How Leading Companies Use Pricing as a Growth Lever with Brendan Dell
“The fastest growing companies look at pricing as a process: they optimize price on an ongoing basis, and it allows them to grow much faster.”
Pricing and positioning your business is often thought of as the domain of marketers and sales teams. But both have a huge impact on finance, and CFOs need to know the process.
So in this episode of CFO Yeah!, we spoke with consultant and pricing expert Brendan Dell. He works with high-growth companies - and those hoping to become high-growth - to find the best pricing models and messaging for their buyers.
The conversation explores brand and positioning as key growth levers, and we discuss why CFOs should be invested in their success.
Listen to the episode on Spotify, Apple, or RSS. Here are the highlights.
Why positioning matters for CFOs
As the CFO, what you ultimately care about is growth. And what that comes down to is you need to create a customer. That’s the famous Peter Drucker line: “the purpose of business is to create a customer.” Go-to-market strategy is the process of doing that.
It’s the process of selecting who you’re for, of positioning it properly so that those people see more value; that you’re the only option for them.
And then positioning that value with a price so that you can grow in a profitable and expeditious way. Users should increment value from the purchase, so they stay around.
How to build your pricing model
I don’t think there’s a perfect way, but there’s certainly a more effective and a less effective way to go about pricing. That means a price that will produce profitability for the company, be seen as valuable by the person buying it, and produce the least amount of resistance to acquiring customers as you grow.
Acquiring new customers is generally the most expensive thing for a growth stage company. So companies should start by pricing for the customer and then working backwards, rather than choosing the “longest-lasting light bulb” for their product and pricing around that.
Rather than focusing on the features, companies should - in a very specific and rigorous way - understand what specific segments of your market value, and build pricing and packaging from how they see and increment value.
Examples of pricing done right
For SaaS, the most important thing is the value metric: what are you charging for? Salesforce charges for seats, so that’s their value metric. If you have more salespeople, you’ll increment more value from their product. And luckily for Salesforce, it doesn’t cost them a lot more, so this also increases profitability.
HubSpot also does this well. They could charge like Salesforce - the more people that enter the platform, the more they’re going to charge you. Or they could build packages around features.
But they build value around the number of people you email. So as a marketer, the more people you speak with, the more value you should be incrementing out of the platform.
And it’s low-friction to start. A small company doesn’t have to shell out tens of thousands to get started. But as it ramps up, you see more value. And then they also increment value around that by expanding into other parts of the business.
Why a strong brand is essential for revenue
A brand is the single most powerful growth lever that you can find. Whether or not you believe this, people buy emotionally. And that’s true in software. They’re putting their reputations and esteem out there in front of their colleagues when they make recommendations.
It’s emotionally safe to recommend Salesforce. Everyone knows Salesforce - nobody’s going to tell you it’s a terrible idea. Gong has also invested heavily in its brand. It gives people a default to make a decision.
People see a B2B sale as this logical decision - I have this problem and here are a set of tools to fix it. But we’re seeing more and more that people buy these emotionally, with price as part of the story. This may sound fluffy for a finance audience, but it’s not fluffy - it’s routed in data. This is successful.
Nobody has the time or the expertise to truly compare line items to decide which solution is better than the other one.
What Brendan needs from finance teams
What I would want to understand from the finance team is what they’re looking at, and the growth levers they’re seeing. What are the unit economics? What are their growth goals? What promises has the CFO made to the board?
When I’m looking at the unit economics, I’m thinking less about them in terms of developing the price itself. Ideally we’re pricing in such a way that the margins are significant. But they help me to understand the story of the company. Because many growth stage companies are on this wheel of burning capital and raising new money, burning capital and raising new money. Burning money tells a different story from companies trying to grow profitably, and a different leadership focus.
The fastest growing companies look at pricing as a process: they optimize price on an ongoing basis, and it allows them to grow much faster.
From a finance perspective, investing in the brand is often a big miss. If you want to get in shape, people will go to the gym, lift some weights, they’ll look in the mirror, and wonder if they’re stronger yet. Of course, it doesn’t work in a day. But after a year, you just have to be stronger.
That’s what a lot of people do with growth activities. They have their team try something for a day, then ask if they made more money. When they don’t make more money, they scratch the idea and send the sales team out to bang on more doors.
It’s just not effective. Instead, optimizing price and building the brand over the long term are the biggest winners.
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