INTRODUCTION TO PRICING

Pricing is the single lever that companies can pull to have the largest impact on the bottom line. No wonder Warren Buffett advised investors by saying, “The single most important decision in evaluating a business is pricing power.”¹ Pricing includes but is not limited to:

• Breadth and depth of features included in the offer (i.e., packaging)​
• How the offer compares to similar offers in one’s portfolio (e.g., good, better, best)​
• Add-ons, services, or accessories available with offer​
• Purchasing unit(s) of the offer (i.e., pricing metric(s))​
• Size of the offer (i.e., unit increments)​
• How the offer can be purchased (i.e., buying model)​
• Who can purchase the offer (i.e., pricing discrimination)​
• Quantity limitations behind the offer (i.e., min/max)​
• If and how the offer is bundled (e.g., airline tickets, happy meal)​
• How the offer is discounted (e.g., volume, term, payment type)​
• Value of the offer against its alternatives (i.e., differentiation) ​
• Price points (e.g., List price, partner price, end-user price, etc.)​
• Sales/Partner incentives (e.g., multipliers, deal score, channel discount, rebates, etc.)​
• And so much more… ​

It is with this multiplicity of components that OpenView found pricing changes leading to +26% in ARR and +8% in NDR and McKinsey & Company can claim “pricing [is] the next frontier in private equity value creation” because collectively it is “by far the biggest tool for earning improvement.”²^,³

At Risecor, we are true to the holistic perspective of pricing. Through our vast experience of working as pricing experts for a breadth of enterprises, we know firsthand providing a client with one aspect of pricing is insufficient. All components of pricing must be decided synergistically to be more effective to a company’s brand and bottom line. It is no coincidence that CEOs have confessed “the moment you make a mistake in pricing, you’re eating into your reputation and your profits.”​ This is further verified by OpenView which found that pricing changes are 460% more effective when done correctly with dedicated analysis like Risecor services.⁴

Our holistic perspective of pricing includes four categories of work (Framework) through seven main stages of production (Methodology) to provide our clients with the information and recommendations to make the best pricing decisions.​

OUR FRAMEWORK

Our structure of pricing strategy consulting is centered around value-based pricing which most find simple to understand but harder to execute. Regardless, our ultimate goal is to make your offers be perceived with a significantly higher differential value compared to their alternatives. Value in this regard means the perceived economical, psychological, mental and physical benefits one receives from an offer minus the perceived price one must pay for that offer. ​

The starting point for this perception is always the best alternative. If you needed to travel 75 miles, you would not compare renting a car to riding a bike, rather you would compare it to the best alternative—which in this case may be another car rental option like Turo, or using Uber, or a taxi. Also, it needs to be the perceived comparison instead of just actual. For instance, there may be Apple iPods that perform in audio statistics very similarly to a no-name brand’s wireless earphones, however, the perception of benefits is drastically different. ​

In consequence, we need to understand and calculate the difference between the total perceived differential benefits and the total perceived differential price of your offers against their alternatives.​

Differential Value = Differential
Benefits – Differential Price

(source: Pricing Done Right by Tim J. Smith)

To do this, we may need to change your offer’s features/support or price to, respectively, further increase the perceived benefit differential and decrease the perceived price differential thus increasing the overall perceived value differential against the best alternative. ​

‘Change’ could mean decreasing or increasing features/support or price. With some rare exceptions, the only reason we would decrease the features and price would be if we added another offer with increased features and price thus allowing you to target another segment with higher value needs and thus willingness-to-pay.​

To execute this approach, it is imperative to draw data from both internal and external sources (RisecorDiscovery™), analyze that data to determine useable insights (RisecorAnalysis™), use those insights along with experience and creativity to create a pricing strategy plan (RisecorStrategy™), and then guide your team through the agreed upon plan to realize return on your investment in Risecor (RisecorExecute™).

OUR METHODOLOGY

Deliverables

PRICING TEAM

Risecor has pulled together a unique team of Certified Pricing Professionals (CPPs) with a breadth of experience and expertise working with SaaS, Service, Franchise, and Manufacturing companies. Each of our SMEs has brought significant impacts, lasting results, and are well known in the pricing strategy space.​

CASE STUDIES

CASE STUDY A:

+150% Growth in <2 Years

​COMPANY TYPE:
SaaS Address Verification​​

ARR:
$10M

GROWTH:
40%

HEADQUARTERS:
Utah, USA

SITUATION

• Growing at ~40% per year and was on track to hit $10M ARR ​
• Had profitably bootstrapped from creation​
• Never strategically reviewed packaging and pricing nor optimized pricing

PROBLEM

• No premium offer to capture enterprises’ higher WTP​
• Not monetizing differentiated values in the market that carried with them higher WTP​
• No tiering or bundling of offers—only volume-based pricing

SOLUTIONS

• Introduced two new tiers sets (business and enterprises) with 3 offers differentiated by features, intensity of features, volume of units, and availability of add-ons​
• Optimized pricing for both tiers sets and add-ons to influence higher price point​
• Trained team on value proposition and discounting strategy/tactic for enterprises

KEY LEARNINGS

• Packaging (i.e., offer creation and tiering design) are just as important as optimizing pricing. ​
• Even high growth companies can perform better—especially with enterprise customers.​
• Often there are value drivers and differentiators that should be monetized but aren’t. 

​

RESULTS

• Increased ARR +150% from ~$10M to +$25M after 22 mo​
• Increased enterprise customers’ average deal size by +200%​
• Increased business customers’ average deal size by +40%​