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The following video transcript is generated automatically by a computer algorithm that learns and gets better on a daily basis. Please accept our apologies if some content below doesn’t make sense:

Our final topic for this podcast is the thorny topic of product pricing. Pricing is one of, you know, businesses massive unknowns is, you know, is something which people think should be science is but is very, very much an art. It’s something that you essentially have to initially gas up and then iterate overtime and see if you can find the right answer. But it’s it’s it’s the closest thing to unknown magic, I think, in business, apart from possibly hiring. But yes. So we’ve got to hear from a guy called Matt Wensing. I think I’m pronouncing his name right. See that all venting. And he is the founder of Summit, which is a financial product, financial sassed products. And he he’s talking about the pricing, a B2B SAS app, which is basically what he’s running. And in his tweet, he says, okay, well, how do you approach the version zero the very first way you want to try and price your products? And he breaks it down into three chunks. Number one, you ask the question, what metric of your customers business is your value correlate with most highly.

Meaning?

The value that your app brings to the customer. Like what what number in their dashboard or what thing that they’re tracking, does it most closely correlate with a match with number two? It has charged more as the product supports the use cases and activities associated with increasing amounts of that thing. So you want to set your pricing strategy such that as your customers see is with using your product. You want to increase your price. Along that same metric so that you are participating in the success of your customer, your customer is succeeding because of using your product. So it’s a win win for sort of both parties. And his third point, he says. Still, number two, into features or a metric that approximates number one. So this is about making the sort of sales of our ally case to new customers, that saying, OK, once you found that kind of those linked things. So the thing that your app provides and the success metric for your customers, if you can link those two things together, then in your sales material and in your discussions, you can make the case for you can have case studies of like, oh, OK, a customer, the customer side X and then now at Y because they’re using our product and there’s a direct correlation línea hopefully or a separate super línea to between how it is that we charge what it is the second does and the success that the customer sees at the other end of the sky.

Now, that’s, you know, that’s that’s a good way of doing it. And that sounds like your plan is very much easier said than done. And I think it’s something.

So you typically see it, for example, in a lot of enterprise software and things like that, charging a pursey licence, because the correlational the assumption is, is that the more people that the customer is putting into using your system, they’re doing that because they’re seeing more success. They can afford to hire more people. They’ve got more people in there. And so charging per seat is one way of approximating kind of the success of the product. That’s not always the case. One way to know if that sort of pricing isn’t working is you find your customers reusing the same log in for everyone you know in the office. You know, they’ve got one they’ve got one log in and, you know, they’re constantly fighting each other for that log in and constantly. So it’s on a Post-it note on the wall when you go around to their office. You know, here’s the log in for your product.

That’s probably a notification that you haven’t quite sort of hit that that ideal and you should try and sort of vary the way that you are charging on that basis.

What are your thoughts?

That’s very interesting. Yeah, actually, slack if you’re not using some users reimburses. But yeah, I think they are the core concept here. So bottom line will be when you’re selling either software or anything. People don’t cannot care less about you and your president signing your technology. They only care about them and how they are going to benefit. So you should if you want to sell anything, you should start by reinforcing first identifying and then communicating, then, you know, reinforcing the message to them on their benefits. So if you are selling in this case software, you should really understand how you either you save costs to them.

You save time or you increase revenue.

And then if and then it could be different for different companies, ISIS.

So there is not like a recipe for all pros, but I think the only recipe, if you are going to the fundamentals, is just understand your customers business and how, as you are saying, which metric you are going to improve their cost savings time or increase revenue. And then you can charge based on that. So if you are increasing revenue by one million per year because of your technology, you can charge half of that or a third of that. And yeah, it will. They will bait because it makes sense for the same. It’s a jar saving cost, et cetera. Whereas maybe same technology, but to a different customer, which must be your operations, they do increase their revenue by 10 media, then maybe you can charge more in space. Yeah, it’s like a revenue share could be in that case. Of course, you need to cover your costs as well. So you should always be to be mine. What are your costs on? And depending on the customer, what will be those marginal or incremental extra costs?

But a really bad way to price it is, oh, what are my costs? I’m going to pass it all to a customer with a profit margin. That’s that’s usually a bad thing. You should really benchmark on what’s out there.

And also especially had do they benefit from your technology or your approach? So I should be really on in their shoes. Not yet. Not subjective, because you love your product and you think it’s great.

Blah, blah. So, yeah, this case by case, I would say until you really find your sweet spot. Yes. So value based pricing rather than margin based pricing, right? Like the charge based upon the value that the customer gets out of it, not how much it costs you to manufacture it. In essence, one thing. So if you are going to approach your pricing or your products does suit itself to or service suits itself to this sort of class of pricing. One thing you got to be slightly careful of is you’re often trying. What you often come to is like a table or a tree of plan.

So you’ll have like start a medium large or bronze, silver, gold or whatever it might be. However, you sort of segment’s up your pricing strategy. And what you’re looking to do is you’re looking you’re looking to split apart the sort of features or the limits of the different plans based upon the size of the customer or the success that they’re seeing. So rather than doing seat by seat based pricing, it could be, for example, you charge if your system saves a bunch of data coming out of the client’s use of the product, then, you know, the small plan will have like a small number, 10 things. They’ll save 10 things that made him want to say 50 and a large one will save one hundred. And so you get your pricing plan based upon some usage of the system, more saving of the system. The thing you’ve got to be careful about is when you’re segmenting out those features into the different plans, things like that is if it’s really obvious to the customer that the lines between them are arbitrary. So in other words, they are you know, they might be on the beginner or small plan and they might be hitting the limit or getting close to the limit of the large plan. In which case there costs like jumped by an order of magnitude or something like that. Then if the thing seems really, really arbitrary, it’s like, you know, in their heads, they’re saying, oh, well, you know, I know it doesn’t cost them, you know, that much more money to provide that extra service. That’s literally just their said I have to pay more money for the same thing because, you know, I’ve bumped up into the next class. You will get a lot of pushback on that and you will get people who will actively do crazy things to just try and stay under that kind of like limit because of the difference between the pricing, people will be going in and sort of deleting old data to stay under the data capital. They’ll be going in and then we do lots of lots of busy work, which is which will reflect negatively on you. And will you know, you want your system ticking away in the background, being completely transparent and seamless, and everyone vaguely doesn’t even really know it’s theirs. All they know is, is that value comes in. There’s no much there’s not much hassle associated with it. I will stay on will be a customer for years to come. We don’t want to change. So you’ve got to be careful about how your segmentation looks to the customer, because if it seems to kind of like gouging, then you will you will see that kind of thing a. Learn some additional Chern, or you will get people who a lot people who will be very close to within sort of 20 percent of the top limit of the plan who are sort of hovering there and never get any higher and you won’t fund them into the other. That’s that’s a symptom that maybe that, you know, you need to adjust your pricing or adjust the segmentation between the plans for show.

Absolutely. Yeah, that’s a good point.

OK. All right. Thanks very much, everyone, for listening. We’re back every Thursday. Please cheque out our YouTube channel where we post this podcast and our other videos.

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