EP56: How to Improve Your Pricing Strategy Using Price Segmentation with Matthew Barnett
In this episode, Matt shares how Bonjoro uses different pricing metrics to come up with product pricing, and market segmentation helps them in deciding good pricing.
Why you have to check out today’s podcast:
- Understand how personalized customer onboarding converts and retains more customers
- Find out the different pricing metrics Bonjoro used in coming up with good pricing
- Find out how market segmentation helps in coming up with good pricing
“I think especially early companies, think about what you want to price and price triple.”
– Matthew Barnett
Get COV’s Pricing Metrics:
The Most Important Pricing Decision in a Subscription Business Course at https://www.championsofvalue.com
01:04 – What does his company, Bonjoro do and what unique Pricing strategy does it have
02:06 – One important message Bonjoro is driving at in sending videos rather than emails or text to customers
02:22 – Pricing the Bonjoro way
07:16 – Making decisions on usage data
12:51 – Do pricing metric and value metric mean the same thing
14:21 – How did Bonjoro come up with all the pricing metrics
17:55 – Why Bonjoro don’t do Options for now
22:18 – How to go about Options in Pricing
25:32 – Looking at Slack and Zoom’s Pricing model
32:07 – Why you need to give value at the onboarding of customers stage
33:52 – Thoughts on price endings
37:19 – Grandfathered pricing
40:54 – Matt’s best pricing advice
“At certain points on the customer journey, like this face to face stuff actually stopping for minutes and being like, it’s me, I’m a human. That’s what it’s about.” – Matt Barnett
“Some of the sides of pricing is also packaging.” – Matthew Barnett
“I’m at the point where I’m like, I kind of hate paying them but I keep paying it. So that to me is as a business owner I look at that and go that’s good pricing because I hate it enough to leave, but they extract every single dollar from me that they could possibly get like that.” – Matthew Barnett
“I think given the fact that quite early in the company, I mean three years to me it’s still early, it says of a product. So I think one of the things here is to get to the stage where the three if we end up with the three plans or all of the four plans for the three. Those are the right price to value match as a base and then we start to add things on there that as far as segmentation. I actually do think higher plans honestly need a bit more bolstering in terms of feature sets.” – Matthew Barnett
“It’s much easier to start high and then go, oops, come down than it is to go double your price and the next day. And I was like, hang on a minute.” – Matt Barnett
“ I mean especially early companies always, always price too low. We are one of these. We did it too. I think if people don’t push back and say, ‘Hey, your price is too high.’ If no one ever says that, your pricing is too low.” – Matthew Barnett
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Full Interview Transcript
(Note: This transcript was created using Temi, an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Mark Stiving: What’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Matt Barnett: I think especially early companies, think about what you want to price and price triple.
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the visible relationship between them. I’m Mark Stiving, today our guest is Matt Barnett. Here are three things you want to know about Matt before we start. He is an artist. He takes fantastic photos. If you go online and look at what he’s done, they’re incredible. He’s the CEO and founder of Bonjoro, which he founded in 2017 and probably the best thing is he’s willing to talk to us about his new Pricing. Welcome, Matt.
Matt Barnett: Hey Mark. Great to be here.
Mark Stiving: Hey, did I say Bonjoro, right?
Matt Barnett: Bonjoro. That’s it. Yeah.
Mark Stiving: Okay, good, good. You know, I’ve got all these questions I really want to ask you, but before I ask any of them, I just want you to tell me, first off, what does Bonjoro do? And then secondly, what did you do in terms of Pricing? What do you think is important for us to know about what you did in Pricing? And then we’ll dig into pieces of it.
Matt Barnett: For sure. So Bonjoro is essentially a layer that sits on top of your CRM or customer data source. And what we do is at certain points on a customer journey, we discovered that sending personalized individual video messages instead of just email or calls are highly effective at helping leads convert to clients, helping customers engage and activate. And then obviously driving word of mouth and advocacy reviews, that kind of thing. So if you are using a salesforce, we’ll plug in and say, ‘Hey, look at this time, why don’t you send George Patterson a woman video? And just say welcome aboard asked me if he needs help and to show who you are. And then we’ll track those results and drive actions from them.
Mark Stiving: And the video works much better than sending a text email saying, Hey, welcome aboard. Or something like that.
Matt Barnett: Yeah. At certain points on the customer journey, like this face to face stuff actually stopping for minutes and being like, it’s me, I’m a human. That’s what it’s about.
Mark Stiving: Nice. Nice. Okay. So you just changed pricing. Tell us what you did or what you thought was interesting or important about it?
Matt Barnett: Yeah, so just want to give some background, we’re SaaS model. So we’re B2B, we price based on tiers and the users. So to start with we have two tiers, sorry, three we have a free plan. So premium, I’ll come back to that cause we use freemium probably for a different reason than most people. And it’s as we price test, we then have a $25 a month plan and a $45 a month plan. If you want to add additional users, the additional users on $25 plans are $25 out of the $45 we’d discount them to $15. Now the reason behind that was that once you get to a team of three or more, it makes sense to go on the large plan because everything is $75 so that’s magic trying to drive users onto the higher plan, which has more value within those tiers. We have set of feature sets and there are some pro features obviously go on the higher plan and there’s a piece that we call templates, so where you’re sending messages, you’re using pre-built templates and this is one of the value metrics that we scale up with a plan. So we have a number of these templates on the $25 and then more on the $45. Now that’s how the plan was. When we look into pricing generally what we found over the last I guess six months and we do quite a lot of price tests, to be honest, but we will find that with these tiers we were missing out on I guess kind of two ends of the spectrum. So we identified that we have a small user base, so you know we have big teams but then we also have a lot of local almost come micro users or individual users who are creatives who are just getting started in the business. And I’ve talked to first-time founders and for those US$25 a month is just at the top limit of that pricing points. And so what we would see here is that we potentially wouldn’t convert as many or that some of them will convert. And then I churn on that lower tier as much, much higher. And it was mostly these smaller users. So you often do a bunch of research pricing. I think it has of, it says gen real churn. Probably pricing was about 25% of the reason. And obviously, if someone just tells you that pricing is as big as they churn, dig deeper. Yeah. Like, it’s really priced to value matching. That’s how we like to think of it.
Mark Stiving: So there are always two sides to every decision, right? If I’m going to buy or if I’m going to churn, it’s what’s the price, what do I have to put out and what do I get?
Matt Barnett: Exactly.
Mark Stiving: Always two sides. Someone says your prices too. It really just mean I didn’t see the value to cover or justify that price.
Matt Barnett: Yeah. And so again, like digging deep for the file that we had, we try boosting values but there will always be some price sensitivity. So you’ll always have a user whereby, you know, at the end of the day, even with the product as it is and boosting the value as much as you can, there’s still a price point that they will hit and yeah, the researcher can look into it. We said, look, there seems to be room here for lower price points is above the free plan because they want some of that. They want some of the paid value underneath the $25 plan. Let’s give this a test. However, obviously when you do something like this, well I feel like I’m getting straight into all the detail here. Is it, is this fine?
Mark Stiving: No, no, no. We’re doing well. So some of the questions I have, I mean I’ve got so many questions about this. When you added the lower-priced tier, did you get people who used to buy your $45 product to move down to the lower price?
Matt Barnett: I say literally exactly where I was going next. So that’s the challenge though is if you release a lower pricing tier, obviously what you are do is minimize any cannibalization of the higher tiers. So the way we did that is that when you were these new pricing plans, while you’re not just changing pricing, so with us , we released three new plans. So these plans had different price points but also different value metrics within them. So we don’t see it as a shift of plans. We see it as where we launched a whole new pricing packaging black piece that fits in our plan. We never had limits on the message before, but one of the things we discovered is, at least more users really weren’t sending many messages a month. So he’s having limited, most of them are sending probably on average I think around, say call it 30 messages a month because they obviously have a much more customer base. So we put a limit in of 50 videos. So 50 video messages, per month is one-to-one, make a send a month. And as a result of that we were able to release this lower pricing tier. We also did a few other things on values and there’s message template thing I mentioned. We have, we just have one of those cause they only have one thing that they’re doing. It’s very simple. So we released that. We did not see many downgrades of at all because of that particular limit.
Mark Stiving: Did you step back and look at your usage data to see how many people were using or which types of customers were using, how much of what features in order to make these decisions?
Matt Barnett: Yeah, exactly. So we track a lot of our file each data we use amplitude, metal-based, kind of dig into that. So seeing the uptake to ask that again mentioning where we have some scalable things like these templates as a few other things such as you know, additional branding removal, some like one too many masters features. So there are some pro features that we really put into the higher pricing tier before we start to drop the price. So what we do is really, really bolster as high pricing and high pricing is part of the strategy. While I say releasing some of the low tiers that are discounted to prevent cannibalization, but something that we know works use low users now one. Okay. Just to let you think about again next. There’s one interesting thing that came out of this, which is the enormity, because we have a freemium tier, and the reasons I would come back to this is because we don’t have a huge active user base or free, most of our active users are paid. And the reason is that the value on the paid is so much higher. So unlike digital freemium, the reason we have, we tested not having a freemium tool and just having a paid trial. So we have a 14-day trial on all plans regardless. So even if they end up being free, they still get to try it the pro features for 14 days, we simply found that when we dropped the free plan, our signup rates have, which is a big difference. And when we test the dropping, this obviously thought was that’s fine if it was because the quality of science will be higher. What we found is that our conversion rate to paid did not spike enough to offset the hard in signup rates in the first place. So what we, so let’s say, so in layman’s terms. Essentially what we found was about having a free offering. We were getting people who were going, well there’s no, there are no strings attached. I’ll try it out. They were using it and then going, this is better than I thought it would be and they’re getting, actually I do want to pay. And so we were capturing more users than we would have done without a freemium, which is one of the best arguments for having it against that stage. What’s happening is we look at it and we go, well generally if someone’s active, they end up paying. And the one that I mentioned, this is because by dropping the limits on this new $15 plan, we actually had to go and drop limits on the, so the freemium was on limited to, we actually had to put a limit on that as well. And you know, one the impacts you see then is that then our conversion rate on the pricing page, because we now have a limit on the free plan dropped. Okay. But our conversion rate with paid went up by 50%.
Mark Stiving: Yeah, I think that’s pretty awesome. I’m sitting here looking at your pricing page right now as we’re talking. And the only thing that’s different between your $15 plan and your freemium plan is the fact that you get rid of the Bonjoro branding. Now you also get a template, but I still don’t even know what that is yet so it doesn’t have any value to me. But if I get rid of the branding, what that says to me, I’m going to put myself in the shoes of one of your buyers for a second and they said, Oh I really like this idea of sending video, a video out cause it builds a better rapport with my clients. And every time I send out this video, it’s got a Bonjoro brand on it. You mean for 15 bucks a month? Or let’s call it 50 cents an email I could put my own brand there instead of their brand. That makes a lot of sense, doesn’t it? And so I think that’s a reasonable approach.
Matt Barnett: It is probably the reason why freemium does convert higher is because like doing personalized video masters is not the norm. I like, even though we’ve been around three years like it’s a new thing like most people just don’t, they’re so when they get in the how he thinks will templates like you obviously were with the pilots, like end up building your own kind of language in what your things do is it can be hard to communicate back at first. Like we actually cover pretty well because a lot of our traffic comes through direct through word of mouth or influencers. So people are coming and going and those, this is I want to do, or they didn’t quite get how it works. As the holiday of riding on a CRM, it’s actually quite hard to get across to people. So we do find that when people come in they’re like, Oh, that’s what that means. Oh that’s that means, and so we can definitely be better at communicating this online and as we grow and learn that our communication gets better and better online anyway. But you kind of hook them in they go, well, there are no bars. I’ll come in. And then they see his templates things and they go, okay, now I’m using it. That makes sense. So yeah, the other thing is, if your product is slightly more complex and as isn’t that simple, it’s not just about doing videos for the sake of it, you start to, you start to push these value metrics once inside within the platform and kind of hooked, and that’s something we do better at that probably than we do at communicating in the first place.
Mark Stiving: Yeah, it, let’s talk about pricing metrics for just a second. So you use the word value metrics. I hear that. And I think you mean the exact same thing. I mean, when I say the words pricing metrics, so let me define both terms if you don’t mind, just to make sure that we’re using the same language. I think we were both calling the idea that says, Oh, I could charge by the thing, right? It’s a scalable thing and I know what I can. So I usually define a pricing metric as what are you going to charge for? Yeah. Now I don’t use the word value metric for that. I only use the word value metric to mean how do my customers measure how much value I gave them. So I usually say, a good value metric fills out the following formula. I love Bonjoro because my blank went from blank to blank.
Matt Barnett: Yeah.
Mark Stiving: And so that would be the way I would define a value metric.
Matt Barnett: Yeah, exactly. I think probably the reason we call them value metrics it’s because that points early where I say about churn when you call it is still where it’s if someone says price what they mean is the price value.
Mark Stiving: Yup.
Matt Barnett: So I think it’s like internally we call it value cause we want everyone thinking, ‘What’s the value that links to the dollar ?’ And again, with products, with whatever else am I looking at his deal the values of the customer and we’ll price around that value and that price. I’d rather have with team thinking of value, but maybe we’ve got like we should say price…
Mark Stiving: But by the way, I think you’re 100% right to say I want the team thinking about value. Yeah. Right. Because what we want to do is we want to set our pricing metrics to be highly correlated with our customer’s value metrics. Right? How does a customer perceive value? Oh, we can deliver more value with this thing. It doesn’t matter what that is. Yeah. Okay. So I wanted to talk about pricing metrics for a few minutes cause you to use a lot of different pricing metrics. So you’ve got per user as a pricing metric. You’ve got the number of videos as a pricing metric, how many workflows I could use, how many templates I could have. Now the only one that you charge on a linear scale is the user and all of the other ones are bundled into the tiers. Yup. Right. From a pricing metric perspective, did you guys, what was the meeting like when you figured all this out? Did you sit down and brainstorm what are all the different pricing metrics we could use or how did this come about?
Matt Barnett: Yeah, Matt and this has been over three years of testing. This was no meeting. It’s many tests. It’s understanding, a user base. Look some of the side of pricing is also packaging. It doesn’t show on the stands, so I like to say them. But when you bundle up hands and we’re looking at some of these genuine metrics, isn’t that a scallop price are up. Some of them are more on packaging where we say look will this bolster obvious reasons based on these plans and points? Now not all of our features will be used by all of our users. So you’ll say on the highest family has been called a goal up, which is basically a one to group message and this is because larger users have much higher volumes of customers coming into their funnel. And so we say, look at them again that we say look are your hundred customers sign up only by the time is really needed ones who are messaged cause they are that they are priority leads. The other 90 just send them a more than upstate messages saying, ‘Hey, it’s Tuesday morning.’ So it’s still unique and still refreshed, but it’s maybe not, ‘Hey John, it’s Susan from active campaign. Now that’s something that pales to the larger customer base specifically. But we have customers on the larger plan who don’t necessarily use that as well. So I think one of the things of the packaging here is that you start to understand different customers probably have different feature sets that they will work with, especially if you have a diverse customer range. So how do you add value on multiple different, I guess swelling for like points that you know, customers X, Y, and Z who are all large, will all get, will all say, ‘Hey, that big applies for me, even though I’m only gonna use one of those three things. Yep. So this is a bit of a challenge around that. Like I said, like one of the things you have as well as more complex products are that people are coming in and saying, well I don’t quite know where it is more than one workflow. And they come in and they go, Oh actually now I get it. Yeah, but there’s an education piece there.
Yeah, when we think about that I actually separate, usually when I do pricing for subscription companies, I separate out pricing metrics versus packaging cause they’re two different things. Oftentimes we have a feature. So for example, your feature that says I could do one to one or I could do one too many. So that’s a feature that it’s tough to scale that and I would just call it, where am I going to put that on my good, better, best packaging program?
Matt Barnett: Yup.
Mark Stiving: And so I separate those out usually. But when it’s time to do packaging, which has gotta be one of the hardest things in all of this, I love using usage data to see which clients get the most value and which clients pay me more for the product. Right. Yeah. So that’s really where I start to tease this stuff out.
Matt Barnett: Yeah, for sure.
Mark Stiving: I really like what you guys are doing here. Now, the company, if there’s one company that I look at all the time for the way they do pricing, cause I think they’re phenomenal and that’s LinkedIn. And so they do something really similar to what you’ve done where you’ve got the free plus a three-tier on top of each one of those plans. Two things they do that you, that I don’t see here. And maybe you do it somewhere that I haven’t seen is they do market segments and they do options.
Matt Barnett: It’s fine as a little bit more.
Mark Stiving: Yeah. So let’s do options first. Cause that one’s easy. An option essentially says, Oh I’m buying the pro plan but I really want this other capability. Could you sell me that capability ala carte one piece at a time? And so do you guys do options at all?
Matt Barnett: No, we don’t run now. We’ve talked about this where we’d like the pricing to CATSI. I do like the options thing. So a lot of things that we use, we like some, my favorite on pricing is probably Intercom. It’s comes with a CRM. We use them. Like I’m at the point where I’m like, I kind of hate paying them but I keep paying it. So that to me is as a business owner I look at that and go that’s good pricing because I hate it enough to leave, but they extract every single dollar from me that they could possibly get like that. They’re on the cost and they test it and they go. Sometimes I go over to most, I’m like, ‘Hey guys.’ And they’re like, okay, we got this guy and when we have a big customer base who pays a lot, but they do. Sometimes the price is actually quite complicated and they have to do really good with pricing separate products and then options on products. And then they also do a scalable metric where they have pricing based on user base as well. They communicate it well because they then communicate all that first. So you can uncover pricing as you discover it. The options thing for us. So we obviously have some things like this idea of templates and workflows. Steve’s will set up when you start getting too into real power users, they’re going, ‘Hey, you know I’ve got a team of 10 each one’s five tablets, how do I get 50 templates? Now those we tend to just do custom pricing or you know like I call up and say, ‘Hey look, that’s fine, we’ll just submit something for you.’ Now is there a point to have like plus more plus more. We’re looking at SMS as a delivery service that would do that. Not that we would do cost-plus pricing. So that’s what was the way to price but, but there’s obviously is a direct scalable cost associated with that. So the price needs tenants’ accounts. So if we do that, are they buying 500 messages, a thousand messages on top? I think yeah, additional bundles are great. I don’t think we’ve quite solved supply CC that is still in flux. I don’t think we really solve that core pricing. And you want to get out first because I think as you know if you test too much stuff at once when pricing something changes you like this is great. Which of those changes was it?
Mark Stiving: Right? Right. Well, and LinkedIn has been around forever so they’ve had plenty of time to test and tweak and adjust and so absolute.
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Mark Stiving: One way to think about options is oftentimes I want to take a feature and make it an option if first of all, it has to be really valuable because I don’t want to have a ton of nickel and dime type options, but if it’s really valuable but not everybody in a tier wants it or would use it, then I would say, okay, that makes sense as an option and so I would almost think that you would want to consider that. I want to send a single email out to a bunch of different people at once. You could possibly make that an option. I still leave it in the high-end tier, but say look, if you’re in one of the lower tiers and you want this capability, here you go, you can buy this. It’s only, you know, whatever it is, 10 bucks, 15, 20 bucks a month, something like that. And that would fit there because of that reason.
Matt Barnett: I think given the fact that quite early in the company, I mean three years to me it’s still early, it says of a product. So I think one of the things here is to get to the stage where the three if we end up with the three plans or all of the four plans for the three. Those are right price to value match as a base and then we started to add things on there that as far as segmentation, I actually do think higher plans honestly need a bit more bolstering in terms of feature sets. So then as we do that, we have a few things coming out of that that we’re planning around this as we do that. Then maybe some of those things we have in there currently because we built, just because we built the model layer can then start to come out as option basis. But I think taking them out on now probably degrades the value of those plans. So it’s a thing of a bit of a balance of going right, what are the core features sets that we do value to all customers. And then we can start to part of the ones that maybe only 40% you know, need all the flips out on the low patterns could do, but they’re still missing something that the higher plan has. And so this is probably like rounding out those plans, which as you know, as you’re building the small parts with larger products, you start to get because in the beginning, on day one, you’ve probably got what one pricing plan because you have, you know, one feature or product.
Mark Stiving: No, you’re absolutely spot on. Right? Do you want to start small and we’re going to tweak it and add to it and change it. And make it a little bit more complex, but I would avoid complex. Right. No matter what. You do want to keep it looking simple to your customers.
Matt Barnett: Yeah. Like I don’t look at it as an add on lights. It’s probably still again like it’s influx. I think that the packaging is quite wide. Then the pricing is quite right. Yeah. We start some tests today and in six months’ time it probably won’t be way again because yeah. The other thing is, your customer base changes as you grow and as you mature we started to bring on big clients and we’re like, well this is the other point is that we then always, you know when we did the pricing change, we actually released a higher pricing plan because we realize that to add larger clients, the price is cheap. And in terms of that point of view, that’s not a good place to be. I mean, it’s hard to go kind of where we are because we tend to be a product that’s used, you know, for like lead conversion. What that means is we’re not limited to industry and we’re generally not limited to customer size. And the challenge with that means that we have customers who are huge and we have customers who are tiny and so at the moment we are trying to expand both ends of the spectrum and that at some point you might decide like, you know, we were going to focus on one end or the other. The companies do this really well like Malcolm said, are they re a good example whereby they have, you know, entry pricing. We were like, where are you going to trace? But they have customers who end guaranteed, probably paid them 50 K a month. So it can be done when your tool is used as the job to be done by them as an industry type, that’s an option. But, but it is hard to, it is hard to package to meet both needs. I think Alaskans are the ones that do this really well as well, you know? Yeah. So when I look at your type of product, I think what comes to my mind are companies like Slack and Zoom where I can, I get a lot of value out of having a freemium product as an individual. But as a company, I could support it for my entire team.
Matt Barnett: Yeah, yeah. And that’s, yeah, I know it depends how you go in into your clients. So how are you selling in? Top-down and bottom-up. And we sell in bottom-up. So we’re adopted by team members and then we’ll take it up the organization, we don’t really do outbound sales. We don’t go out to big companies and pitch them and then get it integrated because it’s too slow. And Slack does this too. Jew LaSeon does the same thing where they’re coming in, like developers use them and then you go. As I think that’s with thy mind. So Jew has great pricing whereby it’s enough reason for a tech company, you may not have heard of them. So they’re probably the biggest tech company out of Australia, a few billion. But they’re basically a product for developers. So technical developers, they have, when he first came in at like $10 a user, small tiers. As soon as you hit three years as it’s like $30 like, Oh this is fine. Yeah, four years dollars, that’s like 150 and they basically, what they’ve done is they’ve gone, we know where you got to the developers, you a different persona of company and your willingness to pay is much, much higher. Right. So we’re just going to flip that switch. And it’s really interesting when you do that because you flip it and you’re like, Oh, what happened there? But you’re like, Oh, we’ll keep paying because you know, the team wants to use it and they do a really good job, but they are all bottom-up selling they’re all picked up by individual developers and then at some 3 people in the team are using it and they’re like no, we can’t stop using it to their management.
Mark Stiving: Yup. Well. And I think they get away with that in a lot of ways because a product like tier, there’s a lot of internal collaboration in the company. So they want everybody on the same platform and wherewith yours I could see one salesperson using it and other salespeople not using it or I just have a few doing it cause it’s not this internal tool we’re using.
Matt Barnett: Not everyone comes from getting on video right now. It’s just not something for Avalon, it’s quite a new thing. So you’ll have some personalities who use it. Even in sales, the goal for us is to get stage whereby we’re using sales and then we’re handing off and use them in customer success and then we’ll hand it off and then you use them retention. So you like to actually grow yourself. So your use at multiple stages of the company with different team members. That’s kind of good for us because it’s quite broad, you know, with big teams we’re still gonna get quite a few users. Yeah. But I would say probably it’s not quite the stage of like when to know at the enterprise level yet. Yeah. And I liked that brings its own challenges and you know, and our crises, I was obviously not built to reflect that. We’ve chosen not to go down that route yet. It’s really coming in time for us.
Mark Stiving: Yeah. I want to go back and revisit one more concept. I talked briefly about LinkedIn and I said one of the things I do really well is market segments. And so let me, let me tell you what they do for market segments and then what I see as possible with your sites. So what they do with market segments is they’ve defined four really clear market segments. So they’ve got people, recruiters, salespeople, job seekers, and then everybody else in this bundle they call professionals. And you can take any one of us, the one that has the highest are recruiters obviously. They charge recruiters a lot, but what they’ve done is they’ve packaged the product, they’ve added a few features that say, Oh, this makes a recruiter’s job really well, really good, really easy. And those are features that salespeople don’t really care about so they can bundle them in that segment. And once you go into one of their segments, they still have good, better, best, which is pretty cool. And so what I could see in Bonjoro here is actually saying on your webpage, we built this for salespeople.
Matt Barnett: Salesforce.
Mark Stiving: Salesforce, right? Absolutely. So this is intended for you guys. They’ll be successful in similar products and here’s how you do it. And you go and you study salespeople and you see how they’re using it and we talk through them. And then later we say, well, you know, you could use this for, and by the way you could use us for recruiting. And so we go sell it to recruiters. Now it turns out salespeople are going to get more value than recruiters will. So we’re going to charge salespeople more than we would charge recruiters. And that’s really the gist of market segmentation.
Matt Barnett: Yeah. I feel like we’re at the stage where it’s starting to make sense for us. So we’re starting to do it with marketing. So we’re starting to, so it’s time to targets, I guess customer personas on this and we’re scouting that way. It makes sense. The pricing I think will follow later. Again, I still think we’re a bit early on in terms of bolstering the products because we did a while ago we actually built a house buttons creations. This is quite a while ago and we put it on a higher tier because we knew that if you use Hubspot, your customers pay much higher. It didn’t get as much usage as we thought. HubSpot, it wasn’t that customer cause it’s marketers and we’re not really marketers product, but at the time we were asked by a few users so we took it off. But I think when it comes to building our sales force, which actually is a big investment in terms of a build as well, I thought it is to kind of maybe revisit that strategy at that time. But again, I think the direction of the why now is less bad down. What we do as a core before we start to go into other directions because we still got many unanswered questions.
Mark Stiving: Yeah, so please don’t think I’m suggesting you go build a product this way. Right. My suggestion is if, first of all, let me ask you this question. What a title and a company uses your product more than any other title?
Matt Barnett: Customer Success.
Mark Stiving: Oh, really?
Matt Barnett: Yeah.
Mark Stiving: Oh, I would not have thought that. Awesome. Okay. Then you could take exactly what I just said and instead of saying, we go after salespeople, we say, look, I’m going to build my homepage, my entire product around customer success people. I’m going to teach customer success people how to be more successful because that’s a market segment. And then later you could say, now I want to go take care of salespeople, or I want to go take care of recruiters. I want to go take care of whoever. But the key is when you understand who really values it, you can tweak the product for that specific role and then you get to charge based on their willingness to pay because different roles have different willingness to pay.
Matt Barnett: Yeah, for sure.
Mark Stiving: Yeah. I think that’s pretty cool. I did not expect customer success.
Matt Barnett: Yeah. It tends to be a second point on the funnel and it’s because at that point, putting in a minute of time, and it’s only a minute, but every customer has come on board. Like then the ROI pays off because they’re already kind of qualified to that stage and then what you’re looking to do is, really activate you know, and then say keeping with the first few months.
Mark Stiving: So it’s the whole onboarding piece. Maybe I should do this with my clients.
Matt Barnett: Yeah. Yeah. This is the thing. Yeah. It’s the whole thing, six times cheaper to keep customer than 10 you want, I think one of the things, a lot of people, yeah we’ve come back to identify this, have a challenge with or drop the ball on is they go and get the gains, all the sales they get new customers in and then there are customers leaving two months because they haven’t been properly activated. They actually haven’t got value. They’ve been sold, but they haven’t actually got value. And so even when I took it, I’m like, look, honestly, that’s the point to change. So you have new leads who come in and downloaded white papers and they are engaged. You need to get them activated. So they end up paying and buying white paper to five to 10 and if you have a SaaS product and they’ve actually gotten paid like three months, they’re still in danger of churning. So how do you get in stay? Yeah, that’s the base. And that’s when you know you put some human time in and you’re like, ‘Hey, I’m, I’m Betsy, I’m, you know, on CSU you got any questions, just let me know.’ People like, ‘Oh, this is great, this company cares.’ And then they get more engaged and they’re like, okay, I’m going to invest the time this takes. That’s where you’re going to get the most bang for your buck initially.
Mark Stiving: Yeah. I like this. This is pretty cool. Nice. Okay. I have one last pricing question for you. I’m sorry, I got to go back to the pricing page real fast.
Matt Barnett: Okay. Yeah. Awesome. Can I ask you questions after that?
Mark Stiving: Of course, you can. I’ll have to tell you that I have a Ph.D. in Pricing. It’s actually a marketing practice, it isn’t in pricing, and when I wrote my dissertation, it was on price endings, so it was on 99 cents essentially. And as I look at your prices, your high-end product is $79 your mid-tier is $39 and your low end is $15. Did you think about the price ending when you made those decisions or what happened?
Matt Barnett: I don’t think we thought about a whole lot. We thought by doing $69 and then we’re like, well everyone’s just gonna laugh at us for that. Sorry.
Mark Stiving: Okay. You’re probably right about that. I think we thought about it. I don’t think we thought about it enough. I’d like $15 we did like, I mean you had some anchoring because when we first ever launched, we had some old information. When we first ever launched in our early beta, the first kind of four months, we had a $15 price tag on it on those users we knew even most of the products had value that under churn was actually was pretty good for very early stage products. So we had that anchoring and some information to help bolster that 15 seem light on towards customers. You know, we started doing, if you do scans for early users that have 40% of 25 which was 15 so again, maybe that’s my theory too, that it seemed to make sense. 49, 79 I think like anyone, we kind of just went, well let’s stop. Just shy of the decimal, Mark.
Mark Stiving: Yeah. So I think as a general rule, and there’s research that shows this, when people see a just below number, like 39 or 79 they actually think of that as this is a good deal, right? This is a good price. And the only reason I found it interesting here is because you didn’t do that for the basic product. Right? I would have expected that to be either 19 or nine.
Matt Barnett: Yeah. So I thought on that was that 19 is too high and nines probably pushing it too low. And again, when you release a lower plan, obviously this is going into numbers, you look at that and you have to obviously project out and go, well if we do this plan, one of the reasons behind it, if it’s in $25 to $9 even if on the metrics, the kind of value metrics, obviously your job in that price by whatever it is, is 60% so you’d be doing that. Even if you’re dropping churn, what is the lifetime value then of that customer and you know, are they going to move up the tiers and all is willing to pay? I think when you start to get by $20 like every dollar base makes kind of a difference there to the success of that plan. And the whole point of this low tier is to motivate and the reason is to drop churn on those lower customers. So yes, convert some more, more importantly, to drop churn on them. And then thirdly to provide a stepping stone to move into the larger plans at the time. Yeah, a $10 it’s then your, then they’re all, you’re really thinking about as our last point, which is almost like the stepping stone. I’d just make sense. Yup. Maybe we’ll try it. Maybe $40 is better. Like it’s, it’s a tough one at that stage.
Mark Stiving: Yeah. I was just curious. I’m not saying it’s wrong cause there’s no way to really know.
Matt Barnett: But other than changing it, like the only way to know, honestly like weeks since I’ve even theorized and we thought it all in, you get it, you just end up like with two days till my pricing and you’re like, you know what, let’s just change it for four weeks. If it doesn’t work, we’ll change it back. And if, you know, if anyone has an issue with, you know, we can change the pricing afterward, it’s fine. You know, we’re not on the scale of a brand where now people can notice. I mean income like famously used to change their pricing I think every six weeks after the first couple of years. And you can see that yet. Or you see that in the end, the success of their pricing, that they’ve changed a lot, and they experiment a lot with.
Mark Stiving: Have you grandfathered in your old customers?
Matt Barnett: Yeah. So the way we do this, so a very first beat to pricing we ever did. We’ve got, we actually grandfathered them for life cause we’re like well you guys are the ones that came on board when no one’s heard of us. Now at the stage while we do pricing testing, we don’t put a limit on grandfathering so we don’t because we’re not sure of it yet cause we haven’t settled. I think once we settled we’ll probably look to grandfather them in over about six months. Okay.
Mark Stiving: And by the way, you know you’re never going to settle. You’re going to face testing and tweaking forever.
Matt Barnett: I mean I think now we’ve been moving some pretty big leavers, like some pretty big ones. So like way like it’s like taking big swings because why not? The bigger the swings, the quicker we get information about what’s working, what isn’t. And then once we’ve done that, we’ll probably grandfather over six months. We might grandfather to a slight discount regardless. So might as well say, look, we’ll grandfather you in, but we’re still gonna give you a 20% discount because you were that and that does matter. You shouldn’t grandfather over life unless you have a clear, I think where grandfather works unlimited is probably where you have a scalable pricing metric, if that’s the right way of saying it. So it’s some like a MailChimp where their list is growing and growing and growing. And then if you grandfather them, it doesn’t really matter because there’s always the, you’re not got $20 but like in two years’ time they’re gonna be paying $4,000 anyway.
Mark Stiving: Yeah. Well, and that’s really the key point to a pricing metric is that the more you use, the more we get paid.
Matt Barnett: Yeah. So, which is fine because I am day like we have to build point, we have to support team and the more revenue we make the better the product we build. So it’ll kind of make sense. Which is why, when you asked us you like are you having to grandfather them? I’m like yeah of course I am. Because you know there’s a reason we do this. It’s to grow the company and grow the team, grow the products. So it’s all dumped up for the right reasons. Yeah. Cause nothing to be ashamed of.
Mark Stiving: No, I’m not at all.
Matt Barnett: So my question to you, if you could change, if you were to do one test for what I’ve told you if you look at that and go right next test for these guys, what would you suggest that we test?
Mark Stiving: Okay, so that’s really hard for me to answer. But what I would actually do is I would sit down and say, let’s see if we have the right characteristics, pricing, metrics, levels of things. And before I just changed it and tested it, I would actually want to go look at different usage data, different customers. How much did they pay, how much value do I think they get out of my product? Yeah. I would guess I was going to ask a question. I didn’t, I don’t want you to answer. Let’s pretend like you have a thousand customers. If you could go through a thousand customers and you could make a gut call that says on a scale of one to five, here’s how much value each one of these customers gets from our product. And then we turn around and say, okay, now these ones that have fives, what are the features that they actually use and what are the features they use the most of? And that’s what would guide my next test is can I figure out what’s going on in my current market and tweak the things. Cause I’m not a huge fan of randomly testing things I want to have, I want to come up with a hypothesis first it says, here’s what I think is going on. And then I would create the test.
Matt Barnett: Good. We’re doing the right thing then.
Mark Stiving: Glad. Glad to hear it. Glad to hear it. So excellent. Hey Matt, we’ve actually gone longer than I normally do, but I’ve had a great time talking to you. This has been fun. As I wrap this up, what’s one piece of pricing advice you would give our listeners that you think could have a big impact on their business?
Matt Barnett: I think especially early companies, think about what you want to price and price triple.
Mark Stiving: Love that. Tell me why you say it, but I love it.
Matt Barnett: I mean especially early companies always, always price too low. We are one of these. We did it too. I think if people don’t push back and say, ‘Hey, your price is too high.’ If no one ever says that your pricing is too low.
Mark Stiving: Yeah. I like to say if you’re not losing deals, your pricing is too low.
Matt Barnett: Yeah. It’s much easier to start high and then go, oops, come down than it is to go double your price the next day. And I was like, hang on a minute.
Mark Stiving: Yup. Yup. Excellent. Excellent. All right, Matt, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Matt Barnett: Find me down on LinkedIn. You’ll find me as Papa Bear of Bonjoro, look for the guy in the Bassett.
Mark Stiving: Yeah, and I also have to say I love the titles that you use at your company. It will be odd. All right, episode 56 is in the can. My favorite part of today’s episode, let’s see. How about the fact that he was so open about whatever he was doing and price, absolutely loved that. Now, what was your favorite part? Please let us know in the comments or wherever you downloaded and listened and while you’re at it, would you please give us a five-star review. They’re very valuable to us and as a quick update, you all know I talk about subscriptions a lot. Well, this week we’re thrilled to be able to say, we finally launched our own subscription business a few weeks ago. We released our third course on pricing metrics and I’m currently recording a course on the packaging. Now that we have all this content, we think it makes sense to offer you a subscription, which is probably going to be more affordable for you than buying the courses individually. You can find any of those at our website championsofvalue.com. Now, besides that, if you have any questions or comments about the podcast or about pricing, feel free to email me, email@example.com. Now, go make an impact!
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.