Ep 16: Ryan Glushkoff – Why Subscriptions are the Future of B2B: Why & How to Take Advantage
Ryan Glushkoff founded Fraction8, a consulting firm focused on delivering pricing and product marketing expertise for business to business (B2B) software companies. He worked in the software industry for a massive 20 years and has relevant experience in both pre-sales and post-sales for the mass-market and custom-enterprise type of software companies. These opportunities gave him an advantage in understanding how SaaS (software as a service) companies need to position, price, and market themselves for success. He was a student of Mark who took the first Price class in his Pragmatic Marketing course.
In this episode, Ryan shares the foundations of his career in pricing and his exposure in the B2B software market which paved the way of starting his consulting firm catering to the same market. His insights into the evolution of pricing, risks in changing the pricing structure, and the concept of feature-based pricing model.
Get an in-depth explanation of the pricing metrics of subscriptions – the three essential criteria and the process of identifying the appropriate metrics for customers
Why you have to check out today’s podcast:
- Find out how subscription-based pricing works for software B2B companies
- Discover the metrics and criteria you need to track your SaaS subscription business
- Know the pros and cons of feature-based pricing model for SaaS
“Talk to your market, whether that be your customers, your prospects, your churn customers or your white space prospects that you’ve never spoken with before in your town. Get out there and talk to them because there is no substitute for hearing from them firsthand.”
– Ryan Glushkoff
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01:35 – Ryan’s core beliefs in pricing and how his pricing career started
02:15 – Working at Disney where he was first exposed in pricing and where he met his wife
03:01 – His experience in B2B software providers in a marketing capacity and eventually starting his own company
04:07 – Focusing his market on software subscriptions in B2B companies
05:53 – How Disney figure out how to offer their packages to families with the B2C approach
07:20 – Subscription pricing vs. normal pricing
08:36 – Defining the concept of metrics in software subscription
10:07 – Three (3) important criteria of pricing metrics: Alignment with business, easy to understand,and scalability
11:54 – Walking through the process of identifying the right pricing metrics for customers: brainstorming, surveying the market, segmentation, and pricing evaluation
15:59 – Ryan’s thoughts on pricing evolution and his advice on that
19:13 – Why companies need to be cautious when updating their pricing structure
22:43 – The strategy of raising prices with new customers and the risks involved
24:20 – Two (2) important pricing advice to the audience: Get out there and talk to your customers and choose a pricing metric that is not feature-based.
26:23 – Citing an example of a feature-based pricing metric
“One of my core beliefs is that pricing is a blend of art and science together. You got to be good with numbers of course because it is pricing after all, but you have to also be very good at discerning behavioral patterns that you are not easily visible in the market.”– Ryan Glushkoff
“Subscription pricing means that you as the buyer agree to pay a fee in perpetuity or at least until the end of your contract term in exchange for a product or services that are rendered to you. (While) Non-Subscription pricing means that you’re obligated to pay only once, or at least according to the payment terms of your contract.”– Ryan Glushkoff
“How the customer pays do not necessarily have to align with the value derived. Although I would submit to you that it works out better economically for the vendor if the pricing is aligned to the value created by the product per surface. And that’s the whole value metric side and software subscription.”– Ryan Glushkoff
“You have to be careful with customers though because a paying customer is better than a churned customer even if they aren’t as profitable as you’d like them to be.” – Ryan Glushkoff
Connect with Ryan Glushkoff:
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Full Interview Transcript
Ryan Glushkoff: Subscription pricing means that you as the buyer are agreeing to pay a fee in perpetuity. Yeah, or at least until the end of your contract term in exchange for a product or services that is rendered to you.
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value and the undeniable relationship between them, I’m Mark Stiving and our guest today is Ryan Glushkoff. Here are three things you really want to know about Ryan, before we start. First, he’s founder of Fraction Eight, a pricing and product management consulting firm that focuses on B to B software, exactly where we want to be. Ryan was in the very first price class I ever taught for Pragmatic Marketing. Well, think of it this way, from student to consultant. Woohoo! I guess we’re going to test them a little bit today, see what he learned. And finally, third, he and his wife are Canadian, but the magic of Disney brought them together. Now, you know this is not a touchy-feely podcast, but that may be a story we want to hear. Welcome, Ryan.
Ryan Glushkoff: Hi Mark. Thanks. It’s a pleasure to be here.
Mark Stiving: It’s great to have you here. Hey, how did you get into pricing?
Ryan Glushkoff: Well, you know, I think it, it starts with one of my core beliefs that pricing is a blend of art and science together. You gotta be good with numbers, of course, because it is pricing after all, but you have to also be very good at discerning behavioral patterns that you are not easily visible in the market. Now that said, you know, my educational background is in engineering, so I’ve got the mass side taken care of. But I’ve also spent my career working in the B2B technology space initially on the custom build enterprise software side, and later on the mass market side. So I’ve seen both sides. Now, as you alluded to in the introduction, my first exposure to pricing was actually at Walt Disney World where I not only met my lovely wife, but I was also helping roll out a theme park and vacation package ticketing and pricing structure that they’re actually still using today. So if you go to Walt Disney World in Orlando, Florida, and buy theme park tickets, you know, you’re using some of the infrastructures that I helped put in place.
Mark Stiving: Rarely am I jealous of my guest, but I want that job.
Ryan Glushkoff: Yeah. I spent three years down there. I’ve definitely been to all four theme parks more times than I can count. But now that I have young kids, I’ve started to go back and now that they’re opening the Star Wars parks to the theme park, I’m definitely going back.
Mark Stiving: Oh Nice. Nice. Okay. I’m sorry for interrupting. Go ahead.
Ryan Glushkoff: After Disney, I worked for three different mass market B2B software providers in a marketing capacity. And because of the time, they all tended to be on the smaller size. No one in the house is very few were focused on pricing and I actually happened to love pricing. So I ended up being tasked with helping with it or being tasked phony it overall. And, but you know, eventually, I got a little tired of the equity back startup world. So for the last two years, I’ve been working for myself, providing pricing and product marketing expertise or B2B technology companies.
Mark Stiving: Wow, that sounds great. And I was expecting you to say I got into pricing when I took your price class and fell in love with it.
Ryan Glushkoff: That definitely, that definitely helps. The presence of your price class actually demonstrated to me that hey there is, there should be a method and a process behind this, but you know, it just hadn’t made its way widely from the classroom into the, into the corporate world yet. So there’s definitely an opportunity there. You were on to something early.
Mark Stiving: Thanks. One of the things I love about the way you position yourself is you’re willing to focus and say, this is what I do. And you say, I do B2B subscription software companies. Is that right? Or did I throw in subscription and that doesn’t fit. I do B2B software.
Ryan Glushkoff: I tend to focus on software subscriptions. So those software subscriptions tend to be part of B2B technology companies as a whole. Those technology companies may have products that they sell the subscription and or other services that they sell as subscriptions. But my niche is focused on the B2B software world. And I, I tend not to focus in the B2C world, you know, simply because I feel like there are some other psychological factors involved in that, which I’m not an expert on. And, and the B2B world tends to be more value-based, right? The pricing that I see and, and, and advocate in the B2B space tends to be more correlated with the value that the solution is delivering to the client.
Mark Stiving: That’s pretty fascinating. I think that in the space that you find yourself in, which is software, they have no choice but to price based on value because they can’t price based on cost, otherwise, they’d give their product away for free. And so I love the fact that software people tend to do more pricing based on value. And I think that’s awesome. Love that. I often think about the difference between B2B and B2C as in when I’m doing B2B pricing, I am putting myself in individual buyer’s shoes trying to figure out how they make decisions. And when we shifted B2C, we often have these huge databases and we’re doing analytics. We’re trying to figure out how people make decisions that way. In Disney, though, it sounded like you were treating that more of a B2B, where you’re thinking about individual families and how they make decisions. Is that close and how did you approach that?
Ryan Glushkoff: That’s true. You know, at the time, keep in mind this is going back a long time. This was in the early two thousand so long before, long before the iPhone and long before CRM became a household name. So at the time, Walt Disney World didn’t know anything about its customers. Didn’t know that you may have, there’s a Disney world last year and went on a golf package with your buddies, but you were coming back next year and you know, planning to come with your wife and your kids and you know, maybe your wife wanted a spa package. Disney didn’t have that kind of visibility. So, oh, they were really at the forefront of using historical customer behaviors to recommend what they thought your next vacation was. So our job was to help put that kind of logic in place and at the time it was, it was very cutting edge. Now you know that’s, that’s almost that level of personalization in the market is almost par for the course.
Mark Stiving: Yes, but knowing Disney, they probably are on cutting edge of something else that we don’t know right now.
Ryan Glushkoff: Absolutely.
Mark Stiving: Let’s talk about subscription pricing. What, why do you think subscription pricing is different than just normal pricing?
Ryan Glushkoff: Good question. I think subscription pricing means that you, as the buyer, are agreeing to pay a fee in perpetuity or at least until the end of your contract term in exchange for a product or services that are rendered to you. Now ideally, the buyer should be receiving value on a recurring basis that aligns with that pricing. Non Subscription pricing means that you’re obligated to pay only once, or at least according to the payment terms of your contract. Now, I’m purposely not mentioning the value that a buyer derives from that purchase because how the customer pays does not necessarily have to align with the value derived. Although I would submit to you that it works out better economically for the vendor if the pricing is aligned to the value created by the product per surface. And that’s the whole, that’s the whole value metric side and software subscription.
Mark Stiving: Nice. I love this whole concept of metrics. I say the word pricing metrics, pricing metrics cause it’s what do we charge for? Um, what are we going, what are we going to put a price on? But either one is fun, fun for our conversation here. When you start thinking about pricing metrics though, it’s possible that traditional businesses, hardware products even could have different pricing metrics, right?
Ryan Glushkoff: Yes, yes. That is true. The underlying economics are probably a little bit different because that, that piece of hardware probably has a cost underneath that there that they have to account for. But otherwise, you know, there’s really no reason everything can’t be priced or offered to the market as a subscription provided that the market is willing to pay for it, in that context.
Mark Stiving: Yeah, I think it’s about delivering the value and how it works. But one of my favorite stories in this whole aspect was in the book [inaudible] book monetizing innovation. He tells the story of Michelin charging by the mile for new truck tires as opposed to charging for the tire and I thought that was brilliant because that’s really getting more at the pricing metric. How is it that their buyers are getting the value for the product? What I love about software though is all of a sudden we open up the world to hundreds of different pricing metrics, tons of them. What kind of pricing metrics have you seen that you find interesting?
Ryan Glushkoff: There’s definitely a lot, a lot of different pricing metrics. I think pricing metrics need to hit three important criteria, so I always keep these in the back of my mind whenever I’m, I’m trying to help companies work through this. This topic. One, they have to align with your business need so they have to resonate with the business problems that whatever is in the scope of the subscription is trying to solve. Two they’ve got to be easy to understand. And three, they’ve got a scale as use of the subscription and you extract value from the subscription. They’ve got to scale with that value. So you know, some of them, some of the pricing metrics that are I guess are the low hanging fruit. There are some that are easy that companies tend to always start with, you know, users and features are, you know, the two that you probably see more often.
Ryan Glushkoff: And some companies, and I’ve seen this also young companies, they don’t use a pricing metric or segment their offers at all. Their view on the world is when they’re small, as they’re trying to get as many customers as possible. So they will just say, hey, it’s one flat fee per month in order to get as many customers as possible on the system. Then they’ll get around to segmentation later. And once you’d end up choosing a value metric. You know, some companies can get, you know, very innovative with this. You can choose, you know, record counts, email’s sent, number of video views. You know, there is a space we used. If you’re if you’re a Dropbox or a storage provider cloud like that. So I think it does, it varies tremendously based on the type of service that you’re providing to the market.
Mark Stiving: Yeah. Do you have a process that you go through with your customers to brainstorm on pricing metrics or figure out what the right pricing metrics are for them?
Ryan Glushkoff: The process typically can start with the product team. Since the products and product management team has or should have their finger on the pulse of the customer’s market problems. This is a lesson that I definitely picked up in, in, uh, my pragmatic classes with you.
Mark Stiving: Yes.
Ryan Glushkoff: It’s, you know, starting with them to figure out what that initial list is. The only metrics that correlate closely to the market problems, they are being sold in the market. That’s a good starting point. And then, you know, I find, you know, typically, uh, a conversation on a brainstorming exercise. Yeah. Can then validate a list from there. And then the next step is to actually survey the market and find, you know, if there is a willingness to pay variation, uh, in that metric as the size of the market changes. And if you can find that, then you have the segmentation of your plans and your offering structure
Mark Stiving: And I actually like the three characteristics that you gave. In other words, is it correlated with the value our customers are receiving? Is it solving our personal business problems and things we have to get done? And then finally, does it grow as customers grow? And I thought those were great ways to evaluate them
Ryan Glushkoff: and it’s gotta be easy as well.
Mark Stiving: Oh yeah. That was the third one. I added one in that I liked.
Ryan Glushkoff: But that’s being easy. Being easy to follow is, is a tough one. You know, it’s very easy to make things complex, but it’s very hard to make things easy. So your example of, you know, charging for tires based on the distance traveled sounds great. Right? Correlates with their problem. They need tires to drive their vehicles. You know, the more you use it, the more value you get from it. So there is a scale there. Kind of tricky to, to track and understand if you’re, if you’re the buyer like do I really want to be burdened with okay, tracking, you know, how many miles each of my tires has traveled and then submitting that information to the person who sold me the tires, you know, there, there might be other options, uh, that are easier though. That’s where I think the science of pricing runs into the art.
Mark Stiving: Yes. I often think of what you just described as measurable or practical but yeah, I am complete with you, relatively straightforward and easy. If you were thinking about selling tires to you and me, I don’t know about you, but I would never ever log my miles and say here’s something he had done and sent them reports. What a, what a pain that would be. But I could imagine fleets already do that. And so it was no extra hassle or effort for them.
Ryan Glushkoff: That’s true, that might be, that might be true. I’ve never worked in the tire industry. So, and they might have that information at their fingertips. And if they do, that’s something that could be discovered through market research. And actually that kind of gets that one of the kinds of one of my, you know, consistent pieces of advice that I, that I give clients is, and, and I think this may also, it might’ve come out of the pragmatic marketing class. The answer is not in the building.
Mark Stiving: Yeah.
Ryan Glushkoff: Get out there and talk to your market, whether that be your customers, your prospects, your churn customers or your white space prospects that you’ve never spoken with butter in your town. Get out there and talk to them because there is no substitute for hearing from them firsthand.
Mark Stiving: I couldn’t agree more. That’s absolutely fabulous. Earlier you alluded to startups or companies that are just starting out, having really simple flat pricing structures. And then, although you didn’t say this, you could imagine as companies become much more mature, their pricing becomes more complex. Do you see a pricing evolution, uh, so companies or products that go from super simple to super complex and how would you coach or advise someone to go through that evolution?
Ryan Glushkoff: I’ve heard of a couple, I wouldn’t say it’s a, it’s a trend at all that I’ll say is, is inactive, but it definitely is. There is a business strategy implied there. How I had it described to me was, you know, we’re a small company, we don’t know what we don’t know about our target market. Uh, in this case of hey, it happened to be postsecondary institutions, colleges, universities and yeah, they were very, a few other vendors like them that were providing the same service. So in that type of business situation where they didn’t know what they didn’t know and the competition was minimal or nonexistent, they essentially wanted to walk down the proverbial supermarket aisle and just forearm all of their customers into their, into their basket. They just wanted to go for market share. So to do that, they want it to keep their pricing super simple. They weren’t segmenting it based on the size of the university. They weren’t segmenting it based on giving them this feature or withholding that feature and telling them it’s extra. They just wanted to give them the full access to the system for a flat price in the early going. And then as they matured and learned a little bit more about their market and the market’s willingness to pay, then come up with some sort of segmented plan structure and an offering structure for that particular market. It’s dependent on them, the type of business situation that you’re in of whether you’ve pursued that approach. If you know the market well enough, then you don’t have to take that approach.
Mark Stiving: I think that makes a lot of sense. If you think of it the way, you know, to our listeners, we’re talking in pragmatic terms for a second and one of the things pragmatic marketing always teaches is go listen to your marketplace, know your buyers, know what their problems are, and those are phenomenal things that we should do. But it feels like the exact opposite of that, of that, that we often hear is go build a minimum viable product. Get it out in the marketplace, get people using it, figure out what works, what doesn’t work. I could see companies who are doing the MVP type thing using that so that they can then capture usage data, willingness to pay data, and then make much, much more intelligent decisions about price segmentation.
Ryan Glushkoff: I would also add that if you’re building an MVP product and you put a semi-complex offering structure together that has three plans, two add ons at each, at each plan level and the pricing, it changes based on which plan you’re on and you know some features are included. Some are not. I would submit the year you, as the vendor, are putting some artificial constraints on your success without actually knowing what the impacts of those constraints are, so why do that to yourself?
Mark Stiving: Yeah, that makes a lot of sense. If we’re going to talk about the evolution of subscription pricing, that implies the companies are or should be constantly updating their, their pricing, their products, their structure, their offering. How do you help companies do that
Ryan Glushkoff: Carefully. Because number one, it affects your customers, assuming that you’re doing a rate adjustment as part of that update, and two, it also affects your sales efforts which are currently in progress for both groups, whether it’s your customers or your prospects. My advice to clients is to segment the groups and create treatment plans that are tailored to each. So for customers, you may want to divide them up by size or the plan that they’re on and customize how you communicate the changes or the price increases. Now you have to be careful with customers though because a paying customer is better than a turn customer even if they aren’t as profitable as you’d like them to be. Case in point, even today, just this morning, you know, today is Wednesday. I probably like a lot of your future listeners of this podcasts receive an email from Netflix informing me that my plan was going up to $13 a month. I got that notification in my email and I also got it when I turned on Netflix at the gym this morning. So it was actually a flash on my screen, on my phone when I opened the APP. So they, they were proactively communicating to me. Now for prospects, you want to think about who has an active opportunity and who doesn’t and you want to make sure you publish the rules of engagement to the sales team ahead of time so that they know what to say and what not to say. The last thing you want to have is your salespeople, surprised by someone on the phone saying, you know, ask some questions about know why is the, you know, why are there two different prices being shown? Now if they do have, if a prospect does have an active opportunity with the company, you have to make sure that you’re conscious of not disrupting that potential deal that’s on the table. So depending on where it is in the evolution, where pricing has been presented, whether it’s not, you have some options, but you’ve got to tell the sales team how to handle those situations. If then, do this, else do something else. Now, if they don’t have an opportunity in front of you, then you want to make sure that the sales team is positioning the new pricing. Do you want to start moving the pipeline to the new pricing in a way from the old pricing.
Mark Stiving: That makes a lot of sense. I want to add one piece to what you said because you brought up Netflix and it just drives home something that makes a lot of sense. Anytime you raise price on a subscription customer, you force them to rethink their decision and, and I find that interesting because I’m going to write my Netflix check every month period or just going to take it out of my credit card and I’m not even gonna think about it until you raise my price. And once you do that, some small percentage are going to say, Oh yeah, you know what? I wasn’t really watching Netflix that much, I think, oh yeah, I don’t think I’m going to, I don’t think I’m going to re-up it and we’re at risk when we do that, but I love the concept that says we’ve got new customers. Why don’t we raise prices on new customers? There’s nothing wrong with that. What do you think of that strategy?
Ryan Glushkoff: Can make sense. In some cases customers do speak to one another, so you have to be aware of that. I think the risk of customers talking to each other, I feel like sometimes it can be less, less of a risk in the B2B space simply because companies tend not to share those kinds of details and with one another. Well, sometimes they do. I know some market verticals and some types of companies happened to be very close with their peer organizations, convenience stores or happened to be one that just comes, comes to me right off the top of my head. A lot of c store executives, you know, talk to one another and they know what they’re paying for each other’s solutions.
Mark Stiving: Hmm.
Ryan Glushkoff: Now in the B2C space, I think you’ve got to be a little more careful about that just because people will, you know, tell you what they’re paying for Netflix, Netflix or it’ll find its way into social media. So it is incumbent on the vendor to prevent those kinds of kind of blow-ups in the market to say, you know, why are you treating one type of customer different than another? Even though, hmm. Charging different amounts based on different types of, of individuals. You know that price segmentation and that’s, you know, as you’ve stated on many occasions, that’s one of the most valuable tools in your, in your arsenal to have.
Mark Stiving: Yeah. We just have to make sure that segmentation looks fair.
Ryan Glushkoff: Correct.
Mark Stiving: Yeah. Nice. Nice. Ryan, as we’re finishing this up, can I ask a, here’s the big question. What’s one piece of pricing advice you would give our listeners that you think could have a really big impact on their business?
Ryan Glushkoff: I’m going to say two things. I was thinking about this in advance of our call today. One is, the answer is not in the building. Yeah. Get out there and talk to your customers. You should be doing that on a regular basis and if you manage your team, you know, that should be part of their performance goals for the quarter. They should be doing some number of in-market conversations every month so that they’re staying up to date. And the second one is when it comes to pricing metrics, I’m not a fan of features and using features as a pricing metric. And the reason I say that is I came out of marketing, I have written my fair share of copy and I’m, I’m, I like to think that I’m a little bit eloquent and a little bit articulate. But I feel like there is no combination of words that can adequately convey the amount of value that a solution can provide and the market just will never understand it to its full potential. So why rely on words to translate the value of your solution? So choose a pricing metric that is not teacher based. Choose one that is something else. I feel like features are the easy way, easy way, but my recommendation would be to choose something else other than features.
Mark Stiving: Can you give me an example of something that’s not a feature-based metric?
Ryan Glushkoff: Dropbox storage, storage space in the cloud or Wistia with the number of video views or a CRM system with that’s charged based on the number of records in your database or an email marketing program like Hubspot, which is, you know, the number of emails that you send.
Mark Stiving: I think I understand, but one more question. Can you give me an example of a feature-based pricing metric? And then I think I really do understand that
Ryan Glushkoff: A feature-based pricing metric would be one where a company has multiple plans and they may have 10 features in the first plan, 15 features in the next plan and 20 features in the next plan. So they’ll say, well, you know, the bronze plan does these things, but it doesn’t do these things. The silver plan does everything in the bronze plan and a few more things. And the gold plan, well, it does everything. You’re paying more for more features. And I just don’t think, I just don’t believe that the market, a potential buyer, fully values those features. And if your pricing is aligned to the value, I think you’re leaving, you’re, you’re, you’re leaving opportunity on the table.
Mark Stiving: Awesome. I understand completely. I definitely agree with the pricing metric story. If we can do pricing metrics around usage and the more people use our products, the more value they get. Boy, doesn’t that just make all the sense in the world?
Ryan Glushkoff: Hmm.
Mark Stiving: Hey Ryan, thank you so much for your time today. If anyone wants to contact you, how can they do that?
Ryan Glushkoff: They can contact me via LinkedIn or via my firstname.lastname@example.org.
Mark Stiving: You might want to spell fraction eight.
Ryan Glushkoff: Sure. It’s F-R-A-C-T-I-O-N and the number eight dot. Io. That’s fraction 8 dot I O.
Mark Stiving: Perfect. Thank you so much, Ryan.
Ryan Glushkoff: Thanks, Mark. It was a pleasure.
Mark Stiving: Episode 16 in the bag. If you got value out of this podcast, would you please help us out? Please subscribe or leave a review, tell a friend, everything you do could help us out and we are so appreciative. Please send any compliments, suggestions, or questions directly to me, email@example.com and don’t forget to listen next week to another episode of Impact Pricing.