How to Correctly Price Your Products // Patrick Campbell

i want to kind of contextualize monetization for a second for most folks because a lot of people think it's like it's just the number right like oh what's should it be 100 150 102 like

what should it be right in actuality if you really think about your business it doesn't matter if you're a non-profit a retail company a sas company doesn't matter what you are

you've created some sort of value and because we don't trade goats for wheat anymore you're basically saying like hey this value's worth this much right and there's all these things that influence

that value who you sell to what you sell how you position it the actual price can can you know you know affect that as well and so i think that the big thing is when you start from that premise you start to realize

like one there's a lot of different things that go into your monetization but two [Music] what's up everyone i'm chris ranzio

founder and ceo of tranual and this is process makes perfect as always we're talking with experts in process creation automation and delegation basically the people that know how to make business

easier you just heard patrick campbell and this episode is all about the process of pricing patrick's the founder and ceo of profitwell the industry standard software for helping companies

like atlassian and autodesk meet up and lift with their pricing and retention strategies profitwell also provides a turnkey solution that powers the subscription financial metrics for over

fourteen thousand subscription businesses like tranul it's free and it plugs right into your billing system so check it out prior to profitwell patrick led strategic initiatives for

boston-based gemvara and he was an economist at google and for the u.s

intelligence community what i love about this episode is that whether you run a subscription business or any other kind of company patrick talks about how you should first price your services how you should make sure not to leave money on

the table how you should think about upsells and maximizing the value of a customer over time and just the metrics that you should be watching to understand your customers and make strategic decisions based on the data

that your customers show you so it's a great episode and i know you'll love it can this business thrive without the owner you've got to start putting systems and processes in place if you don't use the systems the business will

break we're always looking to buy back our time you cannot say something once and expect that it actually is received this is the way we work a big motivation

in that for me is creating a job for myself that i really enjoy this is how you discover your vision and this is process makes perfect hey everyone welcome to process makes

perfect i'm your host chris ranzio and as you heard in the intro today we're talking with a friend of mine patrick campbell patrick you're you've got to be one of the smartest people i know so i'm so excited to have you on here

i don't know about that you're setting the expectations really high i just noticed you got the boston harbor behind you are you trying to convince yourself you're you're in new england when you're in in arizona right so so you know my

brother lives in boston after i grew up and i was the best man at his wedding and he gave me this to take a little piece of boston back here to arizona so that's awesome yeah very cool well today we're

going to talk a lot about pricing so this will be the process of pricing what you do at your company and i want people to get a little background on you because in the sas world i feel like everyone knows who you are but if you

don't have a subscription product this guy is like a hidden gem around the world and everybody needs to follow what you're doing so why don't you just give us some background i know

you started off as like a secret agent in the government or something like that so why don't you start there oh man yeah well yeah sword sort of so yeah i started i

started my career i worked in u.s

intelligence um in dc um it's it's actually where i got the best training i've ever gotten so if you want to go deep on that as much as i can that'd be cool um and then i worked at google after that

um and basically i i was an entry-level intel analyst at the nsa and then i was a like a sales sales ops guy at google and basically both places i was taking data you know my backgrounds in econometrics and math

and basically taking a bunch of data applying models to it and trying to find some sort of outcome so at nsa i'm using data to find bad guys and gals at google using data to find more money

um and interestingly enough using the same models for both which is really interesting and then about eight years ago i started a company called profitwell and as was kind of alluded to we're in the business of helping subscription companies with

revenue automation so we have a free subscription product um that you plug into your subscript your billing system and you get access to all of your mrr your churn all the data you need and right now it's used by about 20 of

the entire market which is cool and the way we make money is we use that data to then build products to help reduce your cancellations and help optimize your pricing and things like that and so we're in the business of taking data and

then solving problems that are better solved by data versus like you as a human um if that makes sense and yeah it's been it's been a fun ride so far and it's been been quite the journey

so quick plug for profitwell if anybody out there is processing revenue through a regular credit card kind of processing system hook your business up to profit well because this thing is like the dashboard

of my dreams that i've always wanted you know i would be in conferences or read books and everybody says you've got to have kpis and dashboards and they've got to be visible so you can run your business on them and for years i

struggled to like connect google sheets to these weird tools and until i found your software i've never had that kind of dashboard so thank you for that uh if

people don't don't have a subscription business do you have any recommendations for them like what what what else could they do um well it just depends on the type of business right there's a couple of like

businesses that are popping up that are um the name i'm blanking there's a couple of them that are built for e-commerce companies specifically um and then there's um i i think that the biggest

thing is just start start small i think that if you're not used to data and data is only as useful as as you use it right we were just talking about before this you know how you're like oh we're seeing adjustments in this or that

or these other things and that's because you're actually using the data and you're making adjustments based on the data it's a lot of folks who just get enamored with graphs and it's like the graphs aren't there for the sake of being graphs they're there to like help you right so just

start small even if it's in a spreadsheet and what ends up happening is you know you'll start small and then you'll ask more questions you need more data and then eventually you'll you know seek out the right type of tool whether

it's a generic bi tool or something specific like profitwell and so on and so forth so i'm curious for you how long have you had the business you said eight years yeah so we originally were

called price intelligently because the only product we had was this pricing product and then we evolved into having multiple products specifically for subscription businesses so we changed the name never change your name it's the worst thing you can do

probably not the worst but it was definitely really annoying because there's some folks who have context of our entire life cycle so the story is a little bit different to them whereas some folks they just learned about us through profitwell

and it's one of those things where it's like oh like you know this is the story we're trying to tell now so it's been it's been a fun learning experience the past 18 months when we kind of officially changed our name so you had a bunch of different products

and has has your business model changed over the years because i think there's probably lessons in that on how people adapt and offer more services or fewer services how to how did you approach it yeah so we found out really early on and

i think this is really good advice for any business um with ever any problem big like the the question that you just asked or even small it's like breaking it down to almost the sum of its parts and for us

like we broke down like our constraints and one of our big constraints is the number of logos in our space subscriptions um it's it's not very high right so we have um you know actually i

wonder if you know i think if you've seen a talk where i asked this so don't cheat or tell me if you can cheat but uh how many subscription companies do you think are in the world right now also

media sass all that kind of stuff i think i'd be cheating but can i guess yeah go for it i would say 50 000.

yeah yeah so it's somewhere between probably 100 and 150 000 total um but the thing is most people think millions oh there's millions of subscription companies and it's like no that's e-commerce e-commerce has

millions of potential customers so if so we're in a low logo tan but the revenue on those subscription companies is like exponential and so we changed our business model of knowing you know

we need high ltv lifetime value and so how do you get high lifetime value you can sell multiple products in addition to that you you get to a world of pay for performance which allows you to kind of you know

push things push things forward so yeah it's changed a bit um i think what we're trying to do is we're trying to like double down on a couple of our products right now get them to a really good place before we like expand even further

okay so i want to spend time talking about how you use the data to influence your decisions but it was too good to pass by you said at the beginning that you had the best training of your life it's the uh

us intelligence training so can you touch on it briefly like what was that experience like yeah i think that large organizations and the government is like one of the largest organizations i think that they

realize like how important training is so we get we as like entrepreneurs and as like business builders like we're about 70 people um you know so just to give you some context but even before this and then i've been involved in

larger organizations obviously like we get into this mindset of like oh don't worry like they'll just learn it on the job they'll just learn it by sitting next to the other person or whatever but i think what ends up happening is like we don't realize like how much time that

wastes and how much like misalignment happens because of that and so what i really appreciated about having you know the intelligence community as one of my first jobs was they have a really clear training program they're

like here are the milestones here's what you got to do and i think that for most businesses it's probably overkill you should have something in between these two pieces but what i just really appreciated is they focused on not only

like a rigorous program but also it was very much focused on like how to think not like do not do this do that it was more like hey this is our philosophy on this this is how you should think about these types of problems and then let you

go off and do things and there are of course things of like especially around the legal stuff as you can imagine where it's like you're not allowed to do this you can't do this this is illegal these types of things but most of it was very like teaching you how to think which i

think is the best type of training um you know even if it's an expense policy like hey like this is how we think about our expenses here here are some like specific rules but like everything else is you know use your best judgment

because you hire smart people you want to enable them you don't want to constrict them yeah it's like a filter for decision making not all the answers i remember going through a i went to a ted event like eight years ago or

something right probably right around when you started profitwell and i remember sitting in the audience and they said that we're moving away from a time of needing to know the answers and into a time of needing to know how to

find the answers and it's like you can google anything and that's where the future is headed so as long as you're resourceful and you've got the skills and the intelligence to do that you could find answers so i thought that was

really cool um all right well thank thanks for sharing that so let's let's get into pricing whether whether people that are listening have a subscription business a services business an e-commerce business they sell products

whatever it is pricing is one of the most pivotal things and big biggest decisions in business like this can make or break your business of whether you can sustain yourself so

when someone's just starting how do they set a price do they ask customers do they copy their competitors how do you start yeah it's a great great question i think i'm going to take a a quick step back

because i think that um i want to kind of contextualize monetization for a second for most folks because a lot of people think it's like it's just the number right like oh

what's should it be 100 150 102 like what should it be right in actuality if you really think about your business it doesn't matter if you're a non-profit a retail company a sas company doesn't

matter what you are you've created some sort of value and because we don't trade goats for wheat anymore you're basically saying like hey this value is worth this much right

and there's all these things that influence that value who you sell to what you sell how you position it um the actual price can can you know you know affect that as well and so i think that

the big thing is when you start from that premise you start to realize like one there's a lot of different things that go into your monetization but two like what is the best way to get the price well it's to go to the people you

think you're supposed to sell to and ask them in the right way and the right way is you know important like where their willingness to pay is and i think that's a really big thing because everyone

wants this like secret roundabout way to like divide this number by that number and figure out their price point when it's as simple as going to your customers and asking them questions like

well you know here's the product like you know tell me about it right and not leading the witness and having them like talk about their needs and their wants and then saying like okay so you're familiar with the product you know at

what point is it way too expensive that you would never consider purchasing it and they'll fumble around they'll give you an answer and then well at what point is it you know a great deal that you'll just like buy it today right and

then if you do that across like even 20 people you start to get a feel for well am i a 10 product and my 100 products and my thousand dollar product and then if you you know get into doing

like a bigger survey of more and more data and you follow some statistical best practices and this type of stuff you can get more precision in that number but it's not rocket science and i think that the thing to think about is

your costs and your competitors don't matter because your costs like your customer doesn't care about your costs they care about their costs right and your competitors you're assuming that they've done their homework when i guarantee you they haven't done their

homework but you're also assuming that you're selling the exact same product to the exact same type of customer which in some cases is true like very very competitive markets but oftentimes we overestimate how competitive markets are

are actually and so what we recommend doing is you know do this research and then use competitive data as well as cost data as you know almost like secondary data as well but that's kind

of the the shortest rambling answer to your question there basically okay so you ask your customers you try not to lead them do you do you feel like customers that want to buy or in that position

would be biased like did they try to give you cheap feedback so that you'll set a cheap price yeah so i think that um what's really interesting is that this is this is the power of like sample size

right so this is why so there's two things one this is why you ask ranged questions and if we were doing a true like pricing survey we'd ask a couple of extra questions as well to get like some

what's called an elasticity curve which we can go deeper on if you want but basically it's a measure of if i change my price like how many sales am i going to lose or gain and so this this is the power of you

know the sample as well because the range questions protect you a bit because we're not trying to figure out like a really really specific answer with only asking 20 people we're just trying to get the general range right

but then the other thing you should be doing is you should be talking to your current customers you should be talking to prospects and then talking to people who like are your target customer but they've never heard of you um i think that's my my favorite thing to do

because when you start to look at that data really what should happen is those people have never heard of you should be willing to pay the least and then all of a sudden your current customers should be willing to pay the most often times it's reverse because you've anchored

your current customers to a price that you've never checked or studied and so it's too low because most of us were you know we're scared that no one will buy things so we price our products too low typically and so when you do that

research you'll you'll first not want to trust it because you're like well they're only paying 100 how can we raise their price to 500 right and it's like well you're probably not going to raise your price to 500 right away on those folks but really you've been under price

for them for too too long yeah so so when you set a price and you've got something you're ready to offer you without a doubt we'll get people that are whether they're commenting on ads or giving you feedback over the phone

there'll be people that think it's too expensive so do you waver from a price do you discount and and just get more customers to have a bigger sample size or do you start to offer multiple

products like at what point should someone um you know resist versus accommodate yeah so that's a that's a deep question i think that so are you asking more

around like hey should we worry about defending our price or not or is it more like yeah i guess that's kind of what you're asking right i guess so yeah like do you do you discount from your price and if you do

that enough do people start to you know it's like if i go to buy a car i know i'm not going to pay the msrp on the list because no one pays that you know so is it crazy do you have to reset that

expectation it depends on your market right i'm a big fan of if you've done your homework you should defend your price right um and yes discounts are a part of life like you might have to give like a five

ten percent discount or something like that like i think those are okay because you know if your salesperson has defended the wall if you will and this is the thing that's going to get them over the edge like great but i would

discount things like um you know the the onboarding fee i would give a promotion meaning like hey we'll give you priority support for free so i can't i can't discount the price but i can give you this promotion i'll try all of those

things before actually discounting the price because the thing is is that in most industries people again they know things cost money um and and we are like oh we're scared to talk about it we're scared to like defend it because it's

like oh we don't want to talk about money but the actuality is is like if if they value the product um and you've put them through a trial which is something or you give them a 60 day out or all

these things that hedge the bet of of their decision making it allows you to kind of like defend that price now the downside is if you discount too heavily we found this pretty pretty steadily is

that if you discount beyond um you know right around 30 so 30 or more discounts you start to run into a position where they're really only buying because of the discount and that means that your

customer isn't really ready like satisfaction is going to be low um you know if you're a subscription company there's going to be churn there's just going to be a whole host of things where these customers just aren't really ready for prime time

and we see that a lot now a couple of caveats retail products it's a bit of a different game retail and e-commerce you know you are eroding your brand when you discount but

sometimes like that's the only thing that gets people over the line and so i would just really think about from a framework perspective are we a discounting brand are we a luxury brand or a premium brand um if you're a luxury

premium brand you the discounts should be few and far between you know herman miller they only discount twice a year they do two sales a year right i think like tiffany's and things like that that's what they do as well

but if you're a discount brand then like go nuts right and i think that you should still defend the value props but um yeah keep things going i love how many levers you can pull with pricing you know there's like you mentioned there's the add-ons there's the free

services there's promotions there's like coupons there's extended pay periods you know there's like so many things you can tweak so there's really a lot of a lot of room to get creative

you talked about price elasticity willingness to pay i think a question on a lot of people's minds is how do i maximize how do i not leave money on the

table so how do you offer something or or price your services in a way that you're capturing as much value as you can yeah i think it's um one of the biggest mindsets to get into is there's

no perfect price right so it's like even even if your price is at 500 there's going to be people who only want to pay 490 there's going to be people who are going to pay 5.25 like it's one of those things where like you're going to be missing you're going to be

overpriced for some you're going to be underpriced for others but the secret is offering options and this is why we we like to say price on a value metric which is you know it could be this could be for e-commerce but it also is mainly

for like subscription companies where you price based on like the usage or the value they're getting of some sort because then it's kind of like well you know i don't have to buy the 60 eggs

right i can buy the 12 eggs or the six pack or the 18 pack right that's that goes into your packaging um and i don't have to like overpay um for for too much right and so i think that's a really

really big thing but in addition to that um also realize it's a multi-move game right that person comes in they buy like the low priced um utility product from you um all of a sudden it's like well

here's this other luxury like nice to have product that we also have they trust your brand now so theoretically they can purchase more um in in the world of subscriptions it's you know add-ons and things like that and so i

think those are the two things to really think about um too many times we think oh they purchased that's it well if you have a you know one-time purchase type company you gotta have repeat purchases or you're gonna die like it's just not

gonna work out and if you're a subscription business if your average revenue per user isn't going up um you're not taking advantage of that relationship that you have in a good way right um you know people get value it's

okay to like ask for more money in exchange for that value you just have to do it in the right way i don't know if this is a trend anymore but i remember seeing like panera the sandwich shop had a store where you could just walk in and

name your own price i don't know if you remember that but it was like you could pay whatever you wanted it's like an experiment or a pr thing but i've seen software products do that too like pay what you can or you know donate buy us a

coffee do you see that working anymore or or is that kind of another experiment yeah it's an experiment in most places but it's typically very focused on um

community type products so those panera stores those were there like donation type ones there was one in boston actually for a long time they ended the experiment not because it wasn't working

but because of some other issues i i can't remember what exactly happened but um yeah you could walk in and you theoretically they had suggested prices but um basically they'd get you whatever and i think that like it was all

self-serve on like the credit card machine and everything as well so you didn't even have to like interact with someone and it was mainly because you wanted um you know if someone was down on their luck or you know homeless or something

and they needed food like it was a place that they could go and then if you were you know able to pay regular prices or more you could do it in software we've seen this with like

very like um association or industry like type products like very like open source adjacent i guess is the best way to put it that's probably not the best way to put it that's so jargony but like very

like you know products that are basically like oh we're part of the like privacy alliance and we're a privacy tracking product you know pay what you want right

i think that typically those really only work um when you offer some options right so what panera learned is it was failing until they were like

here's the suggested total pay what you want based on that information so you'll see this with a lot of non-profits and like um associations where like they'll

be like hey donate either one time and here's some suggestions 100 200 or subscription 10 a month 20 a month etc um if you just give someone like a blank it's the same thing if i was just

like hey how much is this worth it's a terrible question to answer the human brain it's really hard for us to contextualize that question because we think about value in a spectrum we know that this you know cup of coffee is

worth less than this computer because i've had you know i've purchased coffee before i've purchased a computer before but i can also like do a relative like value analysis quickly in

my head to realize that now if i don't sleep for four days maybe that coffee increases in its value right um you know it's one of those things that like i rethink it based on my circumstance and so that's why you got to give people a little bit of an

anchor or a little bit of a context so that they can you know provide you know or think about the value in the way that they need to so so then if uh if the blank is the worst thing you can do and maybe the

other end of the spectrum is like a million different products a la carte too many choices what's what's your recommendation in between like do you have packages or only so many choices

because then you're getting people like i remember when when i was starting out someone told me you know have like the three choices and the middle one's the one you want people like like is there

the right number of packages or choices yeah good better best is not bad advice it's just like incomplete advice because here's the thing you want you want to align enough

packages or options to the personas that you have right so if you're a retail e-commerce product and you're basically selling um you know you're selling um uh you know to

um all kinds of buyers like the hardcore like let's say you're a music shop and you're selling to beginners and then hardcore enthusiasts all the way professionals right the offerings that you'll have as well

as the price points are going to vary a lot right and you just have to be good at targeting those folks so you're going to ask me when i sign up for my first product hey how do i you know how would you characterize you and then you're

gonna have separate newsletters to go to those people right in the world of subscriptions right like yeah maybe my pricing page is only gonna have three or four options on it because it's just gonna get too confusing to try to show

them 18 options but i should have 18 options on the back end because i'll learn about you and then i'm just going to offer you up plan 17. you're not

going to know there's 18 plans you're just going to see plan 17 right and this is for like mobile products i always recommend listen yeah you're going to have one price up front one or two prices up front just because the mobile

screen is not big enough but once you learn about that user you should have all kinds of different upgrade paths and this is why it's important to like understand your user because again not everyone's going to want to pay that one

amount you're going to be under price on some and overprice another so you want multiple products and this is why like you know good better best it's good advice it's just really it should be good better best plus 17 right or

however you know wise your customer base is that's such good advice i've never heard that before but it's like the iceberg and the top of the water is like your marketing site with a couple choices and then it opens up great advice okay we're at the top of our time

here so let me end by just asking you a couple rapid fire questions whatever the first thing comes to mind is go for it all right let's go uh what's a brand you think has perfected its process

ooh you can't use perfect perfect is so hard i've been really into uh this is it's it's probably not a good answer but um

uh this guy named scott galloway i don't know if you've heard of him he's like uh he does this podcast with kara swisher which is this big tech blogger he is he's a new york

nyu he's been on a bunch of boards he's sold a bunch of companies like he but he's an nyu marketing professor and his brand is so good he's like the you know the prediction in tech guy like

and he's so good and he's kind of like crafted that he's got a really good following matt levine from bloomberg i guess i'm thinking of like you know content creators right now both their brands are really really good because they're

really consistent and they kind of they don't get out of their lane they don't go and comment on things that they know nothing about they only comment on the things that they're good at so yeah i don't know if that's the best answer but that's what popped mine up first so

focused and consistent all right what's who's someone that's uh that's coached or mentored you oh i'm trying to think of someone you

everyone will know um i think my like my my biggest mentor i uh uh i didn't have like you know i'm cautious on getting too deep here not because i'm not i don't want to but because we're at the end of this but

like um didn't have a great childhood um you know abused kid all that kind of fun stuff and so i uh my teachers really became my mentors and i had a coach a debate coach

in forensics or speech depending on the high school you went to um and that was one of those people who like kind of showed me that the world is larger this guy named bill hegan showed me the world is larger than it actually is

from a business perspective um i've learned a ton just from like at this peer group of the wistia founders the help scout founders the litmus founders who have just like taught me so much just by us

getting together and all having giant therapy sessions and just learning from one another so yeah hopefully hopefully there are some answers yeah no that's great debate coach makes a lot of sense now

yeah favorite that's what i went to uh oh go ahead sorry favorite book or podcast um i read high output management by andy grove like probably two to three times a

year um i shouldn't read it multiple times it's not like i don't understand it just like re-centers me on on like um process actually a lot about process and a lot about frameworks so that's a good one

for for your audience that is a great one most entertaining person you follow online nathan latka i think nathan is i i know nathan really well and i've crowned myself the biggest nathan

defender for those of you who don't know he's he's kind of this like troll-ish guy but he's not i love him too he's awesome yeah like he's just but he knows

yeah he's unapologetically like um like aggressive online sometimes and that's where like people think he's like a blowhard but he's actually a really nice guy and he's like a very smart and

i just like him as a human and you probably like him because i know i spent like five hours in profit well before i went on his show because i knew he was going to grill me on everything

yeah that's true that's good and last question what's one app you can't live without say the one more time one app can't live without yeah oh let me look

at my phone here i mean everyone's gonna go like oh my calendar uh which is kind of true um i was gonna say my delta app because i

was flying so much this is the longest i've been without like flying in the past five years which was kind of insane um i'm gonna go with i've been rocking audible for a good

like six months um i wasn't a big like audiobook guy and then now i'm just like constant so when i walk the dog when i'm out jenny gets annoyed by it because i'll just be having my headphones on in the house and she wants to talk to me and i

just go listening but yeah awesome good one okay so just as we wrap it up if people want to connect with you you guys put out such amazing reports and resources where can they go to learn

more yeah if you have any questions on like anything related to pricing monetization doesn't matter if you're a subscription business or not

profitable.com blog we have so much content we've published so many studies in addition to that um uh i'm just patrick at profitable.com happy to chat um sometimes it takes me a while to get back to you but i

eventually do um and then i'm just patrick campbell on linkedin amazing patrick thank you so much this was super valuable for everyone listening so go check out profitwell thanks again for being here hey thanks

for listening to process makes perfect if you're watching on youtube we do have an audio version available everywhere you listen to your podcast so be sure to check that out if you liked what you heard please leave a review and be sure to subscribe to the channel here and

we'd love if you would tell a few friends or family or anyone you think that could benefit from this you can find me on social media anywhere at chris ronzio or the company tranual

that's train ual like a training manual at tranuel anywhere you want to follow us thanks for watching we'll see you next time