The tagline for the Art of Value Show is discover value, create options and start pricing. Lincoln Murphy calls value the “desired outcome”. In the SaaS world, the desired outcome is not the number of users for your app. The customer does not wake up in the morning and say “How do I get 50 users on this app?” The desired outcome is deeper. You have to venture into the discomfort zone to discover it. Lincoln shares why your success, and the customer's, is dependent on it.
Understand the Customer First
- What is the most important thing you can share about pricing?
- Most mistakes are made by not starting with the customer.
- Start by understanding the value the customer will receive.
- 10X Rule – Determine the value the customer will receive and set your price at 10% of that value, as a starting point.
- You have built your product with a specific customer in mind.
- If you cannot answer which customer will get the best value for the product, it is a non-starter.
- Know your customers better than they know themselves.
- People back in Henry Ford's day were looking at the desired outcome of “getting there faster” vs. “having a faster horse.”
- Knowing the desired outcome is transformative.
- Desired outcome is what your customers need to achieve and how they need to achieve it.
- Sometimes your customers cannot volunteer or articulate clearly what the desired outcome is.
- Can you apply “understanding the customer” to existing markets?
- It is applicable to any business.
- Whether it is customer relationship management or a gym membership, the specific customer segment that you target has a desired outcome specific to them.
- If you can unlock it, you can align yourself with that desired outcome.
- By understanding what motivates the customer, a gym can target mature ladies vs. a CrossFit style boot camp.
- The appropriate experience for the customer segment will allow them to meet the requirement of being healthy and feeling better.
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What Is the SaaS Marketplace?
- What are the current trends in the SaaS market?
- The market does not really exist; it is a business architecture.
- Aside from ethics and laws, there are no rules for SaaS.
- Companies like Slack use a land-and-expand model.
- Once you reach a certain number of people, Slack gently pushes its paid services.
- Zenefits is another one of the fastest growing companies ever, giving you a free option.
- Its core revenue comes from insurance.
- Gainsight is an enterprise level company.
- All three are SaaS companies have very different revenue models.
- Zenefits does not have a recurring revenue aspect.
- SaaS is moving away from the per-seat licensing.
- For example, the company might charge based on projects rather than users.
- Base your pricing around how your customers perceive value.
- What are some of the changes in traditional Saas pricing?
- People are realizing that it does not matter how it was traditionally done.
- Resonate with the customer in a way that gets the customer to achieve value while you achieve revenue.
- Basecamp is a good example that companies copy, but they are constantly learning too.
- Pricing is always evolving, from a market standpoint; you need to evolve as well.
- Have a legitimate story behind your options.
- Understand that your customer needs to evolve too.
- Create an ascension model for them, keeping them moving up the pricing tiers.
[clickToTweet tweet=”Base your pricing around how your customers perceive value.” quote=”Base your pricing around how your customers perceive value.”]
Focus on the Desired Outcome
- Which 17 elements for customer success are most important to pricing?
- Understand the appropriate experience your customers are looking for and deliver it.
- The appropriate experience depends on the desired outcome and the customer segment.
- Your pricing model should be built around:
- Appropriate experience
- Desired outcome
- Customer segment
- If your price is too low, a customer segment will know that you cannot provide what they need.
- Why does complexity create opportunity with the customer?
- Mo' money, mo' problems talks about taking into consideration everything going on in the customer's world.
- Understand how the customer gets value out of your product and base you pricing around it.
- Understanding the complexity of the customer's needs leads you to more opportunity.
- Understand – beyond your product – what is going on in the customer's world.
- How can a SaaS company price on value?
- Sometimes the customer's imagination is more powerful than what you can report on a spreadsheet.
- Sell a future vision of what your customer can accomplish with you.
- Enter the conversation that is already going on in the mind of the customer.
- Get to the bottom of how customers value the outcome, rather than the product.
- How to Develop your SaaS Pricing Model goes into how to price.
- When you first start and you don't know what you don't know, no one knows the best pricing.
- Start wide open with 100 customers, giving them full access to everything.
- Learn and record the conversations to address the objections.
- Learn the customer's language.
- Raise the price each time you close a customer until 25% of the people push back because of the price.
- Watch how the customers use the product and you will notice self-segmentation.
- There is a wide range of products with multiple examples over time, like WorkDay.
- The bottom line is you have to figure out what works best for your company and how that can interject into your customer's world.
- What is one of your best stories about creating value for a customer?
- An email marketing company started with a 30-day free trial and they were getting people to sign up after 42 days.
- They were pricing based on value metrics that were not important, like the size of the list.
- They changed the pricing to be based on a campaign run.
- They lowered the entry obstacles to get people converted faster.
- They realized there is something called a success gap, where sending the email is not the desired outcome, so they started helping people create better content.
- They reduced free-trial conversion down to 3 days.
- Creating a pricing model that was more aligned with the desired outcome of the customers, they could also strategically discount the next tier up.
- Know what your customer's desired outcome is and optimize around that in whatever you do.
About Lincoln Murphy
Lincoln Murphy has helped over 300 SaaS (Software as a Service) companies grow by focusing on customer success. He is the founder and chief consultant at Sixteen Ventures. He writes and speaks regularly on customer success, growth, and pricing. He is also the Chief Success Evangelist at Gainsight.
- Lincoln's Website: sixteenventures.com
- Lincoln on Twitter: @lincolnmurphy
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