We’ve talked plenty about how pricing and monetisation work, but the way you operate as a business is important, too. It sets the tone and environment in which your strategies operate day-to-day. Even the ideal monetisation strategy won’t deliver results if you don’t also build a value-based culture and put governance, systems and processes in place to steer outcomes.
NB: This is not the same as a values-based culture (which you should also have!) Here, we’re talking about a culture which respects value to the customer as a core tenet, as opposed to price, where short-termism and gouging can be the result.
Building a value-based culture is the job of the CEO. She needs to instil that culture in her direct reports and ensure that there is real substance behind her words. Building a value-focused rather than price-focused culture is tough. It’s also fragile and easily ruined: it takes real commitment and discipline to maintain.
“There can never - and I mean never - be a discount on a new car coming out of the factory in pristine condition.” Elon Musk memo to Tesla employees
The commitment to defending price on the basis of promoting value demonstrated here by Elon Musk is what all CEOs should aspire to.
The core principles of a value-based culture are:
We saw earlier that a smart monetisation strategy always starts with the customer and works backwards. But that doesn’t mean that you should support every client request or demand for customisation.
It’s critical to wrap a layer of governance around what you are willing and unwilling to do for customers, so that client-facing functions (sales, customer success etc.) are clear about their authority and can act accordingly. There are no hard and fast rules but a good policy should cover the following elements:
Packaging: Define what adjustments - if any - can be made to the packaging configuration to meet the needs of a specific customer. As a rule of thumb, you would not want to allow the sale of non-standard packages to customers - it increases the complexity of your portfolio and cost-to-serve. There may be instances however where it is allowable e.g. for very large customers. Whatever policy is right for your business should be carefully documented and communicated clearly.
Price discount authority: Define what discount authority is allowable, and by whom. It may also be appropriate to set different authority rules by channel and product. Typically, a level of discount authority is expected in enterprise sales yet is minimised for smaller customers where speed and simplicity of sale are critical to maintaining margin.
You need complete visibility and control over your pricing. Equally, pricing strategy must not become a burden for your sales team which slows them down. These objectives can sometimes come into conflict, particularly in larger and more complex businesses.
The following considerations will help guide your execution strategy:
Automation: Aim to systematise and automate as much of your packaging, pricing and approval processes as possible. Leveraging offline tools like Excel for pricing guidance and email-driven approval workflows is OK when you are a small startup; but you should be automating these processes as soon as possible.
Data strategy: There are two aspects of data strategy and how it relates to your monetisation strategy that you should consider. First, how you sell must be reflected in your product and customer data. Your SKU hierarchy should reflect the granularity with which you sell your products, so that product and price are data-aligned.
Alignment between price and product means that your product must always be demonstrably priced at the most granular level you would like to sell. For example, if a business were to sell packs of 4 water bottles at a price of $10, recorded in its systems, but also allows the sale of individual water bottles for $3, then a SKU for a single water bottle at $3 must also be present in the system. We’ve seen very mature large SaaS businesses unable to determine what products they’ve sold to their customers because they did not have data-alignment between product and price.
Similar considerations apply to customer data. Make sure you have data on any customer characteristics that are used to differentiate prices between customers – these can then be used either to justify your pricing strategies, or to differentiate further in the future.
Second, you can’t change things you can’t see. To steer pricing effectively across the business you’ve got to identify the right metrics, at the right level of granularity, for the right audience at the right cadence, and then execute on as much dashboarding and reporting as is needed to give everyone in the business the insights they need to make reliable decisions.
Incentives: Salespeople are coin-operated. Ensure that compensation schemes for your customer-facing functions are supportive of your monetisation strategy; rather than driving behaviours which are counterproductive.
A common challenge with the switch from a subscription-based to consumption-based pricing model, for example, is that incentives must also change accordingly as revenue growth becomes increasingly dependent on post-sales rather than pre-sales activities.
Deal desk: Some businesses operate a deal desk to support sales with complex deals, and ensure compliance with policy. There is some merit in this, but take care not to slow down the sales process. Don’t let a more arcane deal desk hold back the automation of approval workflows.