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(536 words - 4 min) A solution is a product or service that solves a problem. A platform is a product or service that can be used to solve many different problems. So, it seems obvious that platforms should be priced higher than solutions. However, that’s rarely the case. When pricing a solution, it’s straightforward (not necessarily easy) to articulate and quantify the value of solving the problem. Of course, you don’t capture all of this value with your price, but this value drives your buyer’s purchase decisions and hence your pricing decisions. Because platforms solve so many problems, it’s ...
(593 words - 5 min) Buyers trade money for Value. In B2B, value is measured in incremental profit. Let me repeat: Value is Incremental Profit to your business customers. Prospects only buy from you because they believe buying and using your product or service will provide them multiple times more profit than your price. This profit, or VALUE, comes in one of three forms: increased revenue, lower costs, or reduced risk. What follows is a brief overview of how your customers think about each of these. This should help you decide which to emphasize in your sales and marketing if ...
(596 words - 5 min) The answer is obvious. They don’t know the value of your product. The CEO of a $15M company said to me, “My salespeople don’t sell the value of our products. Can you help?” I love being asked to do something where I’ll have a big impact. So I asked him, “What’s the value of your product?” He started by telling me a HUGE ROI number. Then I asked how he supported that. He listed the most valuable features. He gave examples of what his product does. But he didn't tie any of that back to ...
(681 words - 6 min) There are only two ways to increase your revenue (and profit): win more customers and grow your current customers so they give you more money. That’s it. Many high-growth companies focus on both of these, WIN and GROW. Buyers trade money for value. They only give you money when they believe they are getting more value than the price. If you want more buyers to pay you more money, your buyers must perceive more value. So, what is value? Value is an ambiguous word, but let’s focus on B2B markets where value is less ambiguous ...
(413 words - 4 min) The first indication that you need a new pricing metric is you have customers who get massive amounts of value but don’t pay you very much. A pricing metric is what you charge for. It’s usually what goes on your invoice. Companies that sell physical goods typically charge by the item. Software and service companies have many options. You can charge by the click, download, storage, hour, month, project, and many, many more. The goal is to find a pricing metric where the customers pay more as they receive more value. When a customer receives ...
(597 words - 5 min) A company or product without Product-Market Fit (PMF) is doomed to fail. We probably all agree with that. Products without a market willing to pay for them find themselves on the island of misfit toys. (Do you get that reference?) From a high-level perspective, the concept of PMF makes sense. You release a new product and find a market that likes it enough to buy it. You have PMF. But you’re not done. Sure, you can make money by selling your product to that market, but you are FAR from optimized. Buyers in your market ...
(347 words - 3 min) Daniel Kahneman, in his book Thinking Fast and Slow, described system 1 and system 2 thinking. System 1 thinking is fast thinking. It’s responsive. It’s doing something without thinking deeply. System 2 thinking is deliberation. It’s consciously thinking about a situation to make a decision. It’s using logic to solve complex problems. In the world of Value-based pricing, system 2 is easy to understand. Buyers are looking at the differences between your products and competitors, looking at the price difference, and then deciding where they get the best deal. They deliberate. They use their best ...
(290 words - 2 min) Shoot me now! A few days ago I was watching Shark Tank. You know, porn for entrepreneurs. One of the people pitching said, “We have room for negotiation.” I rarely get upset when people say or do stupid things on that show, but this time I had to throw something. The Shark Tank story is about the valuation of a company. But if your salespeople say this, it’s about the price of your offer. Saying “we have room to negotiate” lowers your price before you start. You are negotiating with yourself. It’s not believing that ...
(425 words - 4 min) Last week, we discussed the two ways you can grow revenue: win new customers, or grow your existing customers. All businesses focus on winning new customers, at least they did when they started. Let’s talk about growing customers. There are only four ways you can grow a customer: raise prices, upsell, cross-sell, and usage. Raise prices: You can raise prices on subscribers. This is a no-brainer, but so many companies are afraid to do this. Your current customers already know the value of your product, which we assume is huge. They probably have high switching ...
(319 words - 3 min) There are only two ways your company can grow. Win new customers and get more money from your current customers. I know, Captain Obvious. But here is my question for you. Do you think about these differently in your decision-making? When you price a product, are you selling it to new or existing customers? The answer is probably “both,” but which are you pricing for? New customers don’t know the value of your product. They can only use perceived value, which depends on how well your marketing and sales teams can communicate it. New customers ...
(360 words - 3 min) I have a ton of thoughts swirling in my head that I want to organize and put on paper to communicate the power of value to people outside of pricing. This may be the organizing structure to my next book: Invincible Profits: How to Lead a Value Revolution and Dominate Your Market. When I boil pricing down to its essence, it always seems to come back to this one statement: Buyers trade money for value. As pricing people, we know this. But this applies to the entire business. We are in business to make money, ...
(324 words - 3 min) Last week I had the pleasure of working with a company whose CEO had been to a pricing bootcamp and asked me to do a version for her executives. We started by asking the room to write on a post-it note the answer to “Why do customers buy our products?” And then we jumped into trying to figure out the answers. What I found fascinating is that their answers to why they buy weren’t bad. There were answers like “great customer service”; “good reputation”; and “fabulous products”. My opinion is they weren’t complete, but more ...
(306 words - 3 min) Most companies I work with use the phrase “land and expand.” Land means to win more new customers. Expand means getting your current customers to pay more in the future. (These are Win and Grow from my book, Win, Keep, Grow.) Every company puts significant resources behind land. Yet few put much emphasis on expand. I just witnessed a fantastic example of a commitment to expand. This week I was at the PROS Outperform conference in Denver and had a chance to hear the executives discuss some of their strategies. Every executive in the room, ...
(542 words - 5 min) One sales manager said to me, “Our salespeople show up and throw up.” What he was saying is their salespeople have the product pitch down. They know the company and the products well. Yet talking about the company and the product isn’t enough to win deals. The sad truth is nobody cares about your product. Your buyers and customers care about what your product can do for them. What problems it will help them solve. What results might they achieve. This distinction is clearest when differentiating experts from non-experts. Experts buy features because they can ...
(457 words - 4 min) I first learned about the curse of knowledge in Dan and Chip Heath’s book, Made to Stick. The concept describes a situation in which you know something so well that you forgot what it’s like not to know it. Have you ever talked with an expert about their topic and didn’t understand what they were saying? Have you gone to a doctor who described your problem using words you don’t know? These people aren’t trying to make you look stupid (probably). They are communicating in the way they know how. They don't realize you don't ...
(843 words - 7 min) Your salespeople discount too much. They want the sale. They often want the sale at any cost, including the cost to your bottom line. When you talk with them, they claim to do what’s best for your company, but you don’t really believe that. The vast majority of salespeople are not indifferent, incompetent or lazy. Yet they discount too much. Why? Discounting is a tool in their toolbox. Sadly, it’s very easy to use, so it frequently gets used. Salespeople want to please the prospect. They want to be liked. They want to earn trust ...
(882 words - 7 min) Every purchase has one thing in common: A potential buyer looks at the price of a product and compares it to the value they expect to receive. If the prospective consumer doesn’t make the purchase, it’s for one of two reasons: Either the price was too high, or they didn’t perceive enough value. You can probably lower your price enough to get them to purchase — but that’s not why you’re in business or in sales. The key to sales is to help the buyer perceive more value in your product. Ultimately, the most successful salespeople ...
(677 words - 5 min) Pricing, like many fields, is both a science and an art. Many pricing professionals focus on the science side using spreadsheets, big data, data science and market research techniques. We tend to love facts, math and numbers. The science of pricing comes relatively easily to us. The art of pricing is different. Now we must think differently, as there is more to pricing than just numbers. Let’s split the art of pricing into two parts: the tools and the vision. Like a painter must choose which tools and techniques to use, a pricing professional must ...
(889 words - 7 min) The most common sales compensation is a base pay plus a commission rate as a percentage of the revenue. The base is justified as payment for activities the company wants them to perform that take them away from selling. These are activities like forecasting, training someone new or working with engineering on a new product. The exciting part of the compensation plan is the commission. For example, if a salesperson makes a 4% commission, then when he sells $1 million worth of products, he earns $40,000. This seems like a good plan to motivate salespeople to sell ...
(776 words - 6 min) Growing a traditional or transactional business may not have been easy, but it was easy to understand. Create great products. Use marketing to get the word out. Hire salespeople to close deals. The better you do each of these three activities, the more revenue you will make. Let’s call these actions part of the 'win,' for winning new customers. Subscription businesses must also win customers, and the process is essentially identical. But this is only the first of three revenue buckets a subscription company must manage, especially if they want to grow. The three revenue buckets ...
(976 words - 8 min) Value-based pricing is an extremely simple concept: Charge what your customers are willing to pay. This is the perfect profit optimizing price. Charge more than that, and they won’t buy. Charge less, and you’re leaving money on the table. You can’t do better. This concept is simple to understand but impossible to do perfectly — you can’t read the minds of your buyers. Besides, they probably don’t even know exactly how much they would pay. However, you can always get closer. There are many strategies and tactics you can implement to capture more of your ...
(842 words - 7 min) How do buyers choose what to buy? A purchase decision can be broken up into two processes, rational and irrational. Dan Ariely’s book, Predictably Irrational, did a wonderful job of explaining how humans use heuristics or mental shortcuts instead of pure logic to make decisions. This field of behavioral economics is fascinating and fun, but it only describes a portion of a buyer's decision process. Buyers buy value. They only have so much money, so they choose carefully how to spend it. Sure, they make mistakes, but they try not to. They try to be rational ...