The Pricing Process
I’m often asked what pricing looks like after a project is complete and implemented. Are we done? When do we call you again? The answer I always give is the same:
Pricing is not architecture, it’s gardening.
Your price, in fact your whole monetization strategy needs to be tended to on a regular basis, otherwise it will become overgrown, like a poorly manicured garden. Why? Because your product, and your market will evolve. As you penetrate new markets and (hopefully) add new features to your product, you need to constantly be reevaluating your pricing.
Here’s what I recommend. But like a recommended diet or workout routine, you should feel free to customize this to your business. For example, a startup will need to do these activities more often, as their product and market are evolving much more quickly than those of a large enterprise.
Every two years:
Re-examine your entire pricing architecture: packaging & bundling, metric & structure. The whole thing. Consider calling in a professional to do this (aka, yours truly), since it’s a big lift and important to get right.
Every year:
Adjust your price levels. Not only does this ensure you keep up with inflation, but training the muscle to do price increases in your organization is extremely valuable. Plus, customers learn to expect annual increases, which works to your advantage.
Why not adjust packaging too? Because customers will get whiplash. Most people are ok with their rent going up each year. Ok maybe not “ok” but they at least understand it. What wouldn’t be ok would be if the terms of your lease changed, like who paid the utility bills, whether parking was included, and how often rent needed to be paid.
Every quarter:
Use pricing methodologies to assess your product development roadmap and lead scoring methods. Remember, pricing isn’t about setting a rate; it’s about figuring out who is willing to pay how much for what products. That single question can be used to quantify the market opportunity of every feature on a product manager’s backlog or prioritize sales and marketing funnels more effectively to target high willingness to pay customers.
This often takes the form of a “pricing council” readout every 90 days, with GTM and product as core audience members.
Every month:
Monthly routines take two forms: KPI tracking and research. For KPIs, you need to update (or look at) the relevant unit economics KPIs for your business. At a minimum, you need avg. contract value or avg. sale price, number of customers (making a purchase or subscribing), churn, and LTV. I like to see those numbers by segment too.
Is ACV stable? Is it responding to a recent price change? Is the change in ACV offset by churn? How is that showing up in rising or lowering LTV?
The second thing you need to do is run ONE small scale study of the following forms: customer interviews, customer survey, data analysis, experiment. The trick is to do this consistently. When I work with clients, they often have not performed one of these items in months if not years. If you are consistently examining the market, you will build a powerful and holistic viewpoint about what customers need, and how much they are willing to pay for it.
So you’re saying I should survey my customers 4x a year? No, not really. I’m saying that each study should look at a niche of your market, or zoom in on a particular product. One month, do a deep dive into your pro services pricing. The next, look at the hobbyist market. Try an A/B test that exclusively looks at price structure. Unfortunately, I’m almost never able to go to this level of detail with clients, because it would take years. That’s what a good pricing manager does.
Every week:
Weekly pricing is all about funnel, deal flow, and conversion metrics. What customers are needing quotes this week? How is this week’s funnel performing, and can we use discounting to adjust for what might be happening outside of the business.
Every business has a different weekly dashboard, so I hardly think it would be helpful to list the metrics you would want to look at. Just know that at the weekly level, you need to be looking at the funnel, not items like ACV and churn.
Every day:
10-minute mindfulness practice where you repeat the phrase “willingness to pay” in your head. Or maybe that’s just me…
