Monetizing SaaS: Episode 25 with John Kotowski, Co-Founder of PricingSaaS

John, thank you so much for being on our podcast.

Thank you for having me.

Yeah, it's been great getting to know you over the last few months. And you've had a really, really interesting career. You got your start as a developer. You eventually moved into product. You've worked for some great companies, Nuvel, Markwire, Django, Rubicon Project, Tulip, Format. It's a really impressive list. Over the last decade, you've helped several companies scale as head of product. There have been some big exits there. And a few years ago you went out on your own and you started a consulting business. And then I think from there you also started a SaaS startup that I believe you've been bootstrapping with a partner. But tell us your career journey in your own words. How did we get to now?

Yeah, for sure. So when I graduated school, I started working as a developer and I did that for a few years and I kind of realized that I wanted to do a little bit more than just spend my whole day coding. And that's how I got into product. And those are like the first switch, like career switch, going from engineering to product. And it really entailed, you know, like turning technology and code into value. So it's like, you know, like how do you take that innovation or that, uh, the code and actually deliver some end-user value? Uh, so that was on the product side. Um, and I did that for a few years and I sort of like moved up the ranks and I assumed more senior roles. And as, as an executive, then I realized, okay, now there's like another element to this. It's like, how do you take the value of the product you've created and how do you actually turn it into money? Like how do you actually start monetizing it? So this is where I really got into pricing and packaging. And this is, you know, like many, many years ago. And I realized once you start combining those two elements, your product roadmap, your product initiatives and pricing and packaging, you can have immense impact on growth. So I did that for, I did it at Tulip, I did it at, at Format and Django. And again, great, great results. And then, so like the final chapter, like the latest chapter was like, okay, now I have all these skills. I know how to code. I know technology. I know product. I know monetization. How do I turn it into a business? So a couple of years ago, I decided to go off on my own. I started with consulting. That was sort of like, again, like just to see if I can survive without an employer or a steady paycheck from an employer. Um, and then, but then, you know, I came back to my roots, which is product work, and it's like, okay, how do I actually create a product out of this? So over the last, um, 18 months or so, uh, I've been working with Rob on, uh, Pricing SaaS.

Such a great story. Well, so tell us about Pricing SaaS. What is, what is Pricing SaaS? What does it do for folks?

Yeah, so to be honest, it took us a while to figure this out. I mean, we started with this mission that, you know, like we want to help people get better at pricing. Like that's really our mission, get better at pricing and monetization. I remember downloading Patrick Campbell's ebook like long, long time ago, like many, many years ago. And like, I was like, oh wow, he took this like really abstract concept and explained it in really simple terms. And that sort of like started the whole journey. I sort of like fell in love with this idea of like taking something as complex as pricing and like explaining it in very simple terms. And so we started thinking, we're like, okay, how do we, you know, like explain this by example? So we got this idea of like, okay, there's a lot of great companies out there, PLG companies, product-led growth companies that publish a lot of their pricing online. So it's like, can we take that and learn from that and extract insights and information from that data? So originally it was, We spent a few months developing the technology. First of all, it's like, you know, collecting that list of all these websites. Then it's like, okay, how do we actually capture and extract that data? Which is really, really hard from the engineering perspective because they're all different. They have a lot of dynamic elements. There's a lot of permutations. And then finally, it was, you know, like, how do we actually monetize this thing? So we went through a couple of pivots and the last one that really, really seems to work now is for us to give the content away for free, uh, to educate the, uh, so like people en masse, um, and monetize through sponsorships. Uh, so what we found is we're really good at content. Uh, we attract, um, audiences that are, um, sometimes really hard to pack down because, you know, like it's really hard to sometimes to figure out who is responsible or involved in pricing at a company. Sometimes it's a product manager, product marketer, head of product, head of So, and those people seem to gravitate towards our content, not necessarily pay for it, but what we found is that there are other companies who really, really want to get in front of that audience. And they're more than happy to pay for DemandGen. So our current model is to basically give away content using examples about monetization and pricing and how to get better to the masses. And then again, uh, pay the bills using, uh, sponsorships.

It's a great model, and I, I've looked at your content many, many times. It's incredibly valuable. Um, maybe I, maybe I'd like, love to go into kind of— the business is about 18 months old, or at least the product is, right?

Yeah.

What are the 3 things that you've learned during that period that have been most surprising to you?

Oh man, so, you know, like, I think the first lesson for me, and this was just not specific to this product or this business, but moving from a full-time salaried employee, especially an executive, to a founder, that was a big, big transition for me. You know, I always, I'd assumed, you know, like, I have all these skills, like, I'd done it for, you know, almost 20 years. But what I really found is those skills are almost— are good and useful, um, but it's really about the mindset. Like, as, as simple as it sounds, it, you know, like, if you have the right mindset, you can get through almost anything. But it really comes down to the mindset of a founder because you don't have a boss that tells you what to do. So like, you get up every day and you have to find the motivation and you have to keep moving things forward. That was like the first biggest lesson for me is like, again, like how much, um, it is about the mindset. Some of the other lessons, um, like AI, AI has been so like starting pricing SaaS at the time when AI got really hot and popular has been really, really fascinating. It's almost like you have to sort of like now think two steps ahead because what you're doing now or investing in now may be solved by AI in 6 months. And it's like, you don't want to over-invest in things. For instance, when I first started, I hired a co-op developer from University of Waterloo, and I spent a lot of time and resources, so like, trying to get that coordinated. And frankly, right now, ChatGPT is a lot better at doing these junior tasks. So like, you can like, I don't hire co-ops anymore because I can get ChatGPT to do it for really a fraction of the cost. So I think, and again, like AI is just evolving so quickly now, you really have to like think two steps ahead. It's like, do I really want to focus on, you know, like creating a system or hiring people for this area if AI will solve it for free or almost for free in a few months? Those are sort of like the main two takeaways. The third one is, again, like Building a company from zero to one is hard. I'm not gonna lie, it's not easy. It's a lot easier to come and get a job for a company that's already running, has funding and everything. Getting things off the ground is not trivial. So I have a lot of respect for, newfound respect for founders.

Yeah, yeah, non-trivial to start a company is a good, Deadpan way to describe it. I love it. Um, you recently published a benchmark report, and it was amazing. Anything in that that surprised you, or anything in that that you said, this is kind of like the 1 or 2 or 3 takeaways that people in monetization really need to walk away with?

There was quite a few. So one of the things that we do is we monitor changes. So like, we, we track how things change over time. What's interesting is like when we look at pricing and packaging changes, especially with pricing. It's not always about increasing your price. I mean, there's quite a few companies that, you know, like raise price from $24 to $28 per month per user. But there's a lot of companies that did a lot of other interesting things with pricing. For instance, you know, like Nanoset doubled their price, but they doubled also the number of— I forget pages or projects that come with that price. So basically they force people to buy more at a higher price point. So they haven't actually increased the price point, they just sort of like doubled the minimum. Quite a few companies lowered their prices, which I found really surprising as well. Lowering prices obviously so like gives you bigger market share. Companies like OpenAI obviously are lowering because they're competing, competing with a lot of new, new sort of like companies in the space, but other companies are also lowering prices. So like one of the sort of like surprises was like how many people are actually not only increasing prices, but also like modifying prices for different goals. And the second sort of like big takeaway was the prevalence of usage-based pricing. So over 50% of companies now have at least one usage-based pricing component. So even if they're pricing per seat, we now see, so like at least a quarter of them having some usage-based component as well. So, you know, once you hit it, you either have to buy more credits, something else, or upgrade to the next year, which I think is so like an indication that the market is maturing. There's more tools that are to like help you build this up because it's not trivial.

Yeah. Another thing that caught my eye was, and I think you kind of slightly alluded to this, but at least in Q1, a lot of companies, a fair number of companies are kind of changing price. Many more companies are changing packaging. I think it was something like 12% of companies are changing price in Q1, nearly 50% changing packaging. And I want to kind of ask you two questions on this front. Like, do you think that What is the difference between pricing and packaging for folks that may not kind of intuitively understand that? And then why are there more packaging changes? Why is there a higher frequency of packaging changes?

So in simplest terms, pricing is the dollar amount that you see on the pricing page. So, you know, $12 per, per seat per month, 50 cents per credit or 1,000 tokens. So it's the dollar value. Packaging is what you, what you get for that money. So again, like, do you get a number of features? Um, again, like, how do you actually— what do you get? Do you get different products? Do you get different add-ons? In a way, packaging I think is more important than the actual pricing or getting that right. Another big element of packaging is how it scales, and I think this is probably the most difficult hard to get right because when you sign up new customers, you want to, you want to grow them over time. And if you set up your packaging correctly, the more value they get out of your product, the more they pay, right? If you have seat-based pricing, and again, like only 2 or 3 tiers, the only way to get more money out of your customers is if they buy more seats or if they upgrade to the next level. So getting that right, um, getting that right is, is, uh, is tricky. On the flip side, packaging is a little bit easier to change, or there are different levels of changes when it comes to packaging. Adding new features, changing pricing metrics is a lot harder, introducing new plans, introducing new add-ons. But there's a lot of different things you can do with packaging. With pricing, it's usually, again, like you take what you have and so like move up and down. So, and that usually involves coordination with customers, sales, which is a lot harder because again, like now it's like grandfather existing customers doing that. So I think price changes are a little harder to execute.

Yeah, that's great. You've built a company that's all about monetization and how other companies are kind of exposing, you know, or pricing and packaging, exposing their strategies for monetization.— you talk to a lot of people who are thinking about monetization all the time. When you zoom out and you think about building a SaaS company today, a B2B SaaS company, what are the changes in the market, the big inflections that have been particularly interesting to you? They've really kind of pulled your attention and pulled your energy.

So AI for sure has been like the biggest one. So when I started building Pricing SaaS, ChatGPT just came out. So it came out right at the same time I started working on pricing SaaS. And like I already alluded to, it's been evolving so quickly and new LLMs are, you know, keep showing up on the market that it, like every month I have to now reevaluate, okay, can I now outsource this to AI? When we first started, I was contemplating, you know, like, hiring a bunch of people to, to like analyze all these pricing pages. Then I started passing it on to ChatGPT and it's like, okay, just figure this out. Now I use visual recognition using AI. So like there's so many different things that help you automate things that used to be so manual that again, like it had a huge impact on us. And it's not just about the product, it's about your internal operations. So like There's so many things you can do now to, again, like to reduce operations internally, to scale a business that doesn't require a lot of full-time hires. It used to be, you know, like you needed to hire an army of marketing people, an army of, you know, like other folks to run the business. Now every day it's like, do I really need to? Like, can I actually just get AI to do these tasks?

Any others? That's a huge one and agreed. Any others? Um, inflection points in the market, um, that have, that, that have caught your attention and that have— you think about them a lot, they drive energy for you, they drive anxiety for you, any of the above?

I think, you know, in general, companies, obviously because of COVID and the whole remote culture, like, everything has changed. When I graduated school, like, it was a given. You go to the office, you know, so like 9 to 5, Monday to Friday, you're always there. To be honest, I'm still so like, sometimes I miss the office. I work from home pretty much all the time. So sometimes I miss that dynamic. Sometimes I'm like, oh, I'm so glad, you know, like I get to work whenever. So I think, I think the industry is still trying to figure that out. It's like, what is the right balance between the two? I love the flexibility, but again, like, I feel like, you know, like 100% remote work is not the right answer either. So it's like, where's the balance? And like, I think we're still trying to figure that out.

I agree. We talk about that a lot internally in our group because we're largely working from home, but we work so much faster when we actually force ourselves into an office for a couple days together. And it's, it's a really interesting question.

I still haven't met Rob. I've been working with Rob for 18 months. We still haven't met in person.

Isn't that amazing? I want to shift into, I want to talk as deeply as we can about monetization as a concept and why it's complex. And so could we start with what is monetization in B2B SaaS? How do you think about that concept?

For me, monetization is converting value, your product or service, but in SaaS, it's mostly the product, into dollars. And pricing and packaging is a component of monetization, but I think monetization goes above and beyond pricing and packaging because there's a lot more to actually get that value and convert into dollars. For instance, you know, like, in the context of product and growth is, you know, like the whole buyer journey. Like how do you get somebody from visiting a page all the way to checkout and getting them to swipe that credit card? There's a lot of elements you have to consider. For sales-driven organizations, again, it's like how do you optimize that process? Like how do you convey the value? How do you train your team on how to explain it and price and, you know, like do set up the rev ops. So it's really monetization for me is like, you know, how do you go from the value that your product team is generating using the product to actual dollars that the customers are paying.

What makes monetization really complex for B2B companies to support? I imagine there's— it's a broad question on purpose.

It's a broad question, but I think the number one reason is typically ownership. It's very rare that you have one person who owns this and has a clear title, like I own monetization. As you know, it usually starts with the founders or founder who figures this out. Then as they graduate, they usually start outsourcing it. But again, like until they get to Series B or C, there's no dedicated person. It's almost like a hot potato. It's like, okay, you take this on. You know, we just hired a new head of product. They can take this on. There's a new head of growth. So I think ownership is the number one reason because it still hasn't matured to the point where it's like marketing. With marketing or, you know, customer acquisition, there's so many playbooks, there's so like so many procedures and systems around this, whereas monetization remains this sort of like, okay, you take it, you take it. So, like, I think that number one issue is ownership.

Love the answer. And also, it's interesting because I think there are kind of two answers there, if I'm hearing you correctly. One is there's an organizational ownership problem, but there's also— there's like a— not a standard or a pattern that people can operate against. And I'm curious if you agree with this. I mean, especially having been in product and engineering, It strikes me that as a business scales and goes from a single product to multi-product to hybrid billing, monetization obviously gets really complex along that journey. And product and engineering leaders are tasked with figuring out how to solve for that often. And there is not a pattern architecturally or a standard that they can turn to, to say, okay, here's how we're going to build monetization so that it scales. And so it's kind of always reactive to the latest business need. And I wonder if you think that that's if that's true, if that's a valid observation, or if you've kind of seen the world differently from your lens in production engineering.

So before starting Pricing Science, I used to work at a company called Format. Format is a website developer. It competes with Squarespace, and it had about 50,000 users, 50,000 paying customers. And when I took over as head of product, I took over monetization and everything related to monetization was homegrown. There was no systems to help us with. So like, you know, like taking all the features and again, like the feature, we had some homegrown tools for feature flags. We had homegrown tools for grandfathering and keeping track of whose grandfather, the plants, packages, everything was homegrown. So anytime I made a change to pricing and packaging, that's how we grew. Like, that was like the only reason Forma grew while I was there is because we made changes to pricing and packaging. Everything, you know, like took a ton of time. So like I would say 20%, maybe even 30% of our resources went pricing and packaging related product and engineering changes. So this means everything from, it's like, okay, let's run a report to see how many people are grandfathered. Okay, let's communicate to this segment, make sure we have reminders to sort of like turn off these flags at this time. It was a nightmare. It was a true nightmare. And I think this is sort of the reason why you guys are doing what you're doing.

Yeah, totally. If you were to try to drill into a root technical cause for that complexity at that company at that time, was there, is there a root cause? I mean, some people will say things like we've hardcoded pricing, but how would you think about the root cause if there is one?

So I think, you know, like the more complexity you introduce, the harder it gets on both operational side as well as the customer side. So what I mean by operations is, you know, like whenever you're making a change, um, that touches pricing and packaging, most teams are affected at the organization. So the finance team is affected, your support team, your customer success, your sales team, like pretty much everybody's affected. So you have to over-communicate, you have to coordinate everything internally. As soon as you start introducing complexity where you're like, okay, I'm going to do a test where I'm going to only introduce this to a certain segment of users. Now you have to live with this forever or figure out, okay, what do I do with these 30 customers that are on this bespoke pricing, bespoke plan? How do I make sure that when the support person gets on the call with them, they know they're on this bespoke plan so they don't, you know, they don't say something silly. On the flip side, when we look at the external side, which is the customer side, how do we make sure that we were fair to them? How do we make sure we communicate? You know, like if we're raising prices, we get the right message to the right person. If we're introducing new features, we've got to make sure that, you know, like they actually have access to these features. If they don't, like how do we create an upgrade path? For them to actually drive that expansion revenue. So I think there's— it can get pretty complex on both sides. Um, as— and typically when companies get started, they don't think about this, so everything is homegrown. Um, and as they get bigger, unless they have the systems, it's really hard to do. So then they end up retrofitting or like creating more manual processes around it. But yeah, it's really managing both external and internal communication and coordination.

What is the role of entitlements in this kind of world that you've just described? What are entitlements and what do people need to understand and know about them?

Yeah, so entitlements is a bit of a techy word. I mean, some people are not even familiar with this, but basically Entitlements mean, you know, like if you think about your product and the features, you've got to sort of like figure out, okay, who has access to what? And entitlements help you figure out, again, like, you know, if somebody's subscribing to the pro plan, do they have access to the reporting feature? So they help you manage that complexity. When I was at Formatt, that word didn't even exist. Like we didn't even talk about entitlements. It was like, okay, we've got some plans, you know, like who has access to it? To what. So I think, you know, like, with now that we have so like more options for building or using tools, I think engineering has so like it's starting to mature a little bit. And I think right now, you know, like if I was to start a format now, I would definitely, you know, like look for a third-party solution. I wouldn't, I wouldn't try to like try to solve it through code because it's just not worth it. Like most companies are not in the business of billing and subscription infrastructure. So it's like, why build it yourself? So yeah, so I think again, like this is why I think you're really onto something.

If we had to solve the world's problems on monetization from an architectural perspective in the next 20 minutes, and we had to define the standard that does not exist today. What do you think would be off the hip, like the components or the services that would constitute this standard?

That's an interesting question. I think, you know, like there are sort of like two areas of problems. The first one is the infrastructure. So, you know, like what you guys are building, which is like, you know, like how do I manage all of this complexity? How do I make it easy to change it? The other part though is how do I even set this up? So right now the answer is, you know, like you either look at your competitor's website and try to select mimic what they're doing. You guess, or you hire usually a very expensive consultant. So, and this is sort of like where we play and something we're trying to help with, which is, you know, like bring another option and educating somebody what are different considerations. 'Cause again, like you wanna sort of like align that value to how much you're charging the client, but there's so many different ways to do it, whether you use usage-based pricing, seat-based pricing, outcome-based pricing, if you have add-ons, et cetera. So I think to answer your question, Fynn, I think AI will, to be honest, I think AI will have a huge component in this, which is going to remove a lot of that or take a lot of that information and help you figure out again, like the best way to structure it. And I think, you know, like the better the infrastructure gets, the more personalized they can get. So I think right now SaaS companies are really shying away from too many pricing and packaging permutations because it's super hard to manage. I think, again, like, once it becomes easy, there's no reason why, you know, like, every customer can't have, you know, like, something that just fits their needs. And again, like, between AI and the infrastructure companies, if we can make it easier, I think, again, like, that That would make everybody happy because companies will get the right amount of money for what they're producing as well, and customers don't feel like they're being overcharged.

Yeah, that's really good. One more question before we kind of move into closing, and this has been so much fun. Imagine you're talking to a bunch of product and engineering leaders. You've been a product leader. What would you say to them as it relates to here are mistakes you should try to avoid as your business starts to work?

I love that question. I love that question. So I, I think, and again, like, this is me speaking from experience, I, I, I, I, I was product head of product for over 10 years at a number of different companies, and the number one lesson is like, don't be shy to take on pricing. Um, Chances are, you know, like even as a product manager, you work at an organization where pricing is, again, like doesn't have a clear owner. But if you are a product manager or head of product, you are creating value. Start aligning your product roadmap, your initiatives to pricing and packaging changes at the same time you're planning your product roadmap. This is what I did at Forma. And so every quarter, you know, like as we planned our initiatives for the quarter, we would select the key initiatives that would again, like drive additional revenue. And we started our planning process at the same time. So it wasn't like, hey, we released a feature. Hey, product marketing, you know, put this app on the pricing page somehow. No, it was like, okay, we are developing, you know, this feature for this specific persona. This is based on research. This is how much we think they're going to pay for this. So we designed our pricing and packaging at the same time as we started coding. So like, it was like way in advance. So my number one tip, and again, like I know from experience it works, if you can start aligning your product roadmap and pricing and packaging changes and think about it as a roadmap, then, you know, like it will have immense impact on growth.

It's a great piece of advice. John, this is a question I like to ask at the end of every conversation. What was the moment in your career, um, that has had the most formative or influential impact on you?

Yeah, so, um, there's been so many. Um, I mean, I've, I've had the opportunity to work with some really, really great leaders, uh, in this space. Um, I think, you know, like, the thing that really got me on this pricing and packaging journey has been influenced by, by Patrick Campbell, that's for sure. Um, but, you know, I got to work with some really amazing CEOs, uh, as well. Um, and, you know, like, they, they were all very inspiring, but also sort of like taught me a lot about resilience. Uh, but I think, you know, like, the most like the number one thing I've learned from all the CEOs I used to work for is like conviction and grit. Like in order to survive, you have to be a little bit insane. You have to be a little bit crazy because again, like everything is stacked against you. So you have to like have a really clear target and just go for it. So I would say to answer your question, I think Every time I took on a job working directly for a CEO, be it Tulip, Django, or Format, each one of those was super, super valuable experience just because again, like I would interact directly with CEOs and see how they operate, which has really helped me with my current journey.

Conviction and grit. Maybe that's the name of this episode.

Conviction and grit.

Yeah. That's great.

And I'm sure you can relate.

I can. Where can people learn more about Pricing SaaS, reach out to you, find you? Where can people—

The easiest way is if you head over to Pricing SaaS, we'll get you to put in your email address. We promise to send you relevant content. So we'll ask you a couple of questions or find me on LinkedIn. I'm on LinkedIn all the time. So John Kotowski on LinkedIn. I post, and you can reach out to me directly there as well.

Perfect. John, thank you so much. This has been so much fun.

Thank you so much, Fynn Glover.