Ep 17: Coaching HAAS Alert
Jeremy Agulnek is the Vice President of Connected Car at HAAS Alert since October 2017. His start-up company offers real-time collision prevention system on roadways through its HAAS Alert Safety Cloud technology. He brings in years of sales and product management expertise from the various technology companies he joined in the past. Jeremy earned a BS in Electrical Engineering from the University of Pennsylvania and graduated with Honors from the University of Chicago – Booth School of Business.
Today, Mark dives into his first Impact Pricing recorded coaching session in this special podcast episode with guest, Jeremy. You’ll get first-hand information as they share a power-packed conversation about Jeremy’s company, HAAS Alert. Jeremy will tell more on how HAAS Alert operates and generates income, how the three categories of costs affect the economic value of the vehicle, more so, the pricing model of HAAS Alert and know the different approach used on direct selling and indirect selling through channel distribution. Mark, then again, will give his insightful and expert tips and advice that will surely help your business.
Whether you’re a business owner, a student, or somebody interested in pricing, don’t forget to grab your pen and ensure you take down notes as this is one interview you shouldn’t miss!
Why you have to check out today’s podcast:
- Find out how the HAAS Alert technology prevents road collisions
- Discover the pricing approach used on direct selling vs indirect selling through channel distribution
- Learn how customers can save more on paying upfront fees vs annually on a five-year plan
“Find the market segment where they get the most value out of what you’re offering.”
– Mark Stiving
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02:05 – Jeremy talks about his company, HAAS Alert and how it prevents a collision on-road vehicles
03:52 – How real-time and automatic feeding of data into the Waze app adds value to HAAS Alert
05:05 – The two-sided marketplace where the company generates revenues: (1) fleet owners and operators, and (2) car co-manufacturers
08:45 – Three categories of costs on roadside accidents:
- Minor collisions – requires repair of the vehicle and out of service time
- Medium – major damage happens which might need a vehicle replacement
- High – may involve personal injury lawsuits
11:02 – Probability that the three categories will occur to determine the economic value to the buyer
13:42 – Detailing the flexible pricing model of HAAS Alert
15:38 – Mark gives his expert opinion on the pricing model of HAAS Alert
19:20 – Discussion on the effects of direct selling vs indirect selling through channel distribution
22:43 – Challenge on bundling hardware to the subscription price and pay the distribution channel
25:40 – Value-based pricing as a healthy approach to attain business sustainability
27:16 – The churn rate at the end of the term
28:34 – How customers save more on paying upfront fees vs annually on a five-year plan
31:39 – Pros and cons of upfront price and upfront buy-in
34:53 – Mark shared a brief story when he kept on increasing his rate as a speaker, and yet people still agree to pay
36:08 – Mark’s thoughts on price segmentation specifically when asked what to do if customers talk
You find the market segment where they get the most value out of what you’re offering, and that’s where you go penetrate first because those are the people who have the biggest pain and they’re more likely to say yes to us. They’re more likely to pay us higher numbers, and we start to build the business that way.”– Mark Stiving
“We want to capture more of the value that our buyers believe is there, that our buyers perceive. That’s always important.” – Mark Stiving
“In the long run, you’d like your distribution channel to be out of getting that subscription revenue. That’s your revenue, not theirs. You need to pay them enough to sell your product, but you don’t need to pay them forever.” – Mark Stiving
Connect with Jeremy Agulnek:
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Full Interview Transcript
Jeremy Agulnek: I’d say nine out of 10 times the reaction when we share our pricing with any fleet is one of surprise at how low it is because they’re typically used to buying much larger ticket items and getting sticker shock. The other one out of ten times that the feedback is, ‘Well we can’t pay anything more than zero. So if this is not free we’re not interested.’
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value and the loving relationship between them. I’m your host Mark Stiving. Today, we’re going to do something a little bit differently. Jeremy Agulnek, VP of Connected Car at Haas Alert, sent me the following message on Linkedin. Thanks, Mark. I just started listening to your new podcast series and I’m excited to learn from you, as someone who was working at a startup, creating a new market where we sell direct to end business customers as well as through the channel. I’d love to hear your perspective on how to approach pricing from that angle. I’d even be happy to be a podcast guest to share my challenges with your listeners. Well, I accepted and Jeremy’s going to join us here. This is our first coaching session on the new podcast. When I’ve done these coaching sessions in the past, they almost always turn out fun and informative. I have high hopes for this one as well. Uh, what you’re about to hear is real coaching. I have no idea what Jeremy’s going to say other than what I just read to you. You’re about to hear how a pricing expert thinks and there’s no doubt you’re going to learn something that you can apply to your own business. So, Jeremy, welcome.
Jeremy Agulnek: Thanks, Mark. I am honored to be the first Guinea pig here. This is exciting.
Mark Stiving: It’ll be painless, I hope. First quickly tell us about the product before we jump into pricing. What is it that we’re talking about?
Jeremy Agulnek: Yeah, we, uh, my company Haas Alert we, offer a collision prevention service whereby any type of fleet vehicle that’s operating on the roadway, so think of emergency vehicles or maintenance trucks, even things like tow trucks or snow plows. I think that’s a, that has a warning light and the effects mobility on the roadway. Uh, when those warning or emergency lights are on, we send digital alerts to nearby drivers and connected cars so that they have an advance warning and advanced notification that something hazardous is approaching. And ultimately we want all of the drivers to make a safer, smarter driving decision.
Mark Stiving: So just to make sure I understand this then. Let’s say there’s a truck there on the side of the road, they turn on their hazard lights, inside that truck is a product that you provide that’s now sending out a signal to the world that there is a truck sitting on the side of the road.
Jeremy Agulnek: Yeah. So we offer a hardware device that gets installed in the truck and literally hardwired to the vehicle’s battery and the light bar. And when those lights pop on the embedded cellular chip inside that hardware device sends data to our cloud platform. We process the data and we push data, the alerts themselves, into existing applications that drivers are using. Today our first commercial alerting partner, is Waze, uh, which is a very popular, you know, mobile navigation application.
Mark Stiving: I was going to ask is this Waze, but with a hardware component, what do you do above and beyond Waze where, let me ask the question differently. Today, someone drives by that truck on their Waze app. They type in, there’s a truck on the side of the road. And if I happen to be a driver using Waze, I get that notification already. Where’s your added value there?
Jeremy Agulnek: So we’re doing things automatically now. So the fleets themselves, the owner and operators of those trucks, they, by working with us, we’re automatically feeding data, in real time, up to Waze to let them know that the vehicle’s there. And uh, just as importantly, when those vehicles leave or turn their lights off, we immediately remove that hazard from the Waze map, uh, which actually happens to be one of the biggest challenges that Waze has in particular with kind of knowing when these incidents clear. So we provide that instantaneous, a data input and and removal of the hazard.
Mark Stiving: Excellent. And so your product is going to make Waze more accurate, in terms of devices or products in terms of trucks or vehicles on the side of the road.
Jeremy Agulnek: We’re doing that with Waze for sure. Waze is our starting point, right? We’re talking to the other, you know, as a startup, we’re talking to the other navigation mapping companies like Google Maps and Apple Maps, Lyft and Uber. But our ultimate goal is actually to get embedded into the automobiles themselves. So we’re also having conversations with all of the automotive manufacturers to include our data as a standard safety feature within their vehicles.
Mark Stiving: Nice. Okay. What’s the value? First off, who do we think is going to pay for this? We think it’s the truck driver? The fleet owner? The trucking company?
Jeremy Agulnek: Yeah. So, great question. So we’re operating a two sided marketplace here and really predicated on the data that we’re generating. On the fleet side, we’re already generating revenue from the fleet owners and operators themselves. So they’re paying, you know, annual or multiyear subscriptions for our safety service and we kind of bill it as a collision prevention service is really the value add. It’s actually a major problem on the roadways today that we’re solving for, for these fleets. Um, and then on the automotive side, we’re licensing alert data into the automotive ecosystem. And again, safety features are always the number one or number two selling feature of a vehicle. Um, so it’s not necessarily a subscription that a consumer would, would pay for. We don’t think that’s going to happen, but the CARC manufacturers themselves, uh, would, would view this as value add to a reason to buy their car over someone else’s, for example.
Mark Stiving: Yeah. This is, this is pretty fascinating in the sense that there’s a lot of different segments, a lot of different people that we need to think about. How much value are they receiving from our products for the near term or for our conversation, let’s just say the word Waze since it already works and we know, but I get it, you’re going beyond that and you want to get other places because
Jeremy Agulnek: that’s good. Okay. That’s fair.
Mark Stiving: Makes my conversation in my mind. A truck, a fleet or a truck that’s on the side of the road that is only prevention if everybody, or almost everybody uses Waze to say, yes, I know there’s a truck on the side of the road. Is that a true statement?
Jeremy Agulnek: Well, certainly the value of that alert getting out into the other roadway users increases exponentially as more and more drivers come onboard. So, yeah. And that’s why, you know, getting as many applications, livering the alerts is critically important.
Mark Stiving: eah. You want the whole world to be able to see the alerts because it makes the product way more valuable.
Jeremy Agulnek: Correct. But our first, you know, the nice thing is our first, we’ve gotten to market with having Waze as our first alerting partner. That’s been enough to tilt the scales on the fleet side to get the early adopters on the, like the public safety side, for example. We do a lot of work in fire departments and EMS services to get those early adopters who kind of appreciate the added safety that we’re not only bringing them today, but in the future. Um, they’re willing to, they’d been willing to jump on board with us.
Mark Stiving: Nice. Let’s talk about value then. It sounds to me like the value to a fleet is fewer roadside accidents. Is that right? Am I missing anything?
Jeremy Agulnek: Absolutely. Fewer collisions. There’s, you know, there’s costs, there’s hard costs to vehicle repair, increases in insurance premiums, there’s injury costs, you know, personal injury costs for the first responders, Let’s say, they’re out of work, they’re still getting paid and then, you know, God forbid something more terrible happens where like a consumer vehicles involved, you know, there’s legal bills, there’s lawsuits, there’s medical bills. You know, on the extreme cases, you know, we’ve got data that shows a million dollars or more of economic costs happens when these major collisions happen.
Mark Stiving: Right? And if I were thinking through this, what I would be asking is what’s the average cost per roadside accidents? I get it. There’s million dollar example. We also the $20, I scraped your bumper example.
Jeremy Agulnek: Yup. Yeah. We kind of have started to think about this in like three different categories. Like a minor, a medium and a hi buckets. You know, minor collisions, that require repair and some out of service time for these vehicles are probably in the call it $50,000 range.
Mark Stiving: That’s high. Wow.
Jeremy Agulnek: I mean these are big expensive vehicles. And again, you think of like the firetruck as the example. These are expensive vehicles and you know, again, not just the repair cost, but out of service time and the total economic cost is roughly $50,000. It could be less, could be more. As he started to get into like the medium level where major damage happens to the vehicle, maybe they have to completely replace a vehicle. Uh, you know, Some of these fleet vehicles can run easily hundreds of thousands of dollars upwards of $1 million for brand new firetrucks if one is hit and unsalvageable. And then once you start getting into, again, the personal injury lawsuits, which happens, that’s when you start to hit seven figures and beyond.
Mark Stiving: Yup. Okay. This makes all the sense in the world. Then, first off, if I were selling/marketing, I appreciate that you have those numbers. What I would be doing is asking my potential buyers, what do you think these numbers are? Or what would they be for you if it was a relatively minor accident and working them through the conversation so that they can come up with numbers that are like yours. Odds are good that come up with numbers even bigger than yours.
Jeremy Agulnek: Good point. Good. Yeah, really good point. And those numbers I shared with you are, are, are informed by conversations over the past couple of years. We’ve been (unintelligible) for a few years. So it’s directionally accurate. We believe that it could be off by a little bit.
Mark Stiving: Yeah. And I don’t want, I don’t actually don’t care about accuracy, as much as I care about. I want my buyers to believe it. And if I go in and say it’s $50,000, they don’t believe it. But if I work with them and I help them figure out, well, you know, you’ve got the cost of repair and then you’ve got the cost of, you know, the, the truck’s down for a while and then, and if I work with them and they come up with 50,000, now they believe it.
Jeremy Agulnek: That’s a great, great point.
Mark Stiving: Then the next one is you’ve broken it up into these three categories, which I really like. What’s the probability of any one of those three happening? Because that’s the next thing we have to figure out, if we were going to truly find the economic value to the buyer. Do you have any way to figure that out?
Jeremy Agulnek: Yeah, I mean, you know, we do talk to departments. You know, many of our conversations, we ask about collisions that they’ve had in the past. You know, it obviously depends on the size of these fleets. We’ve seen some cities, you know, larger cities in the U.S where they literally get hit multiple times a day.
Mark Stiving: Um, wait, I should not be laughing at that.
Jeremy Agulnek: No, I mean, yeah, you’re correct. Um, so yeah, so we get some data points and then, you know, some of the bigger collisions that happen, you know, are much less frequent than that, thankfully. You know, maybe those happened a couple times a year. And the major incidents themselves where, you know, that seven figure plus range, maybe that happens every couple of years. But when it happens, it’s devastating for, you know, the municipalities, for the people involved, obviously. Um, and it just looks very unfavorably on everyone.
Mark Stiving: Right. This, this makes a ton of sense. And just like before, if we could get our buyers to give us those numbers to say, how often do these roadside accidents happen? They’re going to believe it more, but if they’re unable to, if we’re able to provide them the data that you just created or, or you could say, Hey, this fleet I was talking to over here and this is what they’re experiencing. Um, do you think yours are similar? What we’re trying to do is get our buyers to believe the numbers.
Jeremy Agulnek: Got It. Yup.
Mark Stiving: Okay. Now you originally asked about, now that I understand that by the way. If you were to guess on economic value to a single truck, and what that means is I take the probability of a roadside accident, times the cost and we would have three of those different buckets, but we would add those three together. What do you think the economic value is to a truck?
Jeremy Agulnek: Uh, and your question is aimed at the, uh, the reduction or the cost savings that we are bringing to that truck?
Mark Stiving: Yes. Yeah.
Jeremy Agulnek: That’s a good question. I probably don’t have that number in handy. But the kind of the math, the raw inputs for that math is there. Right. And we got to talking about that now for the last year.
Mark Stiving: Let’s pretend that you just wanted to take a wild guess. Are you comfortable just taking a wild guess?
Jeremy Agulnek: Uh, yeah, sure. Let me, I’ll actually, I’ll say $5,000 on expected value basis.
Mark Stiving: Beautiful. Beautiful. Next question I have is, what’s the price of your product?
Jeremy Agulnek: So that’s, that’s where it gets very interesting. So a lot of the people who are buying the safety solution on the fleet side are in the, you know, the public sector, right? It’s municipalities, your public safety departments, departments of transportation. Um, so we have tried to price it as affordably as possible so that we can bring the most benefit to the local communities as quickly as we can. We have a rather complicated pricing flexibility. But we did that purposefully, so that the buyers basically couldn’t say to us, Oh, we can’t buy from you in that way. That’s my whole preface by saying, we either sell a one, three or five year subscription to our service. They can either pay annually or upfront. That’s the pricing model.
Mark Stiving: and you are not selling the hardware. The hardware is bundled in as part of the subscription.
Jeremy Agulnek: They get the hardware, they get the software, they get the uh, the cellular service that comes with our device, they get a realtime situational awareness dashboard. Um, you know, a user login for as many years as they want. They get reporting on kind of the data that we’re capturing for them. All that comes with a single price. We make it no hidden fees, no additional upcharges for them.
Mark Stiving: I’m assuming the $5,000 economic value number that you just took a wild guess that that’s per year, is that correct?
Jeremy Agulnek: No, no, that would be, um, well that’s a good question. No, probably not. I was thinking about it more on like a five year.
Mark Stiving: Okay. Let’s call it $1,000 a year.
Jeremy Agulnek: 1000 bucks a year. There you go.
Mark Stiving: What’s the one year subscription price?
Jeremy Agulnek: Um, so we are charging 700 bucks for a one year subscription. But what that does is include the full cost of the hardware and all of the other kind of fixed costs associated with that hardware unit. When someone buys a five year subscription or a license to our, service that runs roughly $1,600 total. So, or you know 300 plus dollars a year.
Mark Stiving: Okay. That seems much. Yeah, absolutely. I understand completely and 300 bucks a year makes a lot of sense. Here’s a general rule of thumb is, if we could demonstrate that I’m going to make or save a company some number, it doesn’t matter what it is, $1 million, they tend to be willing to pay in the ballpark of 10% of that, in order to gain that. And if you’re saying to your clients, hey, for 5,000 you know you’re going to say $5,000 certainly, so that definitely you’re going to save $1,000 a year, then they should be willing to pay approximately 10% of that or 100 bucks a year for that service or for that capability in order to save that.
Jeremy Agulnek: Got it.
Mark Stiving: Does that make sense?
Jeremy Agulnek: Perfect sense. Yep. So is what you’re saying then that our service is overpriced or maybe we’re just that hundred thousand dollars a year estimate is, uh, could be too low as well?
Mark Stiving: I would guess… If you’re assuming that you’re selling today, which it sounds like you are, what that really means is that your estimate is too low. I would also believe that there are different estimates for different market segments. One of the things that you said, which I wish I hadn’t laughed at, is that in big cities, they have multiple accidents a day or there could be multiple accidents in a day.
Jeremy Agulnek: Correct.
Mark Stiving: That says to me is that in big cities, that number’s way higher
Jeremy Agulnek: in that cost, they gave you too was actually a per vehicle fee. I don’t know if I, I don’t know if I said that up front. So, um, larger cities have more vehicles, right? They’ve got hundreds of vehicles as opposed to 10 or 20 in a, in a smaller suburban setting.
Mark Stiving: Right. Okay. I was assuming the fee is per vehicle, but you could say that in a larger city, there’s going to be more accidents just because there’s more traffic and the roads are smaller but what that says to me is that, the economic value to somebody in a big city is probably higher than the economic value to someone in a small city. The economic value to a fleet, who is just working in a large city, is probably higher than the economic value to a fleet who’s driving cross country.
Jeremy Agulnek: Yeah, I would agree.
Mark Stiving: Right. And the whole reason to have this conversations is, we want to understand who gets how much value out of our product. Because if we decide to do price segmentation and charging different types of customers, different prices based on the value they receive. And that makes a lot of sense for us to understand that.
Jeremy Agulnek: Yeah. And, and since you bring that up it’s interesting. Cause our focus from a go to market standpoint has really been on those kind of larger cities and the surrounding metropolitan areas. We’ve actually gone through and created a seven tiered systemor assignment for all the municipalities and in the US and Canada to basically identify which are the ones that probably have the biggest pain point here. In which the other ones, where they may not find as much value, so we actually have some different go to market strategies for those more rural departments, let’s say.
Mark Stiving: Yeah. I think that’s spot on, right? What you want to do is find the market segment, I’m gonna use that word. In market segment doesn’t have to mean geography. You find the market segment where they get the most value out of what you’re offering. And that’s where you go penetrate first because those are the people who have the biggest pain and they’re more likely to say yes to us. They’re more likely to pay us higher numbers and we start to build the business that way.
Jeremy Agulnek: Perfect.
Mark Stiving: You could also be thinking of market segment by vehicle type. For example, if a fire truck is a lot more expensive than a semi truck when an accident happens, then there’s going to be a whole lot more value in selling this 40 firetruck than there is for a semi or delivery truck.
Jeremy Agulnek: Yup. That’s it. Good. Another good point too.
Mark Stiving: And it always comes back to value. Okay. Originally your question that you emailed me had to do with selling direct as well as selling through the channel. Can you describe that question? What’s the problem that you’re really trying to address here?
Jeremy Agulnek: Yeah, I mean, I guess the way we’ve been thinking about it in the pricing that I described to you, it was kind of the, the ideal retail price that our solution would be purchased by the end department. And when we’ve gone direct to the fleets, we’re seeing positive engagement with that pricing. Things get more complicated when we’re talking to like, vehicle manufacturers and dealers who sell vehicles and other loose equipment onto already installed or a purchase vehicles in the aftermarket. Um, so we have kind of a channel pricing model in place where, as of today, we’re trying to really preserve that end, that end retail price so that, that the end department is relatively neutral between you’re buying from us direct or buying from the channel. But what happens is that, you know, comes at a cost to us where the profit margin on an indirect sale for us is, you know, substantially lower than the direct sale.
Mark Stiving: Yeah. Without a doubt. That’s a true statement. And that happens with everybody who sells both direct and through a channel. Because the channel is going to take a cut. You have to pay the bill in order to get them to sell your product. And the way I always thought about that is, you don’t want to compete with your channel. So the idea that you are trying to preserve the same price point for both direct and the channel is a really good idea. In fact, I see a lot of companies who allow the channel to discount the product where they would never discount the product and that means the channel could actually undercut them. But you do this because the channel is how you get distribution. It’s how you get a broad market presence.
Jeremy Agulnek: Yup. It’s interesting cause when we first started the company, we were just selling direct. I mean the pricing for our service and our product offer was a little bit different. But it was much lower. And when we introduced this new product of ours, and in conjunction, had the channel, you know, a sales opportunity as well. We had bump up our pricing quite a bit. Even on the direct sale just so we weren’t losing money on the sales through the channel.
Mark Stiving: Yes. And what I often think when I hear something like that is, if we bump up the price now so that we could sell through the channel, we could have bumped up the price before we started selling through the channel because people are buying our product anyway.
Jeremy Agulnek: Yeah, That’s a good point.
Mark Stiving: And, and so we want to capture more of the value that our buyers believe is there, that our buyers perceive. So that’s always important.
Jeremy Agulnek: It’s interesting just this just popped into my head, but not when we talk about pricing with our prospective customers, when we’re selling direct, and I think you’ll appreciate this statement. I’d say nine out of 10 times the reaction when we share our pricing with any fleet is one of surprise at how low it is. You know, cause they’re typically used to buying much larger ticket items and you’re getting sticker shock. The other one out of 10 times, the feedback is, well, we can’t pay anything more than zero. So if this is not free, we can’t, you know, we’re not interested.
Mark Stiving: Well that’s good. That’s an easy way to find the right customers to not sell too.
Jeremy Agulnek: Exactly.
Mark Stiving: Have you thought, okay, let me just say, I love the idea that you’re bundling in the hardware to your subscriptions for your direct business. Okay. I think that’s the challenge and that’s one of the big challenges you’re facing as you try to go through distribution is how is it that you can bundle that together, pay your distribution channel a reasonable number on the subscription. Because in the long run you’d like your distribution channel to be out of getting that subscription revenue. That’s your revenue, not theirs. You need to pay them enough to sell your product, but you don’t need to pay them forever.
Jeremy Agulnek: Yeah. So we, I mean, we’ve got the renewal capability as well, right? So after let’s say, someone signs up for a three year term, you know, the question that comes up is, well, how does the renewal work? Like does that happen direct from us? Is that something that the channel who made the initial sale, should they hold on to that responsibility and, and wanting to get the margin off of that renewal as well? We haven’t answered that question really in a definitive way.
Mark Stiving: Unless you have competitors that are offering that to your channel and your channel is saying, no, we’re not going to carry your product. Then what I would be considering is, I’m giving them margin on the contract they sign up and when it’s time to do the renewal, channel’s probably not getting anything.
Jeremy Agulnek: Meaning, don’t even give them the opportunity to sell the renewal?
Mark Stiving: I probably wouldn’t. One of the things about subscription based pricing or subscription products at all is, you as the manufacturer or the vendor, you want to have a really close relationship with your customers. You want to be the one collecting data, sending reports, having conversations as far as the buyer is concerned, a year goes by and they now know you way more than they know whoever they bought the product from.
Jeremy Agulnek: Got It. Yeah and I think we’re too immature in our business yet. I mean, we haven’t yet run into the renewal conversation cause most of our customers right now are signing up for three or five year terms. So we just haven’t been around that long yet. But I can definitely see that.
Mark Stiving: Yeah. And once you own the customer, once you own that relationship, that’s absolutely fine. And by the way, you want to compensate your channel fairly. I’m in no way am I saying we try to chance up the channel, but you want to compensate them upfront, by the way, they want to be paid up front too. You want to compensate them upfront for doing the work right. For landing the customer.
Jeremy Agulnek: Right. I mean they’re obviously getting margin on that initial sale of the service, not just the physical hardware, but the whole service. So yeah, I could see a situation where they just kind of lose out on any future of renewal. But you know that that’s the biggest that would be okay.
Mark Stiving: Yeah. That’s fine. And the way you have your pricing set up, the hardware cost is essentially amortized across the month, is what it sounds like to me. And so we know that we’re covering the costs as we sell our prices. You say very few people buy the one year? In your mind…
Jeremy Agulnek: Sorry to interrupt but we’ll see more often, people go for annual pricing to get a much lower annualized rate, as opposed to just sign up for the one year commitment.
Mark Stiving: Yep. Okay. I got it. I understood that. In your mind, have you priced this such that I’ve got, here’s how much I’m selling the hardware for, here’s how much I’m selling the service for. If it’s five year plan, I take five years of service, add the hardware costs, and then I divide that by 60 months. Is that what you did or did you do something different? I’m hoping the answer is we did something different.
Jeremy Agulnek: Yeah, I’ll say it as we certainly understand our hard costs but we definitely took more of a market based approach in terms of what do we think the market values it would be willing to pay for and then made sure that that pricing would give us a healthy enough profit to margin to sustain our business. And we invested in it. So you know, we’re far from, you know, we’re not a cost plus uh, you know business definitely more on the value based pricing.
Mark Stiving: Excellent. Cause what I was going to suggest is, if you have a lot of people buying the three year, then that says to me that maybe we don’t need a five year plan. Maybe we don’t need the five year plan to be much less expensive than the three year plan. A slight discount for the extra two year commitment. The other thing that we’re going to see is what does the churn rate look like at the end of the term? You haven’t gotten to the end of those three year terms yet. So we don’t know. If you get a continuous repeat business and there’s almost no churn, then we don’t even have to offer the five year plan unless we just want to get the money upfront.
Jeremy Agulnek: No, that’s it. That’s a great point. Yeah. And we actually, we did a little bit of analysis, kind of back of the envelope, probably a couple of months back now and we actually believed a three year term is more profitable for us. But the challenge of getting a budget allocated from a lot of these public entities in particular, you know, kind of make us gravitate more towards the five year plan when we’re talking to them.
Mark Stiving: Yeah. I think it’s certainly fair to say if a public entity says, I need a five year plan, we give them a five year plan. The question is, do they need much of a discount beyond the three year plan, in order to make that?
Jeremy Agulnek: Got It. Yeah. I don’t have the numbers offhand. I mean we definitely give them a little bit of a discount, enough to kind of push them that way. I think what you’re suggesting is, maybe it’s too much of a discount and so we could look at further.
Mark Stiving: Yeah. I have no idea cause I don’t know the numbers, but I do know, given what you said, that we probably don’t need to discount it deeply, to go from three to five.
Jeremy Agulnek: Yeah. Got It. The other kind of big area of savings that our customers can get is, if they pay up front versus annually. On our five year plan, just because those numbers are fresher in my mind, they can either pay for five years, either pay $400 a year annually per vehicle or one time upfront, the $1,600 for the five years. It is a 20% discount to pay up front. How does that compare in line with what you say?
Mark Stiving: Yeah, that’s pretty common tip. The most common answer to that question is, you pay for a year and it costs you the equivalent of 10 months. So that’s about a 20%. It’s an 18% discount, but anywhere in that ballpark seems pretty reasonable to people. The reason that you love that, is because in subscription businesses, especially ones that have hardware and they’re bundling in the hardware, you’ve got a big cash flow problem.
Jeremy Agulnek: Yup.
Mark Stiving: And so getting the annual payment upfront just helps with your cash flow.
Jeremy Agulnek: Yeah, exactly. It’s interesting you bring that up because we’ve just launched last week a new companion hardware device that actually gets installed back in the fleet vehicles and flashes when other emergency vehicles are approaching that vehicle that the devices installed in. These are like more responder to responder type of alerting. And we’re kind of grappling with just that of having higher hardware costs and how do we price that, such that, if we had to buy units up front and someone’s paying annually, that the payback period on that on that initial cost to our business to actually, you know, a manufacturer in, in purchase the device from our supplier, um, it would require quite a bit of work in capital for us to, to have access to that as a startup where you know, cash is king. Yeah.
Mark Stiving: Yeah. Have you experimented with or thought about a two tier pricing system, where there’s an upfront price to get in and then there’s a subscription price, too, for the service that we’re offering?
Jeremy Agulnek: So I actually just started sending out some proposals with that type of model in place, like literally this week for this companion device that I’m talking about. So there’s a higher upfront costs in year one and then years two and beyond, it drops down, you know, to a lower fee.
Mark Stiving: Oh, you’re bundling it into year one as opposed to just saying, let me say it differently. A lot of companies, if they’re going to offer a professional services for implementation, if there’s a hardware cost up front that they want to get those costs covered as much as possible. They say, look, it’s, you know, it’s a $5,000 buy in and it’s 200 bucks a month forever. And that just covered those upfront hard costs, which is a really big deal in terms of cash flow for companies.
Jeremy Agulnek: Yup. Yeah. So I guess we kinda did that or just started doing that. But maybe not as deliberately as you just articulated. So, that’s great feedback.
Mark Stiving: The thing about an upfront price and upfront buy in there’s both pros and cons. The con is, it makes it much harder for people to buy in. Although the way you’ve structured your business where you’re going to sign up for a one, three or five year contract, and I’ve bundled in essentially the cost of that hardware. So people have already committed to buying that hardware upfront. They had to make the commitment. So you still have the same challenge in the sale that you would have if you had that hardware bought upfront. The huge advantage to this is if you said, buy the hardware upfront and then we charge you the subscription, the customer, the buyer has made a commitment, and that commitment makes it so much less likely they will churn from you because they know they paid the upfront fee, whether it was for professional services or hardware, whatever it happens to be.
Jeremy Agulnek: Got It.
Mark Stiving: The fact that you’re locking clients up for three years or five years, you probably don’t have that churn problem yet, but someday you may offer this as, hey, go buy this piece of hardware. I’m going to sell you a monthly subscription. You can quit any day you want.
Jeremy Agulnek: Got It. Yeah. We, I guess the idea of having to grapple with churn, while we’re trying to grow, develop and grow the business at the same time. I guess as a decision we’ve made to defer for the future by taking this approach that we’ve done, you know, we really are focused on getting those vehicles online and having them online. But because of the pricing feedback, we’ve gotten from the market and just who we’re selling into, that anything more than zero mentality, that I referenced a little while ago from a pricing standpoint, the amount of challenge we have in getting someone to make that initial purchase is relatively the same regardless of whether if we dropped the price down or increase it a little bit within reason. I don’t know if that makes sense.
Mark Stiving: Well, the next thing is when you, we’re going to have to wrap up here in just a second, but what I love that you said was oftentimes when buyers look at our price, they say, oh, that’s all? Meaning, they had a much higher price in mind for what they thought you were going to be charging. What that says to me is that you could be creating a new product portfolio where you could have a product that charges a much higher price and some people would buy that from you.
Jeremy Agulnek: Yeah.
Mark Stiving: And yet you still have this product, which is an aggressive price that says, Hey, I want to win as many clients, as many users as I can possibly get.
Jeremy Agulnek: Yeah. Yeah. And I guess I’ll caveat that statement I made earlier with people aren’t immediately whipping out their checkbooks and given us a blank check here. We’re still, again, dealing with government purchasing, for the most part. So we have to go through the procurement process, the budgeting cycle. It’s far from a slam dunk but I think that’s kind of good feedback in terms of giving us confidence to even increase the pricing to what we have already now, based on what we started with a couple of years ago.
Mark Stiving: Quick, quick story for you. When I first wrote my book in 2011, somebody called me and said, hey, uh, would you come give a speech? And I said, sure. And they said, the worst words I’ve ever heard in my life. They said, how much do you charge? And I had no idea how to answer that question. So I went out and I did a bunch of research on how much do authors charge and blah, blah, blah. And I came up with a number $2,500 and they said yes. And so then I got a call again and someone said to me, well, how much do you charge? And I said, $3,500. And they said, yes. And then I got a call again and I raised the price again. I just kept raising the price until they started saying no.
Jeremy Agulnek: And yeah, I guess part of, I love that mentality. I think because of, and feel free to shoot this down, but because of the relatively small close knit industry that we’re selling into within public safety people talk and you know, if their neighbor paid half as much as what we’re quoting them, you know, that starts to upset some folks. Maybe we’re being too conscientious of that at this point in our company stage. But that’s definitely kind of pervasive in our thought.
Mark Stiving: Yeah. So first off, I hear that a lot. Whenever I talk about price segmentation, people often say to me, yeah, but what if my customers talk? First off, let me say that your customers almost never compare prices. When’s the last time you called someone and found out what another company was paying for something that you guys buy? Never. Yeah. So it just doesn’t happen as much as we think it happens. The second thing is what if it actually did happen? What am I going to say? Well, it turns out that I just sold this to Chicago or I sold it to Chicago two years ago. They got this amazing price, but I’ve raised my price three times since then and now I’m going to Indianapolis. And they say, Hey, my friend over at Chicago’s Pan a third the price, you know what we say? Yeah. You know what they bought when we were really early stage, they took a big risk on us. We now know better what the product is. We’ve added a lot of features to it. It’s just a different time. A different decision.
Jeremy Agulnek: Yup. We’ve been saying that as well, right? Especially as we’ve evolved our company over the last, you know, 18 to 24 months.
Mark Stiving: Yup. Awesome. Jeremy, I’ve enjoyed this a lot. I hope you got something out of it.
Jeremy Agulnek: I don’t know if he could hear me typing. I was taking notes along the way here. So this was definitely helpful.
Mark Stiving: Okay. First off, thank you for being so open and sharing all that information with our listeners. I appreciate that. And I’m sure that they do, too. If anyone wants to contact you, how can they do that?
Jeremy Agulnek: Yeah, I’d say Linkedin is probably the best way to reach me. I am the only Jeremy a Agulnek on Linkedin and my name will be in the show notes here, so you can get the correct spelling. I’m always happy to engage with people and have any type of conversation so we would welcome that.
Mark Stiving: Excellent. Thank you. Appreciate it. All right. My team and I, we’ve been furiously creating a new course called B2B Subscription Pricing. If you would like to know more as it becomes released, please drop me an email. Episode 17, now in the bag. I’d love to hear what you think, especially since it was a new format today. Please send your thoughts to email@example.com and don’t forget to listen next week to another episode of Impact Pricing. And we’re done.
Jeremy Agulnek: Great. That was fun.