10,000 messages probably hard for many people to wrap their heads around in terms of is that going to happen next month or tomorrow? You know, depending on the size of your organization, that’s a tough thing to understand. In the 90-day history thing to me is like just a clever little pivot on that which is, hey, I’m gonna reduce your mental load here. I’m gonna make it really easy on you. It’s 90 days. So I think that’s one point. The other one is Inc. releases that they made are in the range of just under 10%, I believe feels appropriate to me, I think in general, what I typically see in lieu inflationary environments is anything from five to 10% increases that seem to be very palatable for customers. In this day and age, I’m a little bit surprised that they didn’t do something higher, because as we know, that’s probably barely covering the cost of inflation. To the extent that’s a factor for them. But, you know, I would generally tell folks, you know, think about something five to 15%. Every time I’ve seen a five to 15%, kind of, you know, standard price increased, the amount of churn and the customer noise that comes back from that is generally under what is expected. And so just a little bit of my pattern recognition that feels to pass the sniff test of what the market will digest. I think it’s always helpful when your competitors do it before you, you’re the last ones to do it, they kind of paved the way. So felt like a pretty low risk move, you know, on their part. The other thing they do really brilliantly in that blog post is remind people of the value, right, so they’ve got a nice little timeline with innovation throughout history, all the features, again, pricing, it’s a communication mechanism to explain your business value, never miss an opportunity to do that. And I think they did that. Well. Yeah, it’s pretty good example. I’m glad you brought it up.
Tony Markov 36:26
Slack is becoming more and more interesting. It’s something to study as well. But since their acquisition by Salesforce, I think they reported their numbers recently. And they’re just smashing it, which is, again, part of it is that thought leadership, which is coming through Yeah. Only inflation piece. And this is this is kind of my last question. And I’ll kick it off to Matt. Now, how would you advise an organization these days to bake inflation into their pricing and to approach this situation that we’re all these organizations are in right now?
Kurt Smith 36:54
Yeah, it’s a good question. There’s a few things that people should be thinking about. First, is we touched on it a little bit, but how are you pricing differently across industry sectors or geographic markets? And how might you need to tweak that based on how inflation is moving? You know, inflation is not the same amount in every part of the world. In other words, your buyers, your customers, your prospects, buying power, has now shifted pretty dramatically. So make sure you’re getting your heads around that you can do an ad hoc price change. But ideally, what you’re doing is you’re setting up a little bit of a process and a little bit of an infrastructure to tweak that on a regular basis, quarterly or annually. How can you come back and revisit some set of data or peg to a set of indicators so that you can tweak pricing based on ultimately the buying power of your customers, and to just connect the dots, the buying power of your customer, affects their willingness to pay. And that’s ultimately what you’re trying to do. When you figure out pricing level, right? How high low the number, exactly that your pricing. So there’s, you know, certain industries oil and gas, for example, where we’re inflation has moved a lot more dramatically than other industries. And so Mike, if you’re selling into those industries, as more of a in more of a B2B context, make sure you understand those dynamics. In more of a B2C high velocity context, you might be selling more globally, country level currency level, setting pricing, you know, is really important to protect your kind of growth profile. Another thing that you see companies do that can really help sometimes this happens by accident, can you base your pricing model, consider if you can base your pricing model and your and your pricing metric, around something that is naturally inherently inflation protected? This is something where if you’re pricing based on a percentage of your customer’s revenue, or a percentage of something, or tagged, you know, attached to something where when your customers, you know, volume increases, because of inflation, you get that natural lift, that is really, you know, one of the most clever and the easiest ways to make sure that you’re you’re protected there. Consider that I think is is definitely something to think through. And the other thing that people do is they add some type of inflation adjusted surcharge. You see this in airlines, Uber adds a fuel surcharge, right? As these kind of unique increases in your costs go up if your customer has a clearer understanding for Hey, you do have very high cost to deliver this service, which is not always the case in software, I get it. This might not be a relevant point for many people. But it is something to think about if you do have some hard costs that have increased where your customer not to contradict the earlier statement that I mentioned around slack, which is in general though, your customers have a hard time caring about your own costs, so be careful with that one. And I will even say, I don’t think anybody’s ever seen a fuel surcharge from an Uber or an airline ticket and felt felt okay about that. But in certain cases, it’s, it’s essential for survival, right? That’s what the delta CEO says on an earnings call. It’s like, if we didn’t do this, you know, how much of that I believe, I’m not sure. But that’s what they’re saying. They’re saying this is, you know, this is existential for us, right, these these types of costs. And in that case, people want the product, so they suck it up.
Tony Markov 40:30
This is super, super valuable. I mean, you know, me, I can keep them on for another hour easily. But I like to kick it off to Matt, to get some maybe some questions from the folks that are listening.
Matt Marcum 40:38
Yeah, absolutely. Thank you, Tony. And I gotta say, there’s a lot of chatter going on in the global sax leaders community on our side. And you must have had a little sense of what people were talking about, Tony, because there were a lot of questions around inflation specifically, but specifically how to test those. And I think you both did a good job answering those. I do want to hit on two, though, that maybe offer a little bit more insight or a chance for Kurt to expand. So related to how inflation impacts different markets. And this goes back to, you know, the inflationary topic. So related to how inflation impacts different markets or industries differently. What does that look like practically, Kurt? How are you talking about pricing products differently related to the volatility of those markets they serve or something else entirely? Yeah,
Kurt Smith 41:28
Good question. So again, just to use B2B versus B2C, or low velocity, high velocity as an example, every product and market is going to be slightly different. So make sure you think about those unique aspects. But I’ll just use those two examples, as a way to think through how this could vary. In a B2B sales lead or lower velocity model, you’re generally pricing or setting prices on a per deal basis, it’s a little bit easier to say, Okay, I know this customer is in this industry that’s been hit really hard with inflation, or has benefited from inflation. All right, if you’re selling into oil and gas, you’ve got to B2B software that oil and gas companies use, wow, you’ve got probably a pretty solid budget to sell into other industries might be struggling a little bit more. So in that case, very explicitly, I would sit down with your sales team, I would think about how to how to set up look, we’re now not discounting past this point, or we’re actually just increasing all new deals, 10%, what’s the new pricing floor and setting that potentially, by industry, by industry, country by country, and one of those inputs will have to be inflation, again, you’re just trying to understand buying power and the impact of inflation on that buying power and willingness to pay on a higher velocity model. This is where you need to instrument it, you do need a little bit of infrastructure to be able to say, hey, when this prospect comes in, you know, from this IP address, or when they look at my pricing page, based, you know, from this IP address, or in this currency, yeah, I’m actually going to show them a higher or a lower price based on sort of the analysis that I’ve done in my belief, about their willingness to pay. So very tactically, you want to press differently for different prospects to do this really well. And then ultimately, you do want to test your way into those right levels, depending on how much velocity and sample you have, like we discussed, but that’s the way the best companies in the world are doing it.
Matt Marcum 43:34
That’s great. And I think it leads into this last question, too. And it I can’t tell if it’s coming from potentially a FastSpring user or someone in the market. But speaking about Iterative pricing or testing, you know, how does FastSpring’s platform support that — or even a merchant of record mentality — support the ability to price globally?
Kurt Smith 43:53
Yeah, Tony, making sure I don’t leave something out here. But I mean, I think just conceptually, the model that fat spring deploys for customers, is, we’re going to give you the full infrastructure to price and do checkout, everywhere in the world. So because we host your pricing, we can localize that pricing based on IP address based on currency, we can localize that pricing through our API on your marketing page, we can also localize in the checkout, one of the real benefits and the unlocks and using a platform like ours is you have a single source of truth for your pricing. And so some of what I’ve talked about today can be a little bit tough to manage, because you’ve got a spreadsheet that helps you understand how should I set price levels, then you’ve got a developer who’s going to code that into a web developer that’s going to code that into their marketing page. Then you’ve got somebody else controlling the product catalog that spits out a stripe or PayPal. And so you’ve got like four or five different systems and you might have an ERP You’re an accounting system where you get to reconcile this stuff, you might have four or five different systems. If you wanted to say, Oh, wow, I can increase price to my oil and gas clients or to my customers in a certain geography, I can increase that price 10% Or I want to decrease that price. 10% see what it does the conversion rates. So quite simply, we’ve got the tools to localize price based on currency location of the prospect. Yes, a lot of people do, we can do things like price, beautification, a lot of those tactical tools we’ve got sort of baked in, which is nice. But I think the bigger unlock is more conceptual or having a single source of truth, you got to make a change one place, and all of a sudden that gets permeated across all of your channels. And by the way, if you’re doing B2B and B2C, give a sales lead motion and self-serve online checkout. Same place, right single source of truth there. What did I miss Tony, that you see people benefiting from?
Tony Markov 45:59
No, you nailed it to me, it bleeds into it also testing, it’s incredibly difficult to test if you have an ecosystem of a Frankenstein solution. And to do this, because it’s too many involvements with too many departments just to do a test just to make a change. And so many times, you and I are talking to companies that are either doing it very limited way, or they’re doing the old school, subdomain, US EU, au and all those kinds of things. So relate to a point that you had in the beginning, it shocks companies that freezes companies are thought to do this, because as soon as you start trying to think about, oh, what could we do we get excited about it, then you think about the project. And apparently you have to start to make that change. And that typically means getting your Deb’s and engineers out of product and into this testing thing. And nine times out of 10 is companies that are going to prioritize product, which then kills your testing capabilities and FastSpring removes that piece. You can test very easily and freely without having to think about involving too many people into this process.
Matt Marcum 46:57
Great point. Yeah. That’s great. We appreciate it. And I gotta say, community was great today. Great chatter and questions coming in from that side. I think that wraps it up from the questions I’ve seen. So we appreciate everyone for attending Tony and Kurt, thanks for your expertise and insights. We appreciate your time.
Kurt Smith 47:16
Thanks, Matt. Good to be with you guys. Thanks, everyone.
Want more info on SaaS product pricing and packaging in a stagflation economy? Check out details from an updated presentation by CMO David Vogelpohl, More SaaS Fees Pricing Strategies to Offset Stagflation.
