What pricing question actually makes a customer switch?

Tell me if this is wrong, but like, I'm not aware of many pricing teams at software companies that are carrying a quota. Uh, tell me, tell me if that's incorrect. Welcome back to another edition of Monetizing SaaS and AI. I'm here with JR Colley. Uh, JR, you've had an incredible career in pricing. You've worked on pricing at MasterCard, at Oracle, at MediaMath, at LiveRamp. How did this happen? How did you find your way into pricing?

Yeah, it was kind of accidental for me. I worked for MasterCard, you know, pretty much right out of college, and I started off in business intelligence. And so collecting customer data and analyzing it and things like that, validating it. And then I also worked in corporate finance later on at MasterCard. So I knew the underlying revenue, the expenses, the model, the strategy. Um, and so then putting those together, because it was such a sophisticated pricing model, uh, enabled me to move over to a, an opportunity in pricing because I knew the metrics we were billing on and then the underlying strategy and products we were actually billing for. And so, yeah, that's how I sort of fell into it. And then I really sharpened my skills because all of the managers I had in pricing were, uh, ex-consultants. So they all had that consulting approach and that's the approach I've always taken throughout my career.

Tell me more about that. So when you say sharpen your skills, what, what skills are we talking about here?

Yeah, I mean, I think the best pricing leaders are, are essentially consultants, right? You know, because pricing at its core should be unlocking the value created by the product managers and the sellers. And so essentially you should be consulting with those leaders and understanding both like from the sellers what the customer sensitivities are, as well as from the product managers on what our products are delivering against those needs. And you're sort of trying to balance that between them. And so that's how I've always handled it. And I think, you know, because again, when I first started in the pricing role at MasterCard, I was very much treating it like a budget exercise, right? I was a finance numbers guy. And so I was just like pulling levers. And then instead, when I sort of learned how to ask the follow-on questions and saw, you know, measured over time the impact of changes. I learned even more questions to ask, even more things to look out for, and even more things to focus on. And, uh, so I think that really helped me grow as a pricing leader.

Yeah, super interesting. Um, MasterCard, LiveRamp, these feel like two very different companies as it relates to pricing. Um, can you talk a little bit about the differences across those two companies in terms of how you've approached building the practice or being a part of the practice?

Yeah, I think, and, and you know, I've, I've worked at a couple other places as well, Oracle and MediaMath, and I think each one was a, another step, uh, in, in, in a sort of journey towards, uh, this, this sort of one in terms of age of the company, but two, in terms of like the goals of pricing. So when I was at MasterCard, it still is to a degree, uh, a budget exercise, right? You just, you know, a certain amount of growth had to come from pricing, and so we had that pricing targets, and it was just sort of like the game of don't break the ice of, of raising rates on different things before you actually, you know, sort of saw, uh, reductions in volume. Whereas You know, then when I moved over to Oracle, I was working with the edtech startups that they were buying up and I was merging their pricing models. And there I saw firsthand how, like, a big company looks at a smaller company, right? The smaller company can do manual billing, can do things like that. And Oracle's approach was, was sort of like, hey, just do fixed fees. Like, yeah, how much more benefit are you getting from all this manual billing, right? Just, just do it as fixed fees. Keep it simple. Um, they didn't, you know, cause, and again, they, they, they would buy hundreds of companies, right? They couldn't have a unique snowflake for each one. They needed to, to really bring it, bring things in more simply, even if that left some money on the table for each individual unit on a scale standpoint, it, it was very different. And then, you know, MediaMath, I was part of the team leading the turnaround to, to revamp and, and make their pricing transparent. And then finally at LiveRamp, again, leading their transformation into, you know, usage-based pricing. And yeah, they're, they're very different companies and all of them, I think, but each one I learned a different dynamic of how, you know, how the pricing sits within those orgs and how it can unlock value and really the big impact it can make. And, and yeah, I think the biggest, The biggest difference between, I think when you have a small company, you can do a lot of manual billing, so you could be super nimble. Um, I think the hardest place to be in is a middle, is a, uh, call it a middle company, right? Um, I think when you're at a, uh, very large company like MasterCard, you have a dedicated essentially pricing team, but not just a pricing team like myself, but like a pricing product team, a pricing engineering team, uh, a BI team. You have a, a huge, network of infrastructure supporting it. So as a result, the pricing managers can just come up with the new structure and then this team just implements it, right? And you, you don't have to know the details. Whereas at both MediaMath and, and LiveRamp, I had to be in the nitty-gritty of what, what's actually capable, what do we have today? What do you actually wanna do? Um, and so that's, that's the biggest difference in terms of size, right? In terms of my experience at, the different companies. Um, you know, and it, it, it was definitely, um, it's definitely been a really, uh, fun learning experience navigating that. And it's, it's helped me, you know, uh, with other solutions I've done as well.

Yeah, it's super interesting because one of the things that you said stood out was that MasterCard, like, we had a number, we had a target. I mean, it's almost like pricing is carrying a quota. Mhm. And, and tell me if this is wrong, but like, I'm not aware of many pricing teams at software companies that are carrying a quota.

Uh, yeah.

Tell me, tell me if that's incorrect.

No, that's exactly right. That's exactly right. And, and it was, uh, you know, it was the only place I had ever been at where it was, it was structured that way. Because if you think about it, like, especially in mature markets, you know, yes, you're always trying to grow usage in different areas, But the growth is much more conservative because most people have a credit card at this point, right? And they spend on the credit card. The growth comes from, yes, using credit cards in new categories and things like that. So as a result, we continually had pricing targets. I also think it was unique there because both MasterCard and Visa were nonprofits. So their pricing was originally at a very low level, was essentially pass-through costs. And then once they became public, you know, they had the opportunity to, to bring the pricing up, uh, to meet it. Um, and so as a result, you, you had some runway as well. But yeah, it was, it was a very unique— I've never— I don't know if I ever will be in a structure like that again. But it also, like, what it also was really eye-opening for me was, um, like, I think, you know, it— the way they did it with a pricing target was beneficial from a stock standpoint because it made it very predictable in terms of, of quarterly numbers and more consistent growth. But from a customer standpoint, you know, the better way probably would have been just to right-size once and then, you know, yeah, make minor increases here and there based on actual lift. But when you keep coming back to the trough every year— here's your increase, here's your increase— without actually having concrete benefits that associated with those increases, um, your customers resent it. And then it also— you start— every contract starts having price caps. So now you're limiting where that increase can go, and, and sort of like, you know, the terrible waterbed analogy, you're pushing down and it just pops up somewhere else, right? And so, uh, all of a sudden it's basically on the side of the smaller customers who have less power, who end up paying more. And, um, and so yeah, I, it, it was definitely unique. And, uh, and, and also I would say it was the least satisfying towards the end because again, it's, it's just a budget exercise. You're not analyzing and doing value-based pricing. You're, you know, you're just, it's, it's, it's more budgeting.

Yeah. Super interesting. So maybe a couple things to dig into. Like it sounds like, uh, Mastercard, big company, a lot of pressure to increase price as the company goes public, a lot of infrastructural support around pricing leaders to just like execute whatever the right math, the right analysis just makes sense. Yeah. At a company like LiveRamp, big company, big successful company, but a lot less, um, sort of infrastructure support. Like you're, you're having to kind of borrow and negotiate for time through product and engineering and ops. To execute on things that you feel will move the needle. Yeah. Walk me through how you've navigated kind of the shift from being someone who can come up with a great analysis and actually drive it to market versus someone who has to influence across the org really successfully.

Yeah. You know, another analogy I use, I don't know if you've ever seen the movie Million Dollar Baby, but in it, Morgan Freeman is sitting there with holes in his socks. And Clint Eastwood says to him like, hey, if I give you a couple extra bucks, will you buy an extra pair of socks? And he's like, no, if you gave me a couple extra bucks, I'd go to the track and then still be wearing these socks. And I think my experience at growing tech and software companies is like, if you are, if you gave them extra budget to build out a pricing team, they would just use it to add capabilities to the core product, right? Like they wouldn't use it, you know, the equivalent of go to the track. And that's been the biggest hurdle is that, um, you know, if even if you, you know, had like the, the budget to, you know, hire out things like that, they would rather invest that in, you know, new releases and things like that, ship software, stuff like that, which rightly so, like that's, that's what, you know, that's adding value for the customer and all that good stuff. But you start to accumulate tech debt, um, in terms of then how to navigate that, to your other question, like how to, um how to like get those resources and negotiate for those resources. And this has been the case at Oracle, MediaMath, and LiveRamp. I think how I've approached it is, I think the, you know, I've sometimes repositioned, um, what I call the pricing team as, as product profitability, right? Because then it's not, you're not just pricing the products, but you're analyzing the overall profitability. And then, you know, I've done a lot of analyses, and a lot of times in smaller companies, there's no one even doing these, so they're happy to have you do it and own that. Um, and so I've done these analyses where we are sort of modeling what is the benefit and lift of like an increased capability versus, say, being able to price on a metric that the customer is more willing to pay on. Because you can goose the numbers, you can make it look like a change is going to give you a certain benefit. Product managers will do the same thing. Oh, if I just have this capability, I'm gonna bring in a ton of customers. I think the bigger thing is having like a consistent framework for it where it's like, okay, you know, we've seen a given lift gives us X, a given automation gives us Y, um, and, and continually anchor to the historical data where it's like, nope, totally. I know we thought it was gonna be this, but for whatever reason it wasn't. Um, and I think having that framework Um, and it holds the pricing person honest too, right? Because sometimes we think, oh, if we could just price on this metric that customers are more willing to pay on, we're going to win all these new deals or customers are going to spend more. But there's a long cycle for that. And so by anchoring to historical and what you actually delivered when we did make that enhancement, um, it forces you in your future projections for the future requests for pricing work, um, to not over-promise on what you're going to get. Um, I think that's, you know, it's, it's, it's making it very like business case based, value based, and, and putting it on equal footing with product enhancements. Um, I think that's how I've sort of tried to navigate it.

The, uh, the Morgan Freeman analogy is really interesting. I want to try to dig into it a little bit. Let's, I'd love for you to like really think through the extent to which that bias within soft software companies. Is a correct bias from a business perspective. You know, maybe it has been, maybe it hasn't been, maybe it won't be in the future. But talk to me about that because I think the argument is a little bit like, um, it's finite, right? It's like if we have an extra whatever million dollars a year, should we put it into another couple engineers and another product manager, or should we put it into like really building a pricing practice And I'd love to know why, you know, must that trade-off be black and white and finite, or can there be both? Is it yes and, or is it yes, no? Like really help me peel back what you've kind of come to believe about that bias and software patterns.

Yeah, it's, it's a great question. I think it really depends on how many changes you can and will be needing to make. I think it also depends on You know, where, where you're at as a company, like in terms of growth and, and like the product being like where it needs to be at. I think I would actually agree with the product managers that when you are early on in your sort of software's life cycle, it's much more important to make the product more self-serve, to make the product stable, to have the capabilities that customers are asking for. I think it's as you get down the maturity curve, that's when you can— where, where actually the investments for doing, you know, a more robust pricing function make more sense, right? Once you have that, then as you launch new products and things like that, it's just bolting them on. But I think, yeah, that's, that's always going to be a strain though. Because again, I, in terms of, because there's, I would break it into 3 buckets of a pricing team. There's, there's a lot more, but, but just to keep it simple, you'd have your sort of, uh, engineering support, your product support, actually maybe 4 buckets, engineering support, product support, um, you would have your, uh, BI support, and then you would have your strategy like myself. Right. And, um, in terms of like the strategy team, I think that can be pretty lean. Like I actually prefer to keep it as lean as possible because again, like even if you needed to do a big transformation, you're better off hiring consultants externally to do that, that one-time change, um, versus beefing up the team and then you don't need to do as many changes later. I think on the other functions, Um, yeah, it really depends on where, where you're at and like the lift that you'll get from being able to deliver many price changes, um, versus the cost of having that team, because that's expensive. Um, and so it really depends on where you're at besides, but it, it, it's, I think, I think it's, um, the other just last thought on it is I think in the smaller companies it's where it's, it's Smaller and middle companies, it's the hardest, right? Like, I think it's a no-brainer if you're making over a billion in revenue, you need to have all those robust functions because you can't support manual billing on thousands of deals. I think for a really small startup, you could do it yourself.

I was going to ask you where you thought that revenue cutoff is because, you know, a billion does feel like, you know, maybe kind of intuitively correct. One thing that's kind of fascinating to me is I've seen a bunch of $100 million, $200 million ARR companies. That'll go spend a half million bucks to a million bucks on a pricing study and they won't even implement the study.

Yeah, that blows my mind. And I think it's, that's the, one of the toughest spots to be in is that call it $50 million to, to either $500 million or a billion depending on where you think, but in that sort of middle range of ARR, um, because that's, that's right where it's incredibly painful to support manual billing, but you also don't necessarily have the resources to, to dedicate to having that pricing automation. And that's the toughest spot. You know, I have a bias towards being somewhat lean, at least in the sense of, um, again, you don't want to, you don't want to overinvest in stuff like that if you then have to reinvest in something completely different. Because because it's hard to repurpose it and things like that. Um, and so, but again, it really depends on how many different models you're trying to maintain. But if you can, if you can do it with external resources instead, that's way better. It, I would say if you're in that range of like $50 million to, like I said, $500 million to a billion, you're way better off, let you know, expanding your reach temporarily with things like consultants and other software capabilities than you are in trying to build it out yourself.

Interesting. Let's, let's shift to usage-based. Usage-based is a big hot topic. It's, it's kind of happening to everyone. It's a major inflection in the market. And I think LiveRamp was aware and cognizant of this transition, you know, maybe relatively early. I think you, you started marketing token-based pricing before most AI companies were using that language. So maybe can you walk us through just that journey, um, when you guys realized this was the future for you all, how you went about making it happen, what you've learned from it.

Yeah, so the, the company-level decision was made before I joined, um, and so I think, you know, how they evolved to it was, was very much like customer-driven, right? Customers had been asking for it, you know, and, you know, our, our CEO Scott Howe has talked about this on, you earnings calls and things like that. He's like, customers have been asking for this, you know, that, that's what they've always asked for. Although you do have to be careful because my experience is like customers will ask for things in a simple way, but then when you actually give it to them and we'll get into that, like what they actually like, they'll say they want usage-based, but then they want protection on the downside and the upside. So, so it's like, okay, what did you really mean when you say, uh, uh, you want usage-based? But absolutely, it was, it was, it was very customer-driven. I also think it aligns the, um, the incentives and the growth with us and the company and the customer, right? Because we're growing with them as opposed to being more of a fixed cost, um, based on like the volume of their data or things like that, right? So I think it's, um, that, that was what, what really drove it. But now as we're, you know, expanding, and I know we're going to talk about like agentic AI use cases and things like that, it fits even better, right? Because again, it aligns with those use cases and has the customer also manage their resources better.

So it's interesting. It sounds like you guys went towards usage-based because it was customer-centric and maybe lined up with how your value accrued to the customer, but it wasn't because of margin compression. And it feels like the major inflection today is that almost everyone will go towards usage-based because they will be selling AI, which will have some degree of margin compression. Do you, do you buy that? Do you disagree with that? Do you agree with that?

I could definitely see that. I think either way, like, yeah, we were not doing it for margin compression. It was customer. But I, I think in a way it, it impacted our margins because there were customers that wouldn't do business with us because they weren't willing to invest a huge amount up front just to start with.

Right?

Um, a huge fixed fee, whereas with a usage-based model you could start small and grow. Um, and so that land and expand. And so I think, um, but I, I definitely see— I could definitely see the case that, um, usage-based could help you on your margins. But I don't know, like, my overall pricing philosophy is more value-based, so If with AI and things like that, it's compressing your margins because your metric isn't aligned with the costs, then that's something different in a way. But I'd also want to know, is your metric aligned with the value the customer receives? And does the cost drivers of things like AI that's compressing your margin, does that align with the value the customer receives? Because I've always tried to split those two out. Right? I've tried to approach— the usage metric should be tied to how the customer unlocks value with your product. But like, I, I'll use a simple example. Like, if you look at things like, like lookalike models or things like that, the value the customer receives is when they actually use the output of the model. Like you said, with— you, you, you fund a study, right? Um, the cost was in creating the study. The value is when you implement the study. Um, but, you know, you're char— if you're charging on the actual implementation of the study and not on the, the workup of it, you're incurring costs and there's a disconnect. But at the same time, the customer doesn't care how much effort it took on the, on the other end. So what you, you know, the way I've always approached that is, okay, included in the usage you're, you're either committing to or buying, you get a certain amount of call it, you know, processing. And then above that, we pass that through. But it's not because, you know, when you're, when you're marking up processing costs and things like that, that's a real low margin business, right? Where you're gonna, if your software is really valuable to your customers, it's tied to the value. Um, so you want to protect yourself, of course. So yeah, just to round out what you were saying, I could definitely see there are certain companies that would shift to usage-based because of compression on their margins, but I would really question each of them to make sure that's only part of the story and that this usage-based aligns with how the customer uses your product. Because if not, then I think there's other ways to address that without going to usage-based.

Interesting. Okay. I would like to peel that, peel that back a little bit. One of the things you said is interesting is like you in some ways at LiveRamp went to usage-based because it would help close deals. Like it would help customers overcome fear of a big high sticker price, allow them to start lower, prove the value, and then that value would grow as you delivered more value. I, I'm watching a world right now that feels like there's almost a psychological flip where the fear is now fear of the unpredictability of usage-based. Um, I wonder if you, if you see that too, or don't see that.

I see it all the time. I see it all the time because once again, like, they, they want their cake and eat it. They, they want to have the, um, because when you, what, what'll happen in a, in a classic SaaS model where it's not usage-based and you're just paying for a license, whether that license covers seats or whether it covers a certain amount of data processing, whatever, you know, a lot of times you're committing up front, you're a lot of times paying up front, but then maybe there's a new CTO that comes in, maybe there's a new CRO that comes in, and they, they end up not using that product, right? And now it just like sits, and they waste— they, they're concerned they wasted it. So that's also a portion of why customers want usage-based, so they can pivot with it, they can use it on different things, um, and, and they're not like tied up in just that one specific thing. So I think, yes, that I totally see why they would want to do that. But then when they actually start to get into it and, and negotiating a deal that is truly usage-based, you know, you have to caveat to them, right? Like, hey, here's the overage fees and stuff like that. Here's scenarios where it could, could go way over. Um, and they'll ask you to cap it, but that's not really fair, right? Then you're just asking me to, to absorb all the downside and not capture any of the upside. Um, so the way I would typically frame it is one is with the enablement, which is to say, you know, one, have transparency so that like they have very clear visibility into how they're using the product and how that product is, is driving usage and they can make sure, okay, I'm at pacing at a certain usage of my, my, my budget. And then two would be, um, alerts and things like that. So again, this is all part of the enablement of preparing them for how it could potentially cost and things like that. The other way that I've typically approached is, is align on like, all right, well, which of the two is your bigger concern? Is your bigger concern that you'll have leftover usage or is your bigger concern that you're going to go way over? And I think it's very different. For different companies, right? And then I think it's okay to do a give on one or the other, right? So what we'll typically do is we'll say, okay, if your concern is on radical overages, we'll give you an extra block of usage, like for free, right? That, you know, as long as you're committing to what we think and we align on as your annual usage, we'll give you that extra block to cover you. And then above that, right, maybe, maybe you, uh, overages would kick in. If your concern is on the lower end, that's a little trickier in terms of rollover. I really try to avoid usage rollover at all costs, um, just because, like, again, I'm trying to incentivize you to use more. And if you're constantly kicking the can down the road to the actual usage, you know, it, it, it's, it's not great for either of us, right? I'm trying to incentivize you to use it more. So I think what I would typically do instead is say, all right, cool, like, if, if your concern is on the low end, let's commit to a lower amount to start, right? But the rate's going to be a bit higher, and then, you know, we, we either pay as you go or you re-up in a different way with, with usage. That's, that's how I've typically handled it. But I think the biggest is, as long as you have, like, the transparency and the alerts, then at least they have the confidence that it's like it's not going to be a crazy, you know, super high bill one month because they, they, they don't have visibility into it. Um, the, the final thing I would just add is, and we have the benefit of this, is give them benchmarking for other customers, right? So we're able to, to look at how other customers who are on the new model, or we can actually, um, project what it would have been under the new model for existing customers and say, hey, based on your usage or their usage for the last year, like it typically doesn't, it's not like with AI models where you could really run up a bill pretty high. You could still, but it's more predictable, at least in our space. So I think that helps.

Makes a lot of sense. And I really like the two scenarios you shared. Just real quickly on the rollover side, wouldn't it also be bad from a business perspective to at all except rollover because it effectively decreases the quality of the revenue?

Oh, absolutely. Absolutely. Because again, like your, I always view like whether you want to call them concessions or whether you want to call them, um, you know, negotiating points or whatever, I view each of those as time-bound, right? So sometimes like in the past we signed like what I would call all-you-can-eat deals. Or unlimited deals. But what I always say is, like, because what the problem with those deals is that, you know, how do you, how do you upsell on unlimited, right? Like, it was unlimited before, it was unlimited after. What I always say is, no, no, unlimited just means in-year unlimited, right? So we, so you, we gave you, you know, no overages in year, but if you spent 20% more than you did the previous year that was unlimited, then you're, you know, I don't know if your ACV should go up by 20%, but it should be going going up. I think in that same vein, I think with, um, with all of those, like the, the negotiation of that usage price that we gave you was based on an in-year commitment and in-year usage. I think, um, you know, it's, it's different if it's like you're doing a 2-year deal and they can use it throughout that 2-year deal, but it's like exactly to your point, it's not only the quality of the revenue, but like the mindset that went into that concession and the commitment that it was based on. So I think that's why, yeah, I really like to avoid that because absolutely it gives you all sorts of problems.

Yeah. Back to the transparency around how you communicate this stuff. I mean, it sounds like, A, transparency has been really important for you all. Like, it's been this very transparent conversation around how usage will work. Work, to mitigate fear of overuse, surprise bill, to mitigate concern around underuse. I think what you guys have done, I've looked at it a little bit, is you've built a dashboard that's embedded in the product. And I think, you know, you mentioned to me in the past that this helps demystify pricing for customers. But talk to me a little bit about like what you're literally like, what controls, what visibility really mattered. Increasing trust from the customer and accelerating deal velocity?

Yeah, it's a great question. So, so I think first and foremost, the customer, by embedding the dashboard into the tool itself, it, you have the same person who can monitor it as the person who's actually making the changes. So first and foremost, that gives them full control to if they see they're, they're trending over or under. They can make changes to, to reduce that, that usage. I think we've separately done some things like, um, enterprise, like, rate limits and things like that, where if you have, like, multiple, um, users in a given org, you know, each one can have a certain amount, and then it's, it's capped and things like that to protect them. Um, we have all sorts of, of, of capabilities like that. I prefer doing it in terms of alerts instead of um, actual hard shutoffs only because like you can really disrupt other things. You know, what we've also done is, and we've said this, um, and I think this really, uh, helps to your point, gain that confidence, is we say like if there's a, uh, and something done in error, we'll credit you, right? I think that's a big thing that a lot, you know, when I've talked with different analysts, external analysts, and how other companies are, are handling like agentic pricing, so to speak, is that sort of— and there's different ways of doing it. You can say, all right, the first month we won't do overages or we won't draw down, so you can test. Others have said things like, you know, hey, for the first, call it like, um, you know, I'll give you X amount of forgiveness, right? A pool of forgiveness, you know, for errors and things like that. But I think that also— anything that de-risks it, right? So that, um, because again, you know, actually it's, it's funny, one of the, um, one of the funny stories that at MediaMath when it was first starting was, um, they, they were running a campaign, a managed service campaign for a client, and the CEO, Joe Zawadzki, was the only one who had access to, to like turn the campaign on and off. And he forgot to put geo filters in it. And it was doing a tremendous amount of buying in like, it was somewhere random. It was, it was like Moldova or, or some really small market that was, you know, was a US customer. Right. And cause they were getting paid out, you know, and so, um, and the problem was Joe had gotten on a flight. From like US to like either South Africa or Australia. So he was completely out of pocket for like 16 hours and just kept buying and buying and buying. And fears like that are in a usage-based model what everyone's afraid of, right? That, that, you know, even though, yeah, yeah, yeah, you're telling me that there's an alert, but you know, if, if the water is still leaking and my basement's flooding, I don't care that, that you're giving me alerts like, um, So that's where I think in our case, since we're not actually doing the media buying, we can do things with credits and things like that. I think if I were in a spot where there was like a pass-through cost, like media buying, or like if it was, you know, in the credit card business where like it's transactions that are fraudulent and things like that, that's where you'd want something that's more of a hard stop. So I think it really depends on the nature of the business. You know, and, and how you want to both put those controls in to make the, the customer, um, you know, feel more confident in it. Um, you know, so yeah, that's— those are the different ways I've seen. But in our particular case, that's, that's how we've navigated, and it's done pretty well. It's awesome.

It feels like it's a standard. I mean, especially if more companies are going usage-based, that it's like an absolute standard is how do you communicate to the customer what they're using, how fast they're using it, give them controls to manage, control their usage. Like, one of the things that I'm really interested in right now is, like, imagine you're selling some big SaaS product and you've got multiple users within a company that historically used it, and now they're using all these agents that you've built. Well, you've got different kind of credit burndown pacing that you probably want to control across different roles within the business, but it's not just the human role, it's also agents, they're in our user creation. So I'm curious how that's starting to kind of like show up for you and how you're starting to think about it. Like you have a bunch of agentic usage of product where it's new agents. How does that start to change kind of how you manage this type of control, these types of limits and the pricing?

Yeah, right now the way we've been handling that, both to protect the customers but then also protect ourselves, is putting different throttles on the various inputs and tools, right? So API call caps, things like that. So that both for the customer themselves, it limits, you know, how quickly it can run through. And by the way, they're not fixed. So you could always put in a request to have the limit removed. Lifted for you or, or, you know, contracted. That's, I think, at least right now, one of the bigger ways that, that we've sort of wanted to, to handle that. Because we do— we want people to, to play around more and try more. And as long as it doesn't adversely affect your business, um, you know, I, I do want to give some freedom there. But I also want to protect the customer in a way that that doesn't adversely impact them. So that feels like the at least simplest way for now to sort of navigate it that way, because at least it puts that sort of rate limiting on it versus, you know, again, say tiering it or things like that. I think down the road it's gonna have to change even more, but for now that feels like the most reasonable way. And then, yeah, we'll see where it takes us.

Yeah. What have you seen so far? Like, is companies like LiveRamp building agents that their largest customers have agents to use? Like, is there a genetic usage between, you know, meaningful rather than aspirational at this point?

It's, it's a mix, right? So we have a lot of, um,, you know, the different AI companies that are building on top of us, that our customers can then build agents with them directly. We're also, uh, building agents for customers for specific use cases within our platform. And I think that's, we're finding, um, is, is enabling a lot of really fun use cases that you can, you know, try faster versus, you know, building a new UI capability or things like that. We're gonna be doing both. I think it's, it's, uh, you You know, no one knows yet what's going to be the, the, the, the main thing that everyone, uh, ends up doing. So I think facilitating being agnostic. So whether it's you want to use our AI capabilities or, you know, bring your own AI or things like that, I think that's, that's where I'd see it going. And that's where I want to have like my pricing model and like the, the rate controls and things like that in the best position to like align to value and protect us and the customer on cost.

Yeah. Really good. Um, before we go, demystify value-based pricing for us.

Yeah.

What does that really mean to you?

Yeah. The way I, like, the way I've always sort of looked at pricing is I start with value-based and that's like the top of the funnel and that's like the, what you can justify. And then I, I look at like competitive and then, and then I finally look at like the strategic fit internally. But to me, value-based pricing is just as simple as charging for a percentage of the value you create. For example, um, for our activation products, you know, we have all these different case studies and third-party studies that say, okay, um, you know, we give you a lift of say 20%, right? And then you charge, um, a percentage of that lift, right? And you have to waterfall it down because then you have to look at our, even if I say we, you know, create 20% of lift so I could justify, I think the max percentage of value I've seen is 50%. Um, but realistically it's, it's, it should be closer to like, you know, 25 or 10 because any more than 50, you're taking more of the value than the customer gets. Right. So like that, that, that's how I've sort of done it, but it really, like you can do a lot of waterfalls, but really like when I'm, and, and you know, when I'm working with other smaller companies as well, that's how I like sort of do their starting model. It's like, you don't have to do anything. Crazy complicated. It's just look at what is the value your, your company creates, whether it creates efficiencies, whether it generates revenue, whether it, you know, and, and just translate that to, you know, you have to translate it to the metric you're charging on. That is the one little wrinkle. It's not, you know, so I want to say it's super simple, uh, but it really is just, just what, you know, understanding what, you know, what is the underlying value you're your product creates, whether it's lift or savings, dollar savings. And honestly, every company's got that in their slides, right? It's, it's there. So if you're a new pricing manager, you're starting at a new company, just look at what they put in their, their different sales materials and marketing materials. We save you 20%. We do this, we do that. It's like, okay, cool. Right. And then you can, you translate that to a price that, that's really value-based pricing. It's, it's charging on the value you create.

Have you spent much of your time helping sellers sell value-based pricing?

Yeah, that's, that's one of the hardest things to, to do because again, uh, it's not that, um, not in terms of sellers not doing value-based selling, they're, they're great at that. It's, it's that middle step of translating it to the particular pricing model and how the tactics relate, right? So like, just for example, one of the analogies I've used throughout my career is, you know, if you're negotiating a consulting arrangement with one of the big consulting firms, right? McKinsey or Bain or any of them, you know, they'll say, okay, you know, you're going to need, you know, 2 partners and 10 associates. And we think it'll cost you about $2 million, right? If you tell them, well, I only want to spend $1 million, you know, they won't just discount it. They'll say, okay, now we'll only give you 1 partner and 5 associates, right? Like as the price comes down, the the, the, the value we deliver comes down. Um, and, and I think that's the biggest piece of value-based pricing. It's one, setting the stage when you make your initial quote for, you know, here's the value and, and, and, you know, what we'll deliver. And then as you get pressure on that price, taking pieces out, it's like, okay, cool. Like if, if you're, you know, if your budget is only this and you only wanna spend this, let's take this out. Right. And then you can always bring that back in later. Or, or in the case of a usage-based pricing, just cut back on the amount of usage they get, right? And so that's, that's how I've sort of navigated it with sellers, you know. But the, the other bit as well is, and I mentioned this earlier, it's, it's nailing down what is the customer's biggest concern. Because this way you're not, you're not negotiating on two fronts. It's like, all right, well, what are we trying to solve for? Are we trying to solve for that you don't want to have crazy overages? Are we trying to solve for that you don't want to have leftover usage and you're going to lose budget? Like and, and solve for that, right? Versus trying to solve for everything. Um, you know, because otherwise, again, you know, all right, well, if we, we solve for this, can we, can we close the deal based on that? The other thing that's been a real game changer that I never had at previous stops is just, again, with like AI note-taking, I would never be able to sit in on 200 different client calls, you know, whereas now It aggregates for me, like, the common questions, the common answers, stuff that, like, people would— were supposed to put in the Salesforce and stuff like that for you, but never did. I'm getting visibility now. And then it helps with iterative price changes where I see, or like, when I make changes to the sales enablement. So I know we didn't get to talk about this, but like, in usage-based pricing, you move away from language like overages and you move to pay-as-you-go pricing, seeing how that translates in a, in a, in a sales conversation, right? At the aggregate, on, on 10 to 20, you know, sales conversations.

Right. One feels punitive, one feels positive.

Exactly. Exactly. And it's, it's getting that feedback loop, um, in terms of, of like how, how that happens in both in terms of how I explain it when I enable a seller, but also how it translates in terms of the seller conversations. So that's been a real game changer and really helps because, um, yeah, you get visibility you've never got before and, and you can make micro changes both to the enablement language, to the structures, to how you position things. Um, and then also it just flags faster for you things the customer is asking for. The other bit to your question about like, like helping with, um, like explaining value-based pricing to sellers is coaching, like asking the follow-on question. Like we said in kind of the beginning, like customers will say, I want usage-based, but it's like, you know, like, uh, what I always used to do at Mastercard. So Mastercard, we had massively complicated pricing. We had something like over 100,000 unique billing events, right? But when you would go to customers in a, in a consultative way, and, and say, all right, cool, you know what, we'll, we'll only charge one fee, you know, same price for domestic and cross-border. And they were like, oh no, no, you can't, those are very different. All right, so I have two fees, one for domestic and cross-border, but same for purchase in cash, right? Well, no, no, those are different. All right, so I guess we have to have four fees. The customer just walked you right back to your complicated 100,000 model, right? Um, and, and that's the other bit with sales enablement, which is one of the biggest things that that I'll also do with helping smaller companies is like coaching sellers to like ask the follow-on question, because it's so dangerous just to listen to the first thing a customer asks for. But it's not— and it's not that the customer is being disingenuous, that's not anyone is being disingenuous, but it's just, it's understanding like the ordinal rankings of their preferences. It's like, okay, cool, so if I did that, you're good with the other stuff? Or where does that rank this thing you're asking for? And in terms of the other things. You know, MediaMath, you know, our CEO had the impression that based on all his conversations, and he had data to back this up, that like, you know, Mark Pritchard at P&G and other people were saying, we want transparency, we want transparency. But like, where did that transparency rank in terms of other things? Like, okay, did you want transparency and a really easy UI? Do you want transparency and this and that? And so, you know, we built the most transparent DSP, But the other things weren't, you know, what they didn't tell him. And a follow-on question I think would have unlocked this is, okay, and what do you want? Like, and where does this rank? If we did this, would you switch? Right? That's the key is, okay, if I, if I make it transparent, will you switch from your current provider? And I think that's, that's one of the most important things when you're, when you're coaching sellers. On value-based pricing is asking the follow-on question so you understand, you know, because you might think, you know, my product gives you a higher lift than anyone else, but if the pricing model doesn't work for them, it doesn't matter that you're creating all this lift and that you're creating all this value because it's disconnected from how they, they use the product, or that they have this other concern that's so much higher. And that's— I think that's the number one thing.

Yeah, you know, maybe the name of this episode is follow-on question. Um, and it's really fascinating because like I actually find myself feeling— spending a lot of time with founders, um, on helping them sell their pricing. It's kind of an interesting dynamic. It's— they're exceptional at selling their product, but they're less skilled at selling their pricing. And I've come to view it as a unique industry discipline when building a company, is the ability to sell the pricing itself.

Yeah, absolutely. Oh, that's— no, it's so true. It's so true. And that's— I think that's a great just general topic because again, it's, it's not only the selling of your pricing to the, your end customers, but it's internally for the constituents so that the sellers have confidence to sell this model, um, and to defend it and things like that. And, and yeah, I definitely agree. Follow-on questions are key.

Okay, JR, thank you so much for being a part of the, part of the show. Always great to chat with you.

Yeah, you as well. Any— if you want to do another deep dive, happy to do it.