5 ways to optimize SaaS pricing and sales strategies to win the rebound with BCG

The Rebound Presenting with us today is Matthew Crop, Managing Director and Partner, Courtney Dong, Associate Director of Growth Tech, and Frederico Fabbri, Managing Director and Partner. They're going to take over for us and be here to answer some questions and go through their presentation. Thank you guys for joining us. Great. Thanks all for taking the time to join. We're from bcg, a strategy consulting firm that works not just with the biggest companies in the world, but also with companies that Many of you here in the audience represent disruptors, innovators. Through our Growth Tech Initiative, we consult with growth techs on a variety of topics from helping them figure out how to scale their organization and operating model, helping them expand new adjacencies in new markets and most relevant for today, helping them think through how to maintain and boost their top line revenue Growth through Sales and Pricing it's no surprise to anyone that this year has been tough. In a recent study we conducted with hundred sales account execs across tech, healthcare, industrial goods and other sectors, we saw a few trends. AES have seen revenue decline since the start of the year and even more expect this to last seven months, some even saying a year. This has all created a lot of chaos, not just for companies trying to sell, but also for companies trying to buy. Customers across the board are asking for concessions. Our survey group saw customers asking for delayed payments, reduced volume and lower prices. Unfortunately, few sales teams have actually done planning at the account level to develop a good response. In fact, 50% had done absolutely no account planning at all. Furthermore, with work from home, account teams can no longer rely on in person meetings, lunches and walking the halls to build trust with customers. Coordination is a lot more challenging, particularly when closing new customers. While all that sounds like a pretty bleak picture, we firmly believe that there are many companies who will succeed through this pandemic. Drawing on our decades of work in sales effectiveness and pricing strategy, we have five strategies for how to respond to the current economic environment. I'll walk through these briefly and how we've organized them here before Fede and Matt walk you through each strategy in detail. We've organized these strategies into two main buckets. First and foremost, what should be top of mind for all companies right now is how to optimize value from your current customer base. Meaning how do you keep the customers you have earn more from your fans and price with flexible discipline. Secondly, around how to attract new customers, both in terms of how to attract new leads with premium and ensure you set the right strategy now to make sure that you're set up to win on the rebound. With that, I'll hand things off to Fede to walk you through the first set of strategies.

Thank you Courtney. And thanks everyone for joining. As Courtney mentioned, it's much harder to find new customers in this environment for several reasons. Well, that means that you want to make sure you don't lose the customers you have today. And so when it comes to retention, there are three ideas that we wanted to share with you today. The first one is leveraging telemetry and customer service automation to together improving understanding of customer consumption patterns will not only help your product get better over time. That's why you typically deploy telemetry right? But also helps foster better education, self serve and overall experience with your customers. Oftentimes we see misguided automation programs that don't start with the right understanding of what your customer wants, how they behave, and this result fell flat. You don't want to end up investing a bunch of time money on a self serve platform that worsens your CSAT score. Many clients come to us because they invest a lot of money and don't get the expected return and more often than not that is due to not putting your product usage at the center of your customer service automation initiatives. Second one, you want to make sure your economics tie the most advanced outfits these days build the next best action engine that is based on a value equation that leverages all the key metrics irr, margins, churn cost and they adjust for probability of acceptance. Typically deploying AI or machine learning based solution to assess the probability of acceptance. Now even if you're growing fast and bottom line is not your primary concern, you're just focused on growing that customer base and and growing that revenue line. You want to build that muscle not only because in the long term you'll start caring more about margins, but also because you want to make sure you get the most out of your bucks that you invest in any customer success action. Third point, you want to deploy a customer success team that has the right level of expertise. Especially when you think about more complex product and use cases your customer success team cannot resist from some degree of technical expertise. I hear many clients saying well you know that is the SES or customer support domain. Well, I tend to disagree with that mostly because if everything is going well you want your SEs to be focused on pre sales and deployment initiatives and oftentimes when you reach into a customer service number or at that point you have lost that customization and that hands on approach that your customer success team needs to have Onto the next page please. Courtney well then you want to make sure you earn more from your fans, so don't lose your customer base and then sell them more. First off, staying on the customer success team topic, you want to make sure they are involved right in the sales motion and in the sales process. There are two school of thoughts here whether you want to task your customer success team with explicit sales target. I tend to side with the party that prefers the customer success team to be focused on adoption measures, but nonetheless that is no excuse to not involve them into into your sales motion. Specifically, when it comes to large enterprises, you want to make sure they are part of the account team. You guide them to planning and review session, they are on the right distro list, they're part of setting the target and whatnot. When it comes to small medium businesses, it's important that they are as aligned as possible to your customer base AES so what used to be called hunters in a different era. So even if perfect alignment it's not possible, you want to make sure that they are sharing as many accounts as possible for purpose of coordination and best practice sharing and oftentimes just learning to work with each other. That's the concept that you might have heard as chewing a box in certain outfits. Secondly, you want to segment your customer base. In fact, consumption patterns differ quite a lot, so your newest cohort are typically more challenged by definition because they're newer, right? But also if you think about the typical adoption curve, you can expect them to be late adopters, less eager to experiment. So we will later discuss a bit more in terms of packaging and pricing tips. But from a sales motion perspective, you want to have a clear segmentation and differentiated sales by buyer Persona, by cohort, and by key drivers of customer behavior. Third point, mine your data for natural consumption patterns. So when it comes to cross sell and upsell, you practically speaking, you want to keep your customer base AES with the set of triggers that suggests at what point, for instance, you have enough super users to warrant a discussion about a premium all you can eat enterprise level packets. You want to make sure they understand when the likelihood of upsell or cross sell increases. And in order to do that again, you want to collect your data, give it the right attributes and ultimately leverage it right? Telemetry tool Matt, on to you.

Great. Thanks Vede. So I'm going to shift gears a bit and talk about pricing and I want to start with this concept of employing flexible discipline. This may sound like a bit of a contradiction, but when you're In a tough environment like we are today, it's very important that you have both flexibility for customers, but that you also really put in place discipline to protect your price point. So on the flexibility topic, when we have periods like now of lower market demand, you're going to have customers struggling and you're going to have customers asking for concessions. It's happened early in the crisis, it's likely to continue. Frankly, it may get worse depending upon what happens with the economy. But it's really important to be ready for this. So you be ready with predefined and frankly pre approved flexibility options for your salesforce that they can offer to their customers to help get their customers through the downturn, but that don't lock in lower prices. So think here, you want things like maybe deferred payments, maybe short term expiring discounts or other other options that are give your customers flexibility and recognize the fact that they may be struggling but are not setting a price point. Today that continues after we get back in the rebound. We have a client that sells subscriptions to physical workstation based information products. So you have literally something on your desk. Of course that doesn't work so well in a work from home environment if those workstations are at the office. So instead of waiting for those customers to call and cancel or ask, negotiate for temporary discounts, the company, our client, proactively reached out to all of their customers and gave them free, free 90 day web licenses to their products. So it was a nice flexibility innovation essentially that solved the customer's short term need, but essentially forestalled the customers calling for cancellations or essentially prevented the customers from calling back and saying, hey, can you give me a temporary discount because I'm not using my workstations. The other thing it did is it created an upsell opportunity. So, so those web licenses are actually added value at the end of their 90 day free licenses. It gives the company an opportunity to go back and try to upsell those customers to a web license on top of their workstation license. On the discipline side, being flexible doesn't mean you're a pushover. So pricing discipline is really having deliberate practice around protecting your price points in the market. And it's especially critical when we have tough times like now. So we recommend that you start by setting up a war room, digital war room of course, or virtual war room, which is really about bringing real time information about what's happening in the market and real time information about what's happening with your big deals. Use that set of dashboards Essentially to hold your weekly sales meeting. So hold your sales meeting in the virtual war room so that as you're making decisions around accounts that you want to go after, maybe discounting decisions or special term decisions you're making about specific contracts that you're informed by what's actually happening. What can happen very often in a sales team is the information that is most focused on by the team is whatever happened last, we just lost a big deal, the world must be ending. It's much better to have the information, your overall metrics to say, you know what, yeah, we lost that big deal. But actually win rate or loss rate isn't getting any worse. Maybe that was just a one time, you know, one off event. So creating that data, since you make the right decisions, the right strategic decisions is really important. And then to really create discipline, you need to have appropriate controls. So this means having clear guardrails around discounts. What are your floors that you're allowing your salespeople to discount to and having a very strict but rapid escalation process to respond to additional discount requests. So don't slow down your salespeople. You need them to be able to execute on their deals. Make sure that you can escalate approvals very quickly, but you want to put a speed bump in terms of making sure that those discounts are actually reviewed and thought about in a strategic way. In these environment. In this environment, you might have some ugly deals, you might have to prove some ugly deals, but it's really important that you're thinking strategically about whether that deal represents something that you really need to win. It's a customer that you're trying to lock in, or whether you're really just destroying your price point in the market. One of the worst things that you can do is essentially go to the bottom in price, start a price war with your competition, or set an expectation amongst your customers in the market that you're willing to sell at a very low price. Because of course we're all going to get out of this recession and those prices will stick. So we want to avoid establishing low price floors. This is also an opportunity to attract new customers. And it might seem counterintuitive, but you know, many of you, probably most or all of you are in SaaS businesses, hence where we are right now. Work from home may actually be a golden opportunity for you to gain new customers. Companies are being forced to reinvent the way they work, the way they interact with customers, the way they work together, they work with suppliers, the way they manage information, they need solutions SaaS based solutions. So it's a great period of time to really push and get more leads and help your customers experience your solution in a low cost and lower, low risk way so that they're hooked when the economy rebounds. So the strategy number four is leverage. The power of free. Premium is a great strategy for this. It gives you the opportunity to pull in customers. You know, Zoom is sort of the poster child here. They did a fantastic job. Everybody moved to video meetings. They release free licenses, you know that. Yes, they're time limited, yes, there's some functionality limitations, but essentially what they did is they, they made it so easy for everyone to sign up. People are using it at home. That of course influences decisions that their, their employers are making about their video conferencing solutions. So using that freemium model, that's incredibly powerful to generate leads. The thing is, you have to remember those aren't sales, they're just leads. And so you don't count your freemium signups as customers, their leads, you need to convert them to paid in order to see any LTV from them. So the fifth strategy then is focus on converting paying customers, converting those premium customers into pay essentially to win the rebound. So it's really important that when you design your freemium and pay tiers and you're putting the right amount of value in free in order to drive usage and adoption and addiction to your product, but don't put so much value in free that your users don't ever feel compelled to upgrade. Zoom again did a great job of having this 40 minute limit for group calls. It's a pretty big limitation for corporate users or really forces any corporate use to go into the paid model. But it's not enough to limit trial and it drives widespread adoption at home. Then finally, in thinking about your pricing today, you really want to position it to think about how it's going to scale with the rebound. So having flexible pricing options, flexible discounts to get your customers to the downturn is fine as long as they expire when demand returns. Even better is using a pricing basis. So this is like number of users or gigabytes or transactions, whatever your pricing scales with that can be low and cheap for your customers today when they have less demand. But that scale up really nicely as your customers, businesses ramp up again. So it gives your customers an easy way to get started with you. But that as they scale, as the economy scales, as their business scales, you get to share in that upside as they recover. And I love what JIRA does. I think they're masterful around new companies. Small departments come in at a very, very low cost but as soon as they start to scale seats, the cost goes up substantially. So we hope we gave you five strategies. We hope these will help you survive the crisis and thrive in the rebound. As Courtney said, we love talking with high growth startups. So we want to leave you a couple ways to engage with BCG. Further, you can go to bcg.com, we have a number of articles on sales and pricing. Here are a couple of examples. Also, take a moment now to snap this QR code. It'll take you to our Covid sales and pricing Readiness assessment. It's a short survey that evaluates your sales and pricing functions in the current environment. And then if you take the survey, we'll provide you back with your own score and then the benchmark results of hundreds of other businesses that have taken it as well. So you get kind of a benchmark of how well you're doing relative to others. Also, feel free to reach us on email or LinkedIn. All three of us are always happy to talk sales and pricing for SaaS. And with that I think we have a few minutes for questions. So please go ahead and use the Q and A for questions. And Courtney, do we have a first question?

We do. We're getting a lot of good questions right now. I think this one's for Fede. Are sales teams facing the same challenges now that they were during the 08 recession? If not, what's different?

Well, there are two very different crisis, right? So one was credit crisis, the 1 in 08 that had some bleeding into Main street. And this is mostly Main street crisis as probably every one of you follows the stock market knows. Nonetheless, there are some similar elements in terms of downturn in sales. Obviously the biggest differentiator right now is the need to operate in a virtualized sales environment. And one of the things we learned is that prospective buyers are mostly wary of the selling process when it comes to the actual engagement negotiation and close. So every top of the funnel activity is quite open. Everyone says, yeah, we're going to go to more webinars. We are very open to dialing in into conference calls, do POC in a virtual situation. But now when it comes to actually getting close, aligning the internal stakeholders, getting through the complexities of new contracts, onboarding new suppliers, that is a challenge. And so the suggestion here would be to respond to this crisis, sharpen your pencils on how to close the deal in a virtual environment. Everyone is concerned about finding new leads about Getting enough eyeballs, but conversion rate is the number one struggle and challenge right now.

Great, thanks Fede. Another one from the audience. How do you find the point of inflection where you switch from cash burning growth to ensuring that that user is now a paying use?

Let me take that. So this is a great SaaS startup question. So if you look at some of the great SaaS successes, say Salesforce has a great one. Essentially they burned cash for a long time and essentially did not focus on margin for a long time. So there's always this trade off between am I moving my pricing up essentially to capture margin or am I keeping my pricing low essentially so that I'm gaining share? I think for most of you here your focus is on hypergrowth and so you're going to bias toward the gaining share. Really? Maybe this is more of a VC question. I think it's balancing. When you need to show that you can monetize those customers with how much growth you need to be showing to raise your next round. For example, the ultimate measure is CAC versus ltv. And so you generally want to look at the lifetime value that you expect from that customer at say 4 times your acquisition cost. But again there's that balance of how much you want to tilt toward driving growth. So spending more on acquisition and basically giving up on price that you have show a lower LTV versus demonstrating what the LTV is that you can get in the long term.

Great. More questions here about pricing. Another one from the audience. How do you determine pricing for brand new product?

Hmm, it's a long, a long question, but let me give you a short answer. So price for a customer is always relative to the next best alternative. So when you're think about it from the standpoint of your customers, your customers are looking at your product and they're going to decide whether they want to buy it. What they have to decide is are you providing enough value to them relative to what it costs them and relative to where else they could get that service, that product or service. So if, if there's an existing product, a competing product, your price is relative to that product and basically what you're going to have to do is say how much is your product worth or your service worth relative to that other service? If it's much better and that, and there's value that the customers understand, then you can capture that value and basically you're going to take the competitor price and add that value differential. If maybe you're newer, have less value, then maybe you're pricing less Essentially to recognize the fact that you're providing less value to that competitor. Sometimes or often, you're introducing a product that doesn't have a direct corollary, direct competitor. And so then what you want to think about is how would the customer get to the same value that you're providing by essentially doing it themselves. So maybe there are multiple solutions that they would cobble together. Maybe they have to go out and hire software developers to go build a product. Maybe they have to just hire labor to manage some process manually that you're automating. What's the cost of those alternative solutions? That's the value that you're providing to them and the rule of thumb that we like to use. You're not going to take all of that value. So say you're creating $100 a month of value. If you're priced at $100 a month, you're basically taking everything from them. Generally speaking, you can take about a third of the value that you provide to them and that feels fair to the customer that they're getting sort of twice the value that you are out of what, what you've created. But you know this, there's a lot of. It depends here. You know, if you have something that's truly novel, that is absolutely, you know, the customer absolutely can't live without, and they have few options, you can take a pretty substantial portion of value that you're creating.

Great. And then one last question. What part of the pricing strategy do you see most startups fail at when they're in the growth stage?

Maybe Fede. I'll answer that as well. So early on, startup companies will often just pick a pricing strategy. Maybe they look at something that's analogous, another product, and copy that. It's often hard to figure out exactly what the right price is. You can use some of the techniques that I just talked about. But I would say the most important thing for startups is to test and learn early. So try things, see what's working, ride different price points, see what that does to your volume. Don't be too locked into one pricing strategy. What we see happen very often is startups will pick a pricing approach, they kind of settle into it, and then they don't change it for a number of years. And we've gotten involved in a number of companies that are at the 100 million to $500 million revenue range, where they're still operating on their original pricing strategy, and they're leaving a huge amount of money on the table because they haven't come back and revisited it so early on it's going to be hard to know exactly how to price, but you want to be rapidly iterating on it to try to get to something that works and then be sure to come back and revisit it every so often and make sure that you're not leaving money on the table.

Sorry Corne, there was a good question on the Q and A that kind of ties into that but has the sales aspects to it and the question was around for products that are positively impacted this year and typically undergo annual increases, would you recommend that practice to continue? Absolutely. Like if you have built pricing escalators, you keep them there in your contract and then you might decide through negotiation to forego it. And typically I would never offer a flat out discount that says you know what, for this year, forget about it. It's a tough moment for everyone. We'll talk about it again next year because then your starting point next year is going to be that they don't expect that escalator to be in place. But I'd rather use the escalator to be reconfigured for add ons and say look, it was an innovation index but it was an adjustment for cost of inflation, will absorb it and treat it as a discount. Almost forgive it if you upgrade to this package or if you buy a few more licenses and a few more seats and things like that. So definitely keep it there. It's a great tool. Once you have used your customers to accept it and to get used to it. No way you want to walk it back.

I think we're about out of time. I put my email address in the chat so if anybody has any pricing questions, happy to answer them after this. I think we should close it here. Thank you all so much for attending. We love to talk about pricing and sales and SaaS and have a great rest of your conference.

Thank you guys. Thank you Boston Consulting Group for joining us and the rest of your team. We really appreciate it and we hope to see you guys on some more sessions. Talk soon. Thank you.

Talk soon. Bye.

Thanks so much.