Hi everyone! Today’s interview is with Patrick Campbell, co-founder and CEO of Price Intelligently, which provides SaaS pricing strategy expertise through a unique combination of data and industry experience, and ProfitWell, a tool that provides SaaS metrics for Strip.
Today we’ll be talking about why you shouldn’t be A/B testing your pricing strategy, how they get a 3-5% visit-to-lead range from their blog content, and building a simple process for a great pricing strategy (including a key point that 99% of companies don’t do).
From US Intel to Google to Price Intelligently
Patrick’s background is in econometrics and math and he studied econ in college. He worked for the US intelligence community and Google basically building models based on different data inputs and then optimizing that data to discover a particular outcome. On a very high level, he was working for US intel looking for terrorists and then at Google he was looking for money—same types of models being used in very different ways.
From there he joined a startup and worked on pricing where he discovered how bad entrepreneurs are at pricing but how insanely important it is to your business and growth—more so than acquisition and retention. Then he co-founded Price Intelligently which they started as pure software until discovering that people wanted expertise and were willing to pay for it.
They now have a 15-person team in Boston and get to work with some of the biggest SaaS companies in the world. Price Intelligently did about $3 million in 2015 and the ProfitWell side of the business is a freemium model which in the past eight months they’ve focused strictly on acquisition of free accounts and they’re just starting to monetize.
How ProfitWell Connects With Price Intelligently and its Overall Goal
They started off and are continuing to go against this concept that monetization is something that a lot of people haven’t solved even though it is extremely important, so they’re trying to find the best entry point into what solving that problem looks like. The Price Intelligently side of the business has been doubling every year though it’s not something that necessarily scales substantially well.
They noticed a huge problem when getting paid to do customer development with these clients in that a lot of them had a lot of issues calculating their SaaS metrics and different subscription metrics. In particular, they were calculating seemingly simple things, like their MRR, incorrectly and that was either wiping out or adding millions of dollars to their market cap. When they noticed this, they built ProfitWell—a much more scalable entry point into SaaS where they can sell them different solutions to help them with their monetization, whether that’s credit cards, products, add-ons, etc.
Because they offer tremendous value (they’ve gone head to head with other products and always win) plus they give away tons for free, they find that folks are willing to pay.
The Right Time For Startups to Think About Increasing/Decreasing Their Pricing
Patrick has a 30-second answer and an hour-long answer! The 30-second answer is: pricing and monetization should be a continual process similar to your customer and product development, and a lot of people don’t think about it that way because you don’t learn pricing in school or on the job. But if you think about the development of your product–you’re improving features, support, brand, etc.–then your price is quite literally the center of your business. Everything you’re doing, from your marketing and sales to your product and operation, is either driving someone to that decision point (a pricing page or a sales call) or is being used to support the customer to keep paying once they’ve paid you that initial time. Because of that, monetization is an ongoing process.
If you’re a company that is less than 6 months old, you have a lot of stuff to solve, let alone pricing. So the framework in which to think about this is: get that initial price in place and then make sure you are revisiting your pricing once every 6 months to review if not make a change. In other words, if you’re improving your product, you should be improving your pricing.
To Grandfather or Not to Grandfather, That Is the Question
For companies that are less than 6-12 months old, there’s definitely an advantage to guaranteeing a rate for life (like getting a lot of feedback in exchange). But from a growth perspective, if you’re acquiring a significant number of customers, and you’re only charging $5 when you could be charging $300 because you’re providing a $300 product, you’re taxing your growth and flat lining where you could be.
This is why he recommends more often than a grandfather process using grandfather discounting—which means saying to loyal customers, “We’ve made all these improvements to the product, we’ve been really delivering on value, so your price is going to go up to X, but it’s not going to go all the way up to X for 12 or 6 months down the road.” Or, as Netflix did with their price increase – 2 years down the road.
And the reason for this, from a data standpoint, is that they found that customers are more likely to accept a price increase if a discount is simply falling off their invoice instead of seeing a physical actual jump in price.
Case Studies in Terms of the Growth from Attacking Your Pricing
It depends on the size of company, but on average for a company that has never really attacked their pricing (or only minimally), you can affect your absolute growth by about 30-40%. The main reason for that is because people are really bad at identifying their customers or monetizing them. But even companies that are better at forward thinking can see at least an 11-15% boost in overall revenue and growth.
But keep in mind that though it will take some time to get to that 40%, you can still make some small changes to get a 5% increase here or a 10% increase there. Remember: pricing is a process. It’s like conversion rate optimization for pricing.
A Simple Process for Building a Great Pricing Strategy
They write about this a lot on their blogs, but the short version is…you always want to start with your buyer personas. They’ve found that 99% of the companies they talk to don’t have in-depth buyer personas. They might have have cute names or avatars (Startup Steve or Enterprise Eddy), but not a lot of data around who these buyers actually are.
They recommend that you start with the general buyer persona that you have and then start to collect relative preference data and price elasticity data. That may sound a little daunting, but the idea is that you want to force people to make decisions between different batches of features. So show them analytics and support, for example, and ask them which is the most important for them, and then based on that information, you’ll figure out if Enterprise Eddy cares about analytics or support.
And that helps you figure out packaging, which is super important to upgrades and getting expansion revenue. Then the price elasticity data comes from asking ranged questions. Human beings don’t think about pricing as a single point, they think about pricing on a spectrum (so they know that a cup of water is less expensive than a computer), and you can take advantage of that by asking questions like “At what point is this product way too expensive for you?” or “At what point is it a good deal, or too cheap?”
Once you start collecting that data and slicing it up against some of the demographic information from your buyer personas, that’s when you can translate that into real change in your pricing where you can consolidate those findings down and then maybe do an A/B test.
How Many Customers Startups Need in order to Create This Quantified Buyer Persona Set
Not having enough customers is a little bit of an excuse because there are so many sources you can use to talk to your prospective customers even if you don’t have any customers yet—from Facebook Ads or landing pages where you get them to answer questions, to buying market panelists. There’s a self-service company they recommend to a lot of startups called Ask Your Target Market or Instant.ly or Research Now (see Resources below). They can get you anyone from a soccer mom in Kansas to a VP at a large company.
The great thing is that if you do this market research, you actually save yourself a lot of time trying to A/B test or guess about product market fit because more often than not you’re facing that problem (not enough customers or even visitors). So by going to those websites and getting some of these answer, you will know more about your buyer persona right away rather than wasting time A/B testing or building a bunch of things that people don’t want and then having to kill those features later.
The only people who can tell you what to build and how much to sell if for are your physical customers or your potential customers.
Why You Shouldn’t Be A/B Testing Your Pricing Strategy
People LOVE A/B tests. Patrick isn’t saying that A/B testing as a statistical framework is bad (it can be quite successful); it’s just that most companies are facing the problem of not having hundreds of thousands of people visiting their website or blog to justify doing a multi-variant, intensive testing on their pricing.
If you do just one test like change one price point for 50% of your traffic then you could do that type of A/B test. But it’s not just the price point, there’s your value metric, different packaging, different design elements on your pricing page, etc. So what they recommend is that you do your homework first to figure out what those tests should look like. Once you’ve done your homework and have built your customer profile and made some decisions around strategic direction on your pricing, then you can run that A/B test on one axis (or two or three axes).
It’s almost like a false positive when you try to do A/B testing when you don’t have a ton of traffic (you need hundreds of thousands of visits—or even conversions—a month to justify A/B tests which most B2B SaaS don’t have).
How Price Intelligently Got Their First 10 Customers
They got lucky because a local tech magazine in Boston wrote an article about their launch, and that led to their first 3 customers: Litmus, SmartBear Software, and Compete. Getting from 3 to 10 customers and then from 10 to 100 – what was extremely useful for their market was their content. What they found was that most people who are responsible for pricing in organizations aren’t really that confident about their decisions.
When they started writing content–like “here’s how you should be thinking about discounting”–all of a sudden they started getting a lot of inbound leads, so they set up a basic funnel using HubSpot which allowed Patrick (the only person at the company at that time) to automate a lot of what they needed to do to start growing.
From there they had an offer of a price optimization assessment, which was essentially just Patrick getting on the phone with them and asking them a lot of probing questions about pricing strategy and monetization. That made them uncomfortable with how they were pricing or thinking about it and it was a natural fit to help them solve that problem because Price Intelligently had an actual solution that would give them that data. So that got them to about 40-50 customers.
How Much Content They Produce Each Month
They average about two blog posts per week, which is not as consistent as they would like to be.
None of their posts are filled with fluff; they produce really in-depth, data-driven content, especially on their ProfitWell blog which they launched in early 2015. The way they think about content is that they must provide a ton of value, as though it is its own product where they look at retention on blog metrics and who’s opening. They get about 80,000 visits per month on both blogs which has allowed them to get a really good lead volume.
They just announced “the SaaS DNA project” where each month they’ll publish a 30,000-word chapter after looking at 110 user testing videos and digging into a bunch of data on different breakdown of SaaS. The first one will be on the anatomy of an SaaS marketing site, and future ones will be the anatomy of SaaS pricing, SaaS onboarding, SaaS growth, etc. They’re going to curate it to make sure they’ve got the best people writing these and that they’re really sexy and data driven and consumable. The focus will be on: How we can give the best to the SaaS community?
How Many Leads They Get Just From Their Blog Post Each Month
Their visit-to-lead range is about 3-5% depending on the piece of content and those leads aren’t necessarily sales qualified, of course; there’s a lot of marketing qualified leads, especially for some of their more affinity content. For them, affinity content isn’t ‘hey, here’s why transparency is important’ or more culture-based things, but rather it’s more like a post on acquisitions.
For them a lead means an email collected. The way they’ve set up their funnel is: visit, then lead, then MQL (someone who’s looked at 6 pieces of content), and then sales qualified lead is 10 pieces of content (they’ve set it like that because they know that once you’ve reached 13-14 pieces of content they know you’re primed to be someone they can close a deal with).
One Big Struggle They Faced While Growing the Business
There’s so many! But the first big struggle for him was that they had two part-time co-founders who definitely contributed to the business, but Patrick as first-time CEO and first-time founder didn’t take the reins of setting expectations for the help he needed which caused a lot of stress for him. Other struggles were the normal stuff like staying mentally, physically, and emotionally balanced in terms of keeping your highs low and your lows high. For the first 6 months Patrick was working 18-hour days and because of all the stress he gained about 100 lbs in past 3 years (and lost 50 this year!)
One Piece of Advice He’d Give To His 20-Year-Old Self
Besides ‘don’t be such an asshole,’ he would say ‘don’t chase the golden treadmill’. He comes from a blue-collar family where no matter how much he explains to his parents what he does they still don’t get it. Coming from that background, after college it basically meant chasing a resume or a corporate or government job. In other words, chasing the golden treadmill would be getting a job where you’re really well paid and well taken care of.
For example, Patrick got cancer when he was at Google about five years ago and after surgery and treatment he never even saw a bill—and Google also offered to pay his full-time salary if he wanted to take time off to take care of himself. So he has nothing but good things to say about Google, but as someone who has a lot of ambition, chasing that golden treadmill isn’t going to fulfill him. Despite the struggles and exhaustion sometimes of being an entrepreneur, he wakes up every day and absolutely loves his job. And yes, Patrick’s parents think he’s insane for leaving Google and still have hopes that he’ll go be a doctor.
How Would He Structure An Ideal Day?
He tends to cuddle with the chaos (which is not the best structure!), so he tries to structure his day like this:
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Eric Siu (@ericosiu) is the CEO at Single Grain, a digital marketing agency that focuses on paid advertising and content marketing. He contributes regularly to Entrepreneur Magazine, Fast Company, Forbes and more.