Sagar Thakur is the Business Planning & Pricing Strategy guy at Outreach. He worked in SaaS Monetization Strategy at VMware, and he plays way too many instruments.
In this episode, Sagar talks about the challenges and opportunities of a pricing role as he explains why costs don’t drive pricing.
Podcast: Play in new window | Download
Why you have to check out today’s podcast:
- Discover the challenges and opportunities of being a pricing person, and why it’s challenging but beneficial to have pricing departments as internal consultants
- Find out what the three-step process is on how to tie value creation and value capture process together
- Understand why prices aren’t based on costs but on value/the customers’ willingness to pay
“Don’t start with pricing. Start with assessing value, quantifying it, understanding it, getting your handle on what value is with a specific feature or product, how it scales, how customers perceive it, where they start, where they end.”
– Sagar Thakur
Topics Covered:
01:07 – How Sagar got into pricing
02:28 – The SaaS monetization strategy work he did in VMware
03:48 – The tradeoff: Organizing product portfolio and applying different price metrics
06:42 – What Sagar thinks are the challenges and opportunities of a pricing job
13:11 – How do we build a pricing culture inside an organization? Is it really a pricing culture or is it a culture of value?
16:00 – Pricing departments as internal consultants
17:59 – Having the perception that price is based on costs
21:09 – Sagar’s pricing advice
21:57 – Pricing table topics game: “Costs don’t drive pricing. Willingness to pay drives pricing.”
Key Takeaways:
“In general, simplicity is better until you can make sense, but then if the tradeoffs become too steep, now you need to add the complexity as a color from that perspective.” – Sagar Thakur
“The ability to narrate a story or why is it that we’re doing what we’re doing and being able to support that, it’s completely sort of a social / creative / engagement kind of job versus what most people think as an engineering sort of like analyze and say this is the perfect price. Dirty little secret in pricing is that there is no mathematically correct answer. It’s a range of solutions which is possible.” – Sagar Thakur
“It sort of starts from education, moves to empowering. You can come up with everything on your own. It has to be a collaborative process. And then it’s the energized piece, which is like show the organization that this is helping so that we can further attach our pricing perspective to the growth plans of the company and how that helps.” – Sagar Thakur
“I think rightfully so that pricing is a central piece to the puzzle of any company’s sort of growth strategy, like how they do business and what not.” – Sagar Thakur
People / Resources Mentioned:
- Outreach: https://www.outreach.io/
- VMware: https://www.vmware.com/
- Dharmesh Shah: https://www.linkedin.com/in/dharmesh/
- Selling Value: https://www.amazon.com/Selling-Value-Deals-Higher-Prices/dp/1737655217
Connect with Sagar Thakur:
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Sagar Thakur
Don’t start with pricing. Start with assessing value, quantifying it, understanding it, getting your handle on what value is with a specific feature or product, how it scales, how customers perceive it, where they start, where they end.
[Intro]
Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the intimate relationship between them. I’m Mark Stiving and our guest today is Sagar Thakur, and here are three things you’d want to know about Sagar before we start.
He is the Business Planning & Pricing Strategy guy at Outreach. He worked in SaaS Monetization Strategy at VMware, which sounds incredibly impressive, and he plays way too many instruments. I’m lucky to play the harmonica.
Welcome, Sagar.
Sagar Thakur
Thank you, Mark. Appreciate it. I love being here on this show.
Mark Stiving
It’ll be fun. So how did you get into pricing?
Sagar Thakur
How did I end up pricing? I think it was a bit of an accident, if you ask me. I actually started my career in sales, not in the software industry. I used to work as a key account manager dealing with shipping companies. I was part of an oil company, British Petroleum. I ran in this industry like I actually managed the sales team at a point in time. So, I was up the way, up the chain in terms of building the sales career, but then I was looking to do something which was more sort of broad-based, impactful vs. that particular function, so to speak, so sales and marketing and so on, so forth.
So much of the transition to pricing sort of happened at the intersection when I moved to the United States from India, looking for a job, sort of like, what do I got to do? And so, after talking to many folks here and my family and accidentally sort of like started in a product marketing, going to an oil and gas software company, I thought I’d have an interesting perspective.
So, I started on the product marketing side, but I picked up a lot of value, pricing stuff in my sales roots, given my analytical sort of mindset. So, I started off as a pricing analyst, supporting pricing for time, because that was the need of the hour at the time and people thought I was good at it. And so, from there on, I’ve been fully engaged in this role for the last seven, eight years, and this is my third software pricing gig at this point, Mark.
Mark Stiving
Nice. And so, if you’re allowed to talk about it, tell us about what you did in VMware, because I just find, anybody who can do monetization strategy is fascinating.
Sagar Thakur
Yeah. I think VMware being a large organization, like many other large organizations has a dedicated pricing team. Smart organizations have probably one, two, three people…
Mark Stiving
Or none.
Sagar Thakur
Or none, for all the reasons.
Mark Stiving
Right.
Sagar Thakur
VMware had a large scale monetization team. My role was defined like this — pricing individuals who are responsible for developing sort of strategy for a specific business unit, because the VMware company was pretty diverse in terms of the types of software they had. But my role was to help them sort of naturally operate at center of excellence in terms of how we look at evaluating a licensing metric, how we look at developing, like what kind of packaging frameworks exist for different business units. So, I was sort of working on the center of excellence piece in terms of standardizing different layers in terms of what– so that we can simplify the offering to the customer. I mean you would not want like 23 units of measures and three different packaging models and different volume structures across VMware. For customers buying VMware software, it cannot be that complex. So, my goal was a center of excellence sort of strategy role that way.
So that was my core function, but again, I did work on specific pricing projects.
Mark Stiving
Well, let me ask you a question about that, because it’s really fascinating. When you get to be a really large company like VMware, it becomes hard to do lots of different pricing metrics. So, you can’t take each product in each market segment and say, “Hey, I’m going to charge you—I’ll charge these guys for users and these guys for clicks and these guys for downloads.” And yet there’s a tradeoff, because when I switch to say “I’m going to charge everybody based on users,” we lose a lot. How do you think about that tradeoff?
Sagar Thakur
I think that’s a great question, and it sort of actually kept me up at night at the time because I left VMware, because I was looking at those tradeoffs on a daily basis, so to speak. I don’t think there’s necessarily a right, like an absolute prescriptive right way to do it. I think it starts from organizing the product portfolio in a way that makes sense. And a lot of these large companies have these challenges where their product portfolio is sort of not organized into logical bucket. So, when you acquire, companies are like, okay, this fits here, this fits here, and then they likely know where actually this goes, this is more complimentary, this product type. So, if you can organize the product portfolio correctly, sort of like something that’s more impactful from a customer buying perspective, then you can say, okay, for this set of product portfolio, can we apply one metric or set of metrics that are related to each other and then can go about that business, right?
So, you’re right in the sense that it’s challenging to sort of look at every individual piece, which I would as a pricing person want, he sees what’s the value of each of the key pieces. But it really started by organizing the product portfolio and helping shape that, and some of that feedback happens from product strategy line, some of that comes from the organization team. Again, this is not really fitting.
But yeah, there’s this fit also. I’ve seen companies, like a work day, for example, where for the longest time, they ran with a single operating metric, like number of employees, for example. So, everything was indexed to that. So, from a simplicity standpoint, it helped, but once you hit it sort of a growth work, they’re like, “Okay, this is not making sense for a lot of new stuff that we’re doing.” That’s when you sort of try and break out of that.
So, I think, again, you can all on the side of complexity or simplicity. In general, simplicity is better until you can make sense, but then if the tradeoffs become too steep, now you need to add the complexity as a color from that perspective.
Mark Stiving
Yeah. It almost seems like there’s a U-shaped curve where startups really need to start simple, they need to get more complex, and then as you get too big, it’s just way too cumbersome to manage tons of different pricing metrics, so we have to go back to simple again.
Sagar Thakur
Correct. No, absolute. I think that’s a great insight, because you can see from the sellers when they’re sort of confused from a point of view, like how many things have you been mentioning from a buyer’s lens as well. So having a pulse from a seller and buyer perspective is probably the best way, but you’re absolutely right. That’s a great insight in terms of that seesaw; too simple, too complex, and what the hell the tradeoff is, so to speak.
Mark Stiving
So, we’re going to talk a little bit about the role of pricing today. What do you think about a pricing job? You’ve been in it now seven, eight years. You didn’t expect to be in it. Is it interesting? Is it rewarding? Is it a career developer? What do you think about it?
Sagar Thakur
To paint a more realistic picture, if I look at both what’s the positive, sort of the opportunity side of things, and what are the challenges that, you know, I don’t want people to get into a pricing role like do I look like this is not for me for X, Y, Z reasons, so to speak.
I’ll start with the challenging part because that may be, just to set a baseline and then look at like, okay, so if you’re okay with these challenges, let’s look at the opportunities. That make sense, right?
So, from a challenging perspective, one is that it is one of – or at least I’m being biased here, but it’s a hard job, fundamentally. And the reason for that is that it is so fundamental to a business, that you’re saying like is this one individual responsible for like owning pricing? Because there’s like so many dependency. There’s dependency on the product side, dependencies on sellers and their ability to create value. There’s dependencies on operations, in terms of how you can transact. There’s just dependencies across pretty much every single function, so to speak, so it certainly feels or can be overwhelming. Monetization is like the entire organization is focused on creating value, but who’s focused on capture? And that drives the business, so to speak. And the first answer, that should be the CEO, especially in a younger company.
So, it can feel very overwhelming. It’s a hard job. Dharmesh from HubSpot, on one of his LinkedIn post, said it’s the second hardest job in SaaS. I forget what the first one was. But it’s just hard because everyone experiences pricing and so they have an opinion. So having a strategic alignment, getting everyone on the same page or maybe not, is hard.
Mark Stiving
Okay. So, I want to flip what you just said. By the way, I agree 100%. It is hard. I think most pricing people get into it because we tend to be more logical, left-brained, numerical, we like numbers, and it is a very right brain social skill to do it well, because every single department cares, touches it, wants to know what you’re doing, wants to influence it. And so, the opposite of what you said is true. It may be hard, but oh my gosh, it’s so cool because I get to see every department in the company.
Sagar Thakur
Yeah. I think that’s a great insight. I think this is where the challenges and opportunity duality are, right? Because you’ve touched so many pieces, at the same time, the breadth of exposure that you can get. In the seven, eight years, not only have I sat in different teams, like I’ve sat in the sales operations, I’ve sat in product management, I’ve sat in product marketing, I’ve directly reported to the CFO; there’s all sorts depending on the need of the hour is. The level of exposure that you get is just phenomenal if you’re sort of up for it from a curiosity lens.
And then if you think from career development standpoint, you can also then go into these different directions. I’ve interviewed with a lot of folks who are ex pricing people who are going to something else. If you’re really interested in the beginning of the customer journey, whether its trials and sort of like acquiring customers, you can get into like a customer acquisition strategy from a marketing lens. You can get into a strategy role. You can get into a product management role because it’s so intimate with the product as well.
So, the bandwidths are just many, but the initial sort of exposure and skills that you develop, you mentioned the social aspect of it, which is like, I totally underestimated. I still continue to underestimate the social and the storytelling aspect of it, like being able to bring the sales team along and why they’re doing something, because every sales people are “Yeah, this pricing work,” “This doesn’t work,” and that kind of stuff. So, the ability to narrate a story or why is it that we’re doing what we’re doing and being able to support that, it’s completely sort of a social / creative / engagement kind of job versus what most people think as an engineering sort of like analyze and say this is the perfect price. Dirty little secret in pricing is that there is no mathematically correct answer. It’s a range of solutions which is possible.
But back to your point, I think the challenge and the opportunity sort of have two sides of the coin, if that makes sense.
Mark Stiving
Well, speaking of career development, though, it was probably a couple of years ago, I interviewed a person who came out of pricing and he was the VP of Innovation at Black & Decker. And I just thought that was so cool because if you think about it, if you’re in pricing, you’re always thinking about what do customers value?
Sagar Thakur
Totally. That’s fascinating. In fact, if you ask me what my dream job would be, I think that would be sort of it, and many folks have written about this in terms of like, okay, so there’s a lot of innovation in the product side and tech space, but less of value capture. What innovation is valuable? And how do you assess that? I’m sure many product teams struggle with that. Many companies struggle with that. But that’s fascinating. I’m glad that someone took up innovation.
Mark Stiving
Now you have hope.
Sagar Thakur
Now I definitely have hope.
Mark Stiving
Some companies pay $1,000 per hour to talk with me privately about their pricing issues, and yes, they get their money’s worth. Implementing just one suggestion can yield incremental profit much, much larger than that small investment; however, some companies have found a way to hack my business. They join Insiders for just $100 per month. Sure, that gives them access to all of our courses, but many use it just to come to Office Hours. During that time, I answer all sorts of pricing questions. I’ve reviewed upcoming price increases. I’ve helped price new products. I even helped one Insider prep for a job interview for Director of Pricing, and yes, she got the job. Sometimes, only one person comes to Office Hours, and it’s like they get the value of $1,000 one on one private session. So, if you want to take advantage of me, and in this case, I don’t mind, become an Insider. Go to http://insider.impactpricing.com/
Mark Stiving
So, let’s talk about how do we build a pricing culture inside an organization? And is it really a pricing culture or is it a culture of value?
Sagar Thakur
Yeah. I think that’s a great point. The word pricing can be a misnomer, really. Lots of people narrow pricing to, “Oh, just put a dollar number to something.” It’s sort of the most common impression that have been put out there. But when you say pricing culture, it’s sort of like it’s everyone’s job to care about price points, and that’s not true, though.
I think to your point, like what you’re really building is a culture of sort of marrying the value creation and value capture process, that they’re sort of intimately tied together. Like you cannot have value creation without capturing, like what’s the point? And you cannot have value capture without creating value. And so, you’re sort of trying to put the burden off like “Hey no, it’s all about the modeling.” But if there is no value creation, there is no captured.
So, I think, to your point in terms of building that, like, and we can go in depth, obviously. There’s the education piece because like my job is maybe to think about pricing 100%, but for the most people, for a project manager, it’s something else. For the head of deal desk, it’s something else. Key measurements are different, so to speak.
So, a lot of times, it’s like a three-step process. Education involved in that process, which is like busting some myths right at the gate, where people are like, “Yeah, I’m building a new feature but it would cost a lot so I better charge for it.” I’m like, just bust that. That’s not going to happen, so to speak. So, a lot of it is just busting a bunch of myths that people have as preconceived notions of what pricing is, so to speak, so that you can open up the possibility for, “Okay, now let that aside, what can we actually do?”
Which brings to the second stage, which is empowerment. Give them the structure, the framework to think about value and pricing, whether it’s about measuring value or conducting quantitative research or just understanding inherently the types of value and whatnot, even though it’s sort of an abstract concept, but profoundly around it, actually have to find it, and give them the tools for basically what’s a licensing metric? What does packaging look like? How does that fit in? And so on.
And the last piece is the energized piece, which is like show the success. Show that our average deal sizes are improving more, our average selling prices are improving more. Something like, “Hey, we’re able to achieve this upsell,” and things like that.
So, it sort of starts from education, moves to empowering. You can come up with everything on your own. It has to be a collaborative process. And then it’s the energized piece, which is like show the organization that this is helping so that we can further attach our pricing perspective to the growth plans of the company and how that helps. There’s a lot, obviously, in this, but that’s sort of the net benefit from my perspective.
Mark Stiving
I have to say I really like those three E’s.
I often think about the role of a pricing department inside a big company, and certainly, there’s a role for someone that’s got to manage the list price and how do we get it out and who’s collecting it, right? So, there’s very tactical things that have to happen.
Sagar Thakur
Yep.
Mark Stiving
But then every product manager, every product marketer, every sales person needs to be thinking about value so that we can capture higher prices. And I think the pricing departments there are much better served as internal consultants. So how do I help different departments inside my organization? What is your perspective on that?
Sagar Thakur
Yeah, I think that’s super valid because if you assume that – and I think rightfully so that pricing is a central piece to the puzzle of any company’s sort of growth strategy, like how they do business and what not – then it’s similar to product marketing in that sense. That’s fair of mostly that, which is like you’ve become the internal consultants because you’re tying together different knots of the business and helping move things forward. And so, if you can be that internal sort of consulting partner to these different teams so that they can then incorporate your thinking into their day to day workflows, right? So, if I’m a finance person, I’m doing the financial planning and whatnot, I know how pricing is working versus just making a bunch of assumptions like “Yeah, this is my plan.” So, I think that’s a great point. But getting there is obviously the challenging part, especially as I said, the younger stage company that pricing is probably the last thing, that you said a model and then forget it and moving on, and then you get into this crazy place after three or four years, like “Okay, now this is really complicated.” And then unwinding it or updating it becomes even more messier, and further actually the fact that this pricing world is crazy. But I think that’s valid.
Mark Stiving
And since you’ve mentioned it twice now, I think, or at least I thought of it twice, I often find, unwinding the attitude of cost-plus pricing is really, really hard. People just have this perception that prices are based on costs. And by the way, we have that perception when we’re consumers.
Sagar Thakur
Correct.
Mark Stiving
So why do we not have that when we’re on the selling side? And so, I find that hugely challenging.
Sagar Thakur
Yeah. And to add really quickly, I think I understand that when you’re selling, when people are justifying fairness in their mind and they’re buying something, there’s this tendency of psychologically, like, I need to anchor on something. And when you anchor on something, you can anchor on sometimes the cost piece over like, “Hey, what’s the cost of it?” And as a buyer, you can anchor on a competitive solution. So those are the two traps that you fall in to pretty easily because it’s a mental heuristic, like that’s what I anchor on. And so, you have to further think. So, the job is harder from a seller perspective to get them to appreciate the value, recognize it, and then the true partnership then sort of really emerges. So, it’s an easy trap to fall in to, but it is what it is.
Mark Stiving
It is. It’s hard. There’s no doubt. I’ll teach people, I’ll work with people, they’ll get it, and then three weeks later, two months later, they say something that implies cost-plus pricing.
Sagar Thakur
Right.
Mark Stiving
And I’ll be like, no.
Sagar Thakur
Yeah. I think part of the issue is because different folks, you’ve probably written about it on LinkedIn and whatnot, it’s just the abstract nature of value. In a lot of cases, people just have so many subjective interpretations of what value looks like. They have a sense of it internally, like, “Yeah, this is valuable to me,” right? How valuable? To what extent valuable? How much more than an alternate? There are nuances to it that people may not get from the get-go perspective. And so, if I have to choose between abstract and something that I can see, like, “Yeah, this is the cost, if I’m pragmatic, this cost me.” So, it’s such a psychological thing to anchor it so quickly versus taking the time and effort to develop that understanding of value.
Mark Stiving
Yeah. I just have to thank you for tossing me a softball so I can push my book for just a second. Because the new book, Selling Value, is really all about teaching salespeople how do your consumers perceive value? And if we could truly grasp that, not only sales, but product marketing, product management, suddenly, we can do our job so much better.
Sagar Thakur
Yeah. I would be out of words, especially coming from you, I think. That is the single, like expecting the sales-led motion. You can argue any motion, for example, but you can feel it directly, that sales-led motion, where you can come up with the best things. But if you’re sellers and customer facing folks are unable to build on that, then it sort of can crash pretty quickly. We can see that with the numbers. But no, I’m excited to read it. I’m sure everyone should as well.
Mark Stiving
Absolutely. Thank you, Sagar.
So last question before we play our game, by the way. Last question is what’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?
Sagar Thakur
I will say it’s back to what you just giving the theme of it. Don’t start with pricing. Start with assessing value, quantifying it, understanding it, getting your handle on what value is with a specific feature or product, how it scales, how customers perceive it, where they start, where they end. If you have an understanding of that, the pricing game becomes so much easier because then it’s more to do with like what’s the right value capture process or structure to do it. But don’t start with pricing, please. That’s the number one thing.
Mark Stiving
Alright. Definitely focus on value.
For those of you who couldn’t hear it, just now, I’m shuffling my card deck. We are going to play a game with Sagar. We’re going to play pricing table topics with the Impact Pricing playing cards. I just pulled the king of clubs. Are you ready, Sagar? You have to prep for one minute.
Sagar Thakur
Alright.
Mark Stiving
And no more than two.
Sagar Thakur
Go for it.
Mark Stiving
I’ll give you a one-minute signal. Oh, this one’s easy, considering what we just talked about.
Sagar Thakur
Oh, is it?
Mark Stiving
Yeah. “Costs don’t drive pricing. Willingness to pay drives pricing.”
Sagar Thakur
Costs don’t drive pricing. Yeah. I think that’s on why that is, a lot of people trip up on that, like why cost don’t drive pricing. Because the fundamental thing is costs are internal, and why the hell should a customer care about your internal dynamics? You as a customer, if you’re a Netflix customer, who cares how much it costs Netflix to procure a movie or produce one? You don’t care. At the other day, what you really care about is what is Netflix delivering? Is it delivering engaging content every now and then, stacking up a subscriber? Is it delivering a better cinematic experience? What is it that it’s delivering? Why the heck should I care as a consumer? And so, the reason cost don’t drive pricing is because I am paying for that value. I’m not paying for your cost. And if you can’t have a business that, the goal of managing cost versus value is the business of the entity, Netflix in that example, as a customer, I frankly don’t give it back, right? So, the reason as a business you shouldn’t be doing that is sometimes you over rotate internally because that’s the only thing you know, because it takes time and effort to understand what your subscribers are valuing, what they can pay for, etc. So, it should be a no brainer, but costs don’t drive value. Costs don’t drive pricing. It shows always the willingness to pay and value perception.
Mark Stiving
Nice job, Sagar. That was a minute and 25. That was perfect. Yes.
Sagar Thakur
Sweet spot. I can only get better, Mark.
Mark Stiving
Okay. Thank you so much for your time today. If anybody wants to contact you, how can they do that?
Sagar Thakur
LinkedIn is best. Very responsible LinkedIn, LinkedIn messages. Expect me to respond. I’m happy. I speak to so many people for all sorts of reasons, pricing or otherwise. But LinkedIn it is.
Mark Stiving
Alright. We’ll put the URL for your LinkedIn page on the show notes.
Sagar Thakur
Appreciate it.
Mark Stiving
Episode 183 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review? Also, if you liked the podcast, your pricing colleagues might like it too. Please feel free to bug them a lot until they start listening.
And finally, if you have any questions or comments about the podcasts or pricing in general, feel free to email me: [email protected].
Now, go make an impact.
