Ep90: New Subscription Pricing Study, What Works Best For Your Business with Amy Konary

 

Amy Konary has more than 20 years of experience advising companies on subscription business strategies. She is the founder and chair of Subscribed Institute, a think tank for the subscription economy. Through the Subscribed Institute, Amy brings together a community of business executives, thought leaders, and industry experts at a series of Executive Summits and events. She generates research and industry benchmarks on subscription transformation topics. Amy also advises Zuora customers on subscription business strategy development, execution, and maturity.  

Amy shares about subscription success in this episode, impacting revenue growth by enabling flexible pricing and product packaging.

 

Why you have to check out today’s podcast:

  • Learn about how subscription pricing considers three pricing models to maximize revenue 
  • Find out the three pricing elements that impact revenue growth 
  • Learn to understand the B2B Subscription Pricing

 

“Simple core with flexible pricing, that would be my advice.” 

 – Amy Konary

 

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Topics Covered:

01:41 – Amy talks about the report B2B Subscription Pricing: Three Critical Elements That Impact Revenue Growth 

03:07 – What is flexible pricing 

04:44 – Company that uses a flexible pricing 

06:07 – On price tweaking 

08:14 – How is a product defined 

12:04 – Flat fee versus per unit pricing 

13:51 – Getting in-depth into per-unit pricing 

15:25 – The difference between per-unit pricing versus usage-based pricing 

17:59 – Discussing growth rate in terms of using or not using usage-based pricing 

19:18 – How Box uses a usage-based pricing 

22:13 – One important pricing advice that could have an impact on one’s business 

 

Key Takeaways:

“What we find in the subscription world is the way that you add flexibility is by coupling a simple and flexible approach. And what we mean by that is rather than selling products, you’re selling services around specific subscribers.” – Amy Konary  

“The fastest-growing companies are those that introduce new packages or products more frequently.” – Amy Konary  

“Pricing and packaging are really important, your ability to cross-sell, and upsell is really important. Your ability to increase volume is really important because that’s really where you’re going to get the most of your revenue from that subscriber.” – Amy Konary  

“Keep it simple, just launch something really simple when you get to market. As the company matures, as their revenue grows, that’s where you start to see companies do segmentation, really get into the good, better, best models, maybe sell some add-ons.” – Amy Konary 

“In the subscription world, you want to eliminate that kind of friction, you want to make it really obvious to the customer, what they should buy, and what kind of value it’s going to offer to them. You’re doing yourself a disservice if you’ve got too much choice for customers.” – Amy Konary 

“We see usage-based pricing being a really important approach, particularly in situations where it’s really important what that usage might be to the value that you’re getting out of the service.” – Amy Konary

 

People / Resources Mentioned: 

 

Connect with Amy Konary:

 

Connect with Mark Stiving:   

  • Email: mark@impactpricing.com
  • LinkedIn

 

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.) 

Amy Konary   

Simple core with flexible pricing, that would be my advice. 

[Intro] 

Mark Stiving   

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the transformational relationship between them. I’m Mark Stiving, our guest is Amy Konary. Here are three things you want to know about Amy before we start. She’s the Global VP of Zuora Subscribed Strategy Group. She’s the founder and chair of The Subscribed Institute. And she coaches youth soccer. I barely know the rules of soccer. Welcome, Amy. 

Amy Konary   

Thanks so much. Nice to be here, Mark. 

Mark Stiving   

It’s going to be fun today, I think. Today, by the way, I think you’re the second person I ever had twice on the podcast. So, it’s a really huge honor. And we’re going to talk about a paper that you and Carl Gold, who was also on the podcast once before, put together. It was called B2B Subscription Pricing: Three Critical Elements That Impact Revenue Growth. And I love the paper. I love anytime people put out data and say, here’s what’s going on, but had a bunch of questions. So, do you mind if we ask a bunch of questions? 

Amy Konary   

Sure, absolutely. 

Mark Stiving   

So first off, tell us what was the methodology? How did you guys, what data did you use? Who did the analysis? How did you do that? 

Amy Konary   

Yeah, sure. So, Carl Gold, who you said mentioned you’ve had on the show before. And Pharrell is the owner of the methodology here. So, I am not as much the methodologies, but I’ll give you my 50,000-foot view. We are able to use Zuora as a software, as a service company that runs roughly 1000 companies on our platform. And we are able to because we’re a SaaS company look at an anonymous and aggregate basis at the way that our customers are running their businesses and the growth percentage and retention percentage results of different ways that they might set up their business. So, what we’re able to find and show a lot of that has to depend on what Zuora’s software enables. So, one of the things that we do enable is flexible pricing and packaging, we enable our customers to change pricing models to offer things like value pricing, and usage pricing. And then through this methodology, we’re able to look at the impact of those types of approaches for our customers on their businesses. 

Mark Stiving   

Excellent. And so, you guys have broken this up into three key chunks. And just as a quick overview, it was flexible pricing, flat fee instead of per-unit pricing, and usage-based pricing. And I want to go through those one at a time if we can. First off, I don’t really understand what flexible pricing meant when you did this. Do you have any idea how you measure that? Or what that looks like? 

Amy Konary   

Yeah, so the way that we think of it is in you know, in terms of having agility. So, for us, what we find is what’s different about the subscription world versus the product world, if you’re in the product world, you get flexibility by adding more SKUs or skews. So, I’ve got a product, I want to sell it in the green, there’s a green skew, I want to sell the product for a period of time. Well, I create a skew for that period of time and another skew for that period of time. So, the way that you add flexibility is to just increase the size of the product catalog. What we find in the subscription world is the way that you add flexibility is by coupling a simple and flexible approach. And what we mean by that is rather than selling products, you’re selling services around you know specific subscribers so with our you know, within the Zuora system to be an atomic unit, rather than being a skew is a subscriber. Many subscribers can subscribe to your services in multiple ways. So, when we think of flexibility, we think of the different ways that you can enable a subscriber to either purchase or use the service, consume the service that you offer. So that’s sort of a broad definition. But I think it really gets at the heart of what’s different about subscription services, and why it might be so challenging for companies that offer subscription services to offer this kind of agility. And then, therefore, why those companies that do tend to see growth impacts and that’s really what this study is about.  

Mark Stiving   

Can you give us an example, pull a company that we all know? 

Amy Konary   

Sure, you know, one of the companies that we use a lot as an example is a company called Box and you know, in your work life, you might come across Box, they are a storage management software. So, you’ve got a lot of presentations that you want to put into place, and how lots of people in your company be able to comment, collaborate, and use it, you might use Box, and you know, put the presentations there. And everyone can kind of collaborate and consume them there. When Box launched their service on Zuora, as a subscription service, they were just really taking a guess at what the value of this type of service would be to their subscribers. And they actually change their pricing hundreds of times within the first year of launching that service to figure out what was right. And we will often say to the companies that we work with that when they launch their subscription service, the first prices that they come up with are probably going to be the wrong ones. And so, for most of the companies that we work with, and probably for a lot of the subscription services we subscribe to, we don’t see all of that flexibility as consumers because it’s not as if my chief price changes every day. But the price that I would subscribe to, and for a year subscription might be a certain amount two months from now, someone else might subscribe, and it’s new pricing, or when I go to renew, the pricing might be new, or there might be new tiers or options available to me. So, there’s a lot of flexibility behind the scenes that these companies use to try to find the right pricing. 

Mark Stiving   

Nice. And so, you at Zuora get to see how often they change the price, which is really great. You also get to see when they tweak the packages, so use my language, I always think in terms of good, better best. And what if I take a feature out of better and I put it into good? Do you see that tweaked as well? 

Amy Konary   

Absolutely. In fact, on this particular report that we’re talking about here, the very first chart has to do with that, which is you know, we think of products and product versions, the same way that you would mention packages, they’re just how we talk about it in our system. And what we find is that there’s a couple of things. First of all, the fastest-growing companies are those that introduce new packages or products more frequently. So, we look at it in terms of like within the last year, they’ve introduced something new, we also find that the fastest-growing companies are those that actually manage the product catalog. So, while they introduce something new, they’re actually looking at the long tail of products and packages, and they’re, you know, either discontinuing those or they’re not focusing on those anymore. So, I think it’s a combination, both of you said, you know, coming up with a good, better best approach. But then there’s also the, you know, tweaking that over time, adding, you know, we’ve actually not in this report, but we have a statistic that about 70% of your subscription revenue as a business selling subscriptions is going to come after that initial customer acquisition. So that means that you know, pricing and packaging are really important, your ability to cross-sell, and upsell is really important. Your ability to increase volume is really important because that’s really where you’re going to get the most of your revenue from that subscriber. And so, it’s, that’s, you know, one of the reasons why, you know, the packaging is so important. So awesome. 

Mark Stiving   

So awesome. We’ll put a link to this study in the show notes. But I really want to ask you to show the number of products per million dollars of revenue, and the fastest companies have less than one product per million dollars when you define a product. And let’s use good, better best for a second is that one product or is that three products 

Amy Konary   

That would likely, in our system we look at like three different products. So, product A is good product B is you know, better. Product C is best, you know, as an example. So, what we find is that early on, and we also look at companies across the maturity curve. Early on, and we talk with companies like keep it simple, just launch something really simple when you get to market. As the company matures, as their revenue grows, that’s where you start to see companies do segmentation, really get into the good, better, best models, maybe sell some add-ons. So, a lot of that sophistication. And you know, some of the frankly, the complexity that might come typically comes down the road when companies have more revenue. And the point that you mentioned to around the, you know, a smaller number of products per million less than one per million. It ties into what I was saying earlier, and that the best companies manage that, right, they don’t come out with the 20 different things that you can buy from us, it’s very confusing for people to try to figure it out, they might come out with 20 things over time, or they might have 20 iterations of that initial product of that good, better best. But the idea is you have something simple, no, I’ve got a set of values that I want to offer out to the subscriber, I want to be your CEO, I want to manage all of your documents for you, or I want to provide entertainment for you. Or I want to help you, you know, learn a new language, whatever that might be. Think about that as a package. And then the flexibility for how you do that, again, is that the way you turn into products, the way you evolve those products over time, and the way you price and package it over time. 

Mark Stiving   

So that makes all the sense in the world because if you think about a small company, you don’t have the resources to market or position or communicate on 20 different products, focusing on one with a huge difference. 

Amy Konary   

So, key to remove that friction from the sales process. And I oftentimes will use the analogy of the Cheesecake Factory menu. To be honest, I’m not sure if the Cheesecake Factory still exists, it’s been a while since I’ve been out to dinner. But if you remember, it’s like a phone book, you know, and I remember sitting down at the Cheesecake Factory trying to figure out what to order. And it was almost impossible, you know, take you so long. And you know, in the subscription world, you want to eliminate that kind of friction, you want to make it really obvious to the customer, what you know what they should buy, and what kind of value it’s going to offer to them. So, you’re really, you know, doing yourself a disservice if you’ve got too much choice for customers. 

Mark Stiving   

I think that’s true in most worlds. 

Amy Konary   

Yeah, I agree.  

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Mark Stiving   

So, you’ve got flat fee versus per-unit pricing is the second chunk. Let me just toss that softball to you and say, so what do you think? And how do you define those? 

Amy Konary   

Yeah, so I mean, softball, this is a classic to aligning price and value type of question here. And that aligning price and value, I think is probably always important. But when it comes to subscriptions, and subscription services, it’s really important, you don’t want to give people the perception that they’re paying for things that they don’t use, you know, a one size fits all approach doesn’t work well for subscription offerings. And so, what we find these are our most successful are those that recognize that not every subscriber is the same, and not every subscriber is going to get the same amount of value out of the service. So, when you’ve got a flat fee for service, you know, it kind of assumes that everyone’s is consuming the same way everyone’s going to kind of get the same value. And, you know, one of the nice things I suppose about the flat fee is it’s fairly simple to understand. And so, we do see companies starting out with that, maybe to just find what, what is the value? How are people going to use it? It’s kind of a simple way to come out of the gate. But what we find is that as companies evolve their offerings, they start to see their subscriber base, not as a monolith. But as you know, cohorts and segments, and there’s an opportunity there to use more flexible pricing to make sure that you’re doing a better job of aligning price and value. And so, we find that the best companies do just that. 

Mark Stiving   

Yes, so let’s try not to jump to usage-based pricing with this next question I’m going to ask you, but I often think that users, number of users isn’t the best pricing metric to capture. And so is it really usage that matters, I’m sorry, number of users, the matter of fact that we’re doing a per-unit price, or maybe per unit pricing means something different than per user, in my mind, 

Amy Konary   

It could be per user; it really depends on the service. So, I think a lot of times, and I came from the software industry, and I suppose I work for a software company now. And so when I think of per unit, I’m oftentimes thinking about the unit meter that we’re thinking about, there are users, but it could also be, you know, it could be a unit of consumption, it could be a unit of, you know, training hours consumed, it could be, so it doesn’t necessarily have to be a user or an individual. I think that’s, you know, very, or subscriber, there could be some notion of consumption associated with it. We also see, you know, tiering of units that could take place here. So, you know, we’ve got a flat fee or per unit here. And you know what, well, you know, there are ways of making per unit a little bit more predictable, because, of course, you’re always trying to balance off. You know, I mentioned how flat fee is, one of the nice things about is it’s pretty predictable, you know exactly what it’s going to cost. Whereas in theory, the per-unit pricing, especially for something that’s new, you might not know exactly what you need to start and so one of the things that the company can do to make it clear for the subscriber, it’s a consumer or for the business to know how many units they need is to create some tiering or some other mechanism for you to right-size your environment so that you don’t have, you know, either too much or too little for what it is you’re trying to achieve. 

Mark Stiving   

Okay, so what’s the difference then between per unit and usage-based in your mind? 

Amy Konary   

Yeah, so the way that I look at it per unit is, you know, it’s a good way of scaling something, but it’s independent of the use intensity. So, we use the user, you know, analogy, which I think is a simple one for people to wrap their heads around. And, you know, in the software world, if you’re paying per user, that and it’s sort of a monolithic user, I assume there’s no like selfsuper service power users, just user, you know, Amy Konary might be in that system all day long. And, you know, Mark, you might only check it every once in a while, or you, there’s a great degree of the actual usage that happens. So, the per-user model is okay, you know, again, it’s a way of per-unit pricing of getting all of that value alignment. But it does not solve for the fact that some users might have a higher use intensity, I guess than others. And so, we see usage-based pricing being a really important approach, particularly in situations where it’s really important what that usage might be to the value that you’re getting out of the service, you may not always want to go in the direction of usage. And we often see usage being the icing on the cake. And that’s when Carl Gold talks about usage pricing and the growth benefits that we see companies getting from usage pricing, he refers to it as it’s truly the icing on the cake. And that you don’t want to have too much usage pricing. If you go too far into that like super flexible per usage pricing, you can actually start to see your growth drop off, there’s a sweet spot where it’s not zero, but it’s not over a certain percentage where you can definitely see some growth returns. And I think that’s representative companies using it very strategically, either for a lot of different scenarios where it can make sense. 

Mark Stiving   

It was interesting. And what jumped out in my mind is that the graph that you guys put in the paper here says, ‘If I’m not using any usage-based pricing, then I probably have about a 17% growth rate. If I use one to 25% of my revenues coming from usage-based, it’s 25%. And more than 25% is coming, I’m getting a 21% growth rate.’ So those are interesting. But what jumped out at me was the question is, what about the 25 to 50% range? Right? How did you choose 25% as the cutoff between real look at everybody below 25 and everybody above 25? 

Amy Konary   

The answer to that is there aren’t that many companies that had over 25%. So, we looked at, you know, the cohorts of companies that were, you know, in the database using Zuora, the majority of them fell into one of these three buckets. And from a statistically significant perspective, these are the ones, cohorts that we could make the, throw the strongest conclusions, there just aren’t that many companies, you know, everything 50% would be in that greater than 25% bucket. Right, but that the sort of a relatively even split between those three. You can actually see, you’ll see that in that pie chart, actually, by the way of what that actual split looks like. So greater than 25% was only 18% of companies in the study. So, it was a pretty small piece, whereas 47%, when the study was done, had no usage-based pricing at all. And 35% had that one to 25% range. And those are the ones again, it saw the strongest growth. 

Mark Stiving   

Okay, so I don’t want to put you on the spot here. But let’s pretend the Box can exemplify all of these for me. And if you can just be great, if you need another company, that’s fine. Using Box what’s the difference between per unit and usage-based pricing. 

Amy Konary 

Using Box, the way that box works is that I and you know many of my colleagues and different parts of my organization would have a license or you know, be a user would be able to upload things into Box. And so there might be you, know, a certain number of us within the organization. You have still into a soccer world it’s talked about as a license for those 25 people. A usage paradigm might be okay, you know, Zuora, you have 2500 documents in the Box, and you know, that is X amount of terabytes of storage and You know, we’re on a monthly basis going to look at the number of storage that is being utilized, you can have an unlimited number of people uploading and downloading. But you know, the way that your price is going to change, or we would calculate your price is based on, you know, that actual storage usage. So that might be a one-usage model. Another usage model might be how many times do people upload and download things. And maybe that’s the usage model. So, me, as a user, I could put 25 PowerPoints in the Box a day and pull down 50 things, someone else could do one in two. And so that would be different amounts of usage. Now, I can think of problems with both of those models, if they’re the only pricing metric. But those are the, you know, examples in that analogy that I could think of where Box could think about a usage-based approach. 

Mark Stiving   

And so, the idea then is, I’m going to do usage if I’m going to do less than 25% of my revenue on usage, I’m going to do usage on top of something else. So, charging per user, plus some license for total usage or something like that. 

Amy Konary   

That’s right. And the reason that we know the difference for that in our system is, you know, in part how, you know, the customer sets up the different type of pricing model, but also our system will take in usage from other systems. So, there are other systems that will actually do the metering and tracking of, you know, how much storage is being utilized, or how many, you know, things were uploaded or downloaded. And then we have our customer, we’ll set up actual rates associated with that usage. And then we do that rating. And then that’s what’s built out. So, from a systems perspective, that’s different than how we know, you know, is this usage versus is this, you know, a per-unit or a flat fee type of pricing. 

Mark Stiving   

Nice, Amy, I got to say that I’ve absolutely loved this conversation. I would love to have your job just so I could work with Carl and have him do all these analytics for me. 

Amy Konary   

It’s great. It’s great. I have the best job. 

Mark Stiving   

No doubt, no doubt. But just for kicks, let me end with the final question. Do you have a piece of pricing advice you’d like to give our listeners that you think could have a big impact on their business? 

Amy Konary   

Simple core with flexible pricing, that would be my advice. 

Mark Stiving   

Nice. And I might even take that to say test and tweak often while you’re trying to figure so. 

Amy Konary   

That’s also really important advice. 

Mark Stiving   

Yeah, well I think that goes with the flexible piece so I’m just like you said it. Amy, thanks so much for your time today. If anybody wants to contact you how can they do that? 

Amy Konary   

You can find me on LinkedIn Amy Konary with the K, K-O-N-A-R-Y. 

Mark Stiving   

Perfect. Episode 89. All done. Oh no, this was Episode 90. I didn’t change the number. Please don’t forget to leave us a review. We greatly appreciate it. Join our free community at community.champions@value.com. That’s where you’ll see all of the memes, blogs, videos, podcasts, everything I put out gets posted up there or at least links to it too. And if you have any questions or comments about the podcast or about pricing in general, feel free to email me mark@impactpricing.com. Now, go make an impact!

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