This is Part-Time Genius Blog on how to grow your business in a profitable and sustainable way.

The other week I had an inspiring lunch discussion on pricing with my friend Peter Maahn Sterkenburg who's leading the Customer Success at LeadFeeder, an extremely cool Finnish SaaS startup. 

This company helps businesses increase revenues by providing them with information on potential customer companies visiting their websites, what the visitors were interested in about and how they found the company in the first place. 

They provide high-quality leads to their customers and charge for unique leads on a volume basis. 

Customers end up on a price plan depending on how many leads the company can identify in their Google Analytics data. This depends on how good customers are at inbound marketing and driving traffic to their sites.

In a nutshell, it is a nice, linear, volume-based model that is easy to understand and budget by the customer. 

But what if customers perceive the value of a lead differently? ​
​
For sure they do.

Let's take an example. The customer company A is selling productivity software for businesses and customer company B is in the maritime industry selling off-shore equipment. 

In our example, the value of an individual deal for customer A would be, say 80EUR whereas it would be 80KEUR for customer B - a bit extreme just to make the point clear. 

For customer B due to the dynamics of the business, they have a fairly limited amount of potential customers and their site traffic is relatively low. They would end up in the lowest volume plan and pay 50EUR for 100 leads.

Marketing troops at customer A have been able to drive high traffic on their website and the customer would subscribe for a high-volume plan with 3000 leads for 350EUR. There's a clear logic between the site traffic and the number of unique leads they pay for - the value grows as the traffic grows.

What about customer B?

Practically they would get high-quality, unique leads each potentially worth 80KEUR for free.  This doesn't sound fair and the customer knows that. There is a price-value disconnection. 

"At what price would you consider the service to be too cheap to provide the quality you were looking for?" That's the question customer B would be thinking of.

I bet they would be willing to pay for 5KEUR per each lead that brings the deal in but there's no incentive or such a plan for him to subscribe for - the traffic on their site is low and will stay low no matter what. 

As an outcome, the product value is not monetized to its full potential and this has an impact to LTV - there's money left on the table and likely churn increases due to value-price mismatch.

Bottom line - even though the volume-based value metric sounds obvious and right in the beginning, it does not follow the logic of the title - you grow when the customer grows.  

In our example case, leads were considered to be the correct value metric but we found it problematic at least with the high deal-value case. 

What's a good value metric then? 

The customer can understand the value metric in a few seconds when skimming through your pricing page, the value metric reflects the customer needs and it has a path to scale. 

Good value metric grows when the customer grows and scales down if the business of a customer is in a decrease.

Value metric is really about two questions -  what you charge for and how much. 

Start by specifying on a high level what you are offering to customers. Next, break that down into detailed value attributes to make it specific for your company - show how you differentiate. 

Once done, you bravely test that with your customers as explained in my previous post "PRICING - THE MOST IMPORTANT PRODUCT DECISION".

This is not rocket science yet it takes a conscious effort to get it properly done - not once but as a process optimizing unit economics of your business, LTV, and CAC. 

In case you feel this is something you should pay attention to, give me a call or send an email and let's talk more about it.

As always, if you feel your company is just phenomenal in this, please let me know as I want to learn from you. 

BR Pekka, part-time-genius.com

Check out the great read on SaaS pricing by Price Intelligently.

This is Part-Time Genius Blog on how to grow your business in a profitable and sustainable way.

Why is pricing important? 

Pricing has the highest impact on the growth and profitability of a company yet often very little is invested in planning it compared to the dedication businesses put to customer acquisition, customer retention, or defining product functionality.

According to a great read "The anatomy of SaaS pricing strategy" by Price Intelligently, the average SaaS company spends six hours on pricing over their whole lifecycle. 

Come on - that's less than a working day! 

How much does your company spend on understanding pricing?

Make no mistake - this is not a SaaS-only matter. Pricing is equally important to all businesses on any competed market. Just that in the SaaS business model, pricing has elevated importance as the company has to monthly (read continuously) earn the justice to bill the customer. 

Without an emphasis on pricing, you underserve customers and leave revenue on the table.

Three dimensions of pricing strategy - positioning, packaging, and the price.

Let's start off with positioning.

In sound product planning, after defining a compelling product vision (something you dare to get a tattoo) which states the core business benefit and the target user, you should deep dive into user personas.

Who do you serve - what industries are they in, what is the customer company like, what is the role of the persona in that company?

Here clarity makes the difference. Think it as if you would see a group of people walking down the street and you can say without hesitation who belongs to what segment and why. 

Come up with a handful of personas that are distinctive and relevant to your business. Here quality over quantity rules.

As I wrote in my earlier blog post "WHAT, WHY, TO WHOM AND HOW" these questions are dead simple, yet it can be grueling to find the right answers. 

Likely that's the very reason why companies too often skip the act with predictable outcomes - producing mediocre products and services that are not solving anyone's problem. 

Next, you want to know what are the high-value features for each of the user personas, and how much they are willing to pay (WTP) for those. 

Why is it relevant to find the high-value features and WTP?

Let's invite in the two other dimensions of pricing. 

Take your product feature list and ask your existing customers and prospects to sort them into two baskets - the most preferred/valuable ones and the least preferred/valuable ones. 

As an outcome, you don't only see what features are valuable for your customers but you understand what features the different personas value.

You will see also what features you can well live without as they don't deliver value to your customers.

That's your product packaging.

Now it's getting even more interesting as you are about to learn what your customers are willing to pay for the high-value features. That's the essence in value-based pricing.

Based on the product positioning and packaging examples above, you should now have a pretty good understanding of the different product packages, how they differ from each other and who are their customer personas - right?

Next, you go and ask from the existing customers and prospects behind the personas what they would be willing to pay for the product "package" you just designed.

With four simple questions and numeric price point scale, you can build a surprisingly solid understanding of the price range for each product package. 

Your questions are - at what price would you consider the product to be too expensive, at what price would you consider the product to be too cheap (relative to perceived quality), at what price would you have to think twice before buying, and at what price would you consider the product to be bang for the buck?

When you match the price range data with customer lifetime value (LTV) and customer acquisition cost (CAC) you can further define at what price point the LTV/CAC ratio is optimal. 

Why's LTV/CAC ratio relevant - higher the ratio, greater the growth of your business. 

See, for these questions, you just cannot shoot the answers from the hip but you need data. In practice, it means that you have to go out and interview your customers and prospects.

In case you don't know LTV and CAC for your product, go and find them - it will be an eye-opener.

Why should you be paranoid about the pricing of your products? 

When your product pricing is clear, value-based, targeted to the right audience and is aligned with the buyer's willingness to pay, a big part of your marketing and sales effort has already been taken care of, not to forget that you'll growth faster with increased profitability.

In an evolving marketplace, pricing is a continuous optimization effort of your product value against the customers' willingness to pay. Pricing is a process.

By the way, pricing is the lever that has 1:1 impact on profitability - pretty cool.

What's your excuse for not investing in proper pricing?

Again, if you have good practises on the covered subject, let me know as I'm eager to learn from the best.

Cheers,

Pekka

Tämä on Part-Time Genius blogi liiketoiminnan kestävästä, kannattavasta kasvusta.
 
Tämä blogi käsittelee lyhyesti toisen seitsemästä esittämästäni pääkohdasta Vendep Capital B2B SaaS Channel aamiaistapahtumassa.

Loput viisi vinkkiä käsitellään tulevissa blogeissa – pysy kanavalla.

Joko luit ja jaoit eteenpäin bloggaukseni "Oletko yhteensopiva kumppanin bisnesmallin kanssa"? 

Työskennellessäni todellisen kanavamyyntigurun, Ollilan Juhan, kanssa F-Securella, hän esitteli kolme yksinkertaista tekijää, joita kumppani yrityksessäsi arvostaa, ja jotka suoraan vaikuttavat liiketoimintasuhteen menestykseen. 

1. Loistavat tuotteet. Tuotteittesi ei tarvitse olla kategorian parhaita (toki tämä aina helpottaa), mutta niiden täytyy olla vähintään yhtä hyviä kuin kilpailijoilla.
2. Hyvä ansaintamalli. Kumppani hakee kannattavaa kasvua ja liiketoimintasuhteen täytyy pelata tähän maaliin. Kanavamarginaali ei ole kuitenkaan ainoa väline. Mieti, kuinka yhteistyö auttaa kumppania tehostamaan toimintaansa ja pienentämään liiketoimintakuluja.
3. Yhteistyön helppous. Tässä pienet yritykset voivat olla ylivoimaisia isompiin kilpureihin verrattuna. Kumppani sitoutuu mielellään yritykseen ja edustajaan, joka on luotettava, arvostaa ja ymmärtää aidosti kumppanin liiketoimintaa.

Yksinkertainen ja ymmärrettävä logiikka vai kuinka? Toteuttaminen vaatii kuitenkin tahtoa ja pitkäjänteisyyttä.

Tämä on keskeinen kysymys, johon vastaus selviää arvioimalla onnistumistasi mainitun kolmen tekijän suhteen.

Sitoutuminen tarkoittaa kumppanille, että hän on valmis sijoittamaan liiketoimintasuhteeseen yrityksesi kanssa aikaa, vaivannäköä, työntekijöitä ja rahaa. Investoinnin tulee tarjota pääomalle hyvä tuotto ja kannattavuus tulee saavuttaa nopeasti. 

Tasapuolisuuden nimissä, sama pohdinto sinun tulee käydä kumppanin osalta ennen kuin allekirjoitat kumppanisopimuksen. Käsittelen tätä lisää tulevissa kirjoituksissani.

Kumppanin sitoutumisen todennäköisyyttä voi ajatella seuraavasti. Hänen näkökulmastaan on olemassa kolme vaihtoehtoista polkua:

1. "Ei kiitos". Arvoväittämässäsi kaksi kolmesta tekijästä ovat selkeästi heikompia kuin kilpailijoilla. Yksi arvokomponentti, vaikka olisikin täysin uniikki ja ylivoimainen, ei riitä tasapainottamaan kokonaisuutta.
2. "Riittävän hyvä". Vaikka arvoväittämä ei olekaan täydellinen, kaksi kolmesta tekijästä ovat kumppanin kannalta riittävän arvokkaita kompensoidakseen heikoimman. Arvo on riittävä, mutta vaatii jalostamista.
3. "Mihin voin allekirjoittaa?" Arvoväittämä on tasapainoinen ja kilpailukykyinen kokonaisuus. Kumppani kokee, että arvo on suurempi kuin osiensa summa. Kumppanin sitoutuminen on taattu.

Älä huijaa itseäsi arvoväittämää arvioidessasi ja säilytä outside-in näkökulma. Muista, että yrityksesi kasvaa kun kumppanin liiketoiminta kasvaa. 

Parantaminen ja tehostaminen alkaa lähtötilanteen kartoituksella. Yrityksestä riippuen, sinulla saattaa jo olla käytettävissäsi laadukasta dataa kumppanityytyväisyydestä.

Kvantitatiivinen palaute antaa tuntuman tilanteesta, mutta hyödyllisintä on tavata kumppani kasvokkain - tämä sinun tulisi tehdä säännöllisesti joka tapauksessa.

Pyydä kumppania pisteyttämään arvoväittämän kolme elementtiä rehellisesti. Uskalla käyttää miksi-kysymystä riittävän usein, jotta pääset käsiksi juurisyihin, olivat ne sitten positiivisia tai negatiivisia.

Juurisyyt ymmärrettyäsi, säädä arvoväittämä kohdalleen yhdessä kumppanin kanssa. 

Tekeminen on puheen ylin taso - sinun on toimitettava suunnitellut muutokset pian, jotta kumppanin luottamus säilyisi. Tämän tehtyäsi sykli alkaa alusta sinun ja kumppanin arvioidessa tehtyjen parannusten vaikuttavuutta.

PS. Kumppani osaa arvostaa vaivannäköäsi ja jo pelkästään näin toimimalla vahvistat arvoväittämän "Yhteistyön helppous" kohtaa konkreettisella tavalla.

Mikäli uskot, että tämä lisää yrityksesi kykyä rakentaa kestävää, kannattavaa kasvua, soita tai lähetä sähköpostia niin jutellaan lisää.

Terveisin,
 
Pekka

This is Part-Time Genius Blog on how to grow your business in a profitable and sustainable way.

This blog covers second of the seven key takeaways from my presentation at the Vendep Capital SaaS Channel breakfast. Stay tuned for the remaining six tips. 

See and share the previous tip on how to Create Partner Business Model Fit.

Back at F-Secure when I had a chance to closely work with Juha Ollila, a true channel business champion, he introduced a set of simple attributes partners value and which have a direct impact to the success of the business relationship. 

1. Great products. Your products don't have to be the best in the category (sure it helps if you have) but they should be on par with the competition at least.
2. Good margin. Partner is for money and the business case has to make sense. The margin is not the only incentive. Moreover, you should consider how to help partner minimize his costs.   
3. Ease of doing business with. Partner gladly builds the relationship with a reliable, respecting and respectful person, and company. Make sure it is you.

As any good rule, this is easy to grasp but it can be demanding to implement.

That's the key question you should ask by measuring the quality of actions on each of the three value attributes.

Here investment equals to time, efforts, people, and money partner would need to invest in the relationship with your company. It must have positive ROI and break-even should be fast. 

For the sake of fairness, this is a two-way street and you have to make the similar evaluation concerning the partner you are about to sign. We'll cover that topic in the forthcoming blogs.

Let's consider the following - in the eyes of the partner, there are three scenarios:

1. "No go" - you are clearly behind the competition in two of the three attributes and one is not enough to compensate that. 
2. "Roughly right" - even if the value proposition is not perfect, the value of the two compensate for the low value attribute. 
3. "Where can I sign?" - value is balanced over the three attributes and the overall value is considered to be significantly higher than the sum of three individual attributes. Partner sees a compelling business case to move on with you.

Maintaining outside-in perspective is healthy as your business grows only when the partner grows.

Theory aside - what does it take to get there?

Start by understanding where you are with the value. Depending on the company, you might have already measured partner satisfaction and you have quality data available. 

Numbers can tell you something about it but the easiest way is to visit the partner - you should do it anyway. 

Ask the partner to review the three value attributes with you, dare use "five why's" to get to root causes (be they positive or negative), and co-design the "solution" with the partner.  

Finally, execution is what makes the difference. You have to deliver the improvements. Then cycle starts again by you measuring the impact with the partner.

Like always, if you think this is relevant to your business performance and you should do something about it, give me a call or send an email.

PS. Partners will definitely value your efforts and by doing this, you are already strengthening the "Ease of doing business" attribute in a very concrete way.

Cheers Pekka

Tämä on Part-Time Genius blogi liiketoiminnan kestävästä, kannattavasta kasvusta.
 
Tämä blogi käsittelee lyhyesti yhden seitsemästä esittämästäni pääkohdasta Vendep Capital B2B SaaS Channel aamiaistapahtumassa.

​Loput kuusi vinkkiä käsitellään tulevissa blogeissa – pysy kanavalla.

Yksinkertainen ja hyvä määritelmä tuotteesi yhteensopivuudesta markkinaan on se, että tuotteesi tarjoaa asiakkaalle selkeää lisäarvoa ja tekee sen paremmin kuin kilpailijat. Hyvä alku, mutta tämä ei riitä.
 
Jotta tuotteesi saavuttaisi merkittävää kaupallista menestystä, on sinun suunniteltava se yhteensopivaksi kanavakumppanin liiketoimintamallin kanssa. 
 
Myyntikanava on yrityksesi ehkä arvokkain omaisuus ja merkittävin liiketoiminnan skaalakerroin. Tehokas kanava erottaa voittajat häviäjistä.
 

Jos tuotteesi laatu ja sisältö ovat samalla tasolla kuin kilpailijalla, mutta tuotteesi on optimoitu kumppanin liiketoimintaan sopivaksi, todennäköisyys sille, että kumppani myy mieluummin sinun kuin kilpailijan tuotetta kasvaa merkittävästi. 
 
Sama sanottuna toisin - ylivoimainenkaan laatu ja sisältö eivät auta, mikäli tuotteesi ei tue kumppanin liiketoimintamallia. Myymättä jää.
 
Logiikka on yksinkertainen. Kaikki yritykset, myös kumppanit etsivät tapoja kasvattaa liikevaihtoa mahdollisimman kustannustehokkaasti - luoda kannattavaa ja kestävää kasvua. 
 
Ymmärtämällä syvällisesti kanavakumppanin liiketoimintalogiikan sekä -prosessit voit suunnitella tuotteen, joka auttaa kumppania saavuttamaan molemmat tavoitteet.
 
Miksi tämä on sinulle kriittistä?
 
Yrityksesi kasvaa vain, kun kumppanin liiketoiminta kasvaa.
 
Toiseksi, näin toimimalla luot uskollisuutta auttamalla kumppania tekemään liiketoimintaa tehokkaammin sen sijaan, että tarjoaisit ainoastaan uuden tuotteen myytäväksi.
 
Kolmanneksi, kanavaan suunnitellun tuotteen avulla kumppani voi rakentaa ilmiömäisen asiakaskokemuksen, mikä näkyy korkeana asiakasuskollisuutena.
 
Korkea kumppani- ja asiakasuskollisuus ovat ratkaisevan tärkeitä yrityksesi kannattavuudelle ja pitkän aikavälin kasvulle.
 
Kuulostaa hyvältä – miten edetä?

Toiminta on jatkuvaa, etene iteroiden ja varmista tulokset kanavakumppanin kanssa riittävän usein.
 
Yleisön kommentti Vendep Capital -tapahtumassa "Tässä on todella paljon tehtävää". Näin kyllä, jos ajattelet, että tämä on jotain ylimääräistä, jota sinun tulisi tehdä.
 
Oikea tapa on ottaa yhteensopivuusvaatimus huomioon olennaisena osana liiketoiminta- ja tuotesuunnitteluprosessia.
 
Yrityksesi tulisi olla paranoidi kanavan laadun, suoritus- ja kilpailukyvyn suhteen. Paras tapa osoittaa tämä, on optimoida tuotteesi ja palvelusi kanavalle.
 
Mikäli uskot, että tämä on yrityksellesi merkityksellistä, soita tai lähetä sähköpostia niin jutellaan lisää.
 
Terveisin,
 
Pekka
 
PS – mikäli yrityksessäsi on tämä kyvykkyys kunnossa, ota yhteyttä sillä haluan oppia kuinka teitte sen. 
 
Hyvää lukemista ”product-market fit” teemaan on Dan Ohlsenin "The Lean Product Playbook".

This is Part-Time Genius Blog on how to grow your business in a profitable and sustainable way.

This post covers one of the seven key takeaways from my presentation at the Vendep Capital B2B SaaS Channel breakfast.

Stay tuned for the remaining six tips.

A simple yet good definition for product-market fit is that you have created a product that provides significant value to the customer, and does it better than the competition. Very good but that's not enough.

In order to reach meaningful commercial success with your product, you have to design it for the channel.

The channel to market, the way you reach your customers is maybe the most valuable asset to your business. That's the biggest business multiplier which divides the losers from the winners.

Keeping product attributes like features and quality on par with the competition, if your product is optimized for the business model of the partner, the way they make business, the likelihood that partner would sell your product over the competition grows significantly.

This is exactly what you want, don't you?

The logic behind my statement is simple. Like any business, partners are looking for ways to make more business with lower costs - building profitable, sustainable growth.

By well understanding the business logic and processes of the partner, you will able to design a product or service that helps the partner achieve both objectives.

Why is this relevant to you?

Your business grows only if the business of the partner grows.

Secondly, you will create partner loyalty by helping them run their business in a more efficient way instead of just providing yet another product to sell.

Thirdly, with your product partner can create a phenomenal end-user experience which drives customer loyalty.

High partner and customer retention are crucial for your business profitability and long-term growth.

Sounds good - what does it take to get there?

You must do it often, incrementally and verify assumptions frequently with the partners.

A comment from the audience at the Vendep Capital event "Oh man, there's so much to do". Sure, if you think this is something extra you should do.

The right way is to consider it an integral part of your business and product planning process. 

You should be paranoid about the quality, performance, and competitiveness of the channel. The best way to demonstrate that, is by optimising your product and service for the channel.

If you think this is relevant to your business and you should do something about it, let’s talk. 

Cheers Pekka

PS - if you think your product already has a perfect business model fit, let me know as I want to learn from you.

Good reading on Product-Market Fit, check Dan Ohlsen's "The Lean Product Playbook".