Previously we laid the groundwork for an effective pricing strategy, setting goals and gathering key inputs. Now it is time to take the final steps toward your ultimate pricing power.
Pricing affects external AND internal behaviors. Salespeople will quickly determine the best way to maximize their interests just like a customer or prospect will strive to minimize their cost. This has become particularly important with the drive to subscription revenue. Selling companies like the subscription pricing approach (whether or not they have a software as a service offering or leased physical product) because it creates a more predictable revenue stream. The issue becomes how your pricing model affects your sales team compensation plan. What term of subscription do you offer? What risk of renewal or inflation do you want to bear as a company? Additionally, how will you pay commissions — up front, as revenue is recognized or on what part of the subscription?
Buyers generally want to reduce inflationary risk by locking in long-term contracts with no cost of living / inflation adjustments. So as a provider you must determine the balance of risk you will bear to offset the benefit of predictable revenue streams. Let us explore all the internal and external forces that should shape your price.
Pricing Structure
What key factors will your team need to consider in the pricing decision that will impact the final calculated price? Remember, having to update your pricing strategy for current customers often results in churn. Avoid surprises and spend the time noting down all relevant impacts to your price. This might include:
- Unit price
- Embedded or associated partner products
- Volume discounts and cutoffs
- Time factors
- Incentives
- Geography
- Bundles or packaging
- Direct or resell (third-party)
Discounting Practices and Policies
Set the criteria for discounting, including discount levels, determining factors and who is allowed to authorize these decisions. Also consider how bundling and packaging can impact price discounts and adjustments. Lastly, include a plan for exception processes for things such as end-of-life of your product or any sort of market change (remember COVID?).
The Review Cycle and Roll-out
Next, build a formal foundation of your organization’s’ standard practice for a pricing review cycle. Common triggers of a pricing review cycle include:
- Annual review or updates
- Solution / product introduction
- New packaging or bundle introduction
- Product change
- Product end-of-life
Additionally, formalize what needs accomplished, who owns the tasks, and what systems and assets need to be created or changed for a pricing rollout.
UNLOCK YOUR ULTIMATE PRICING POWER
A B2B Leader’s Guide to Pricing Strategy Workbook provides B2B leadership with the four key pricing principles and the six steps that will lead you to a successful pricing strategy and outcomes.