A Guide to Pricing Research, Part II

Plus: Pricing changes from Gainsight, SEMRush, and Sumo Logic.

Maple Street Advisors tailors pricing optimization projects for PE-backed companies. Operating Partners love Maple Street because they deliver tangible value creation in as little as 100 days. Take the Maple Street Pricing Strategy Assessment to identify your pricing opportunities.

🔻 SaaS Pricing Tracker 🔻

🔍 Gainsight repackaged plans and added AI features.

💪🏼 Sumo Logic added a flex pricing option.

👆🏼 Teamwork removed the Stater plan and added an Enterprise option.

🪣 SEMRush bucketed its products into four categories.

🥩 Vendr beefed up its free offering.

PS. Wondering where these alerts come from? I spotted them using PricingSaaS. You should give it a look if you fit either profile below:

→ SaaS Operator looking to monitor pricing changes in your market.

→ Investor looking for industry-wide pricing trends and benchmarks.

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Welcome new subscribers, and happy Friday!

This post is the second in a 4-part series with the team at Maple Street Advisors. You can find the link to Part I below.

As a reminder, our goal with this series is to provide a go-to guide for pricing research from data collection through implementation. We’re breaking the posts down as follows:

1. Guide to Pricing Research, Part I (Externally Sourced Data)

2. Guide to Pricing Research, Part II (Internally Sourced Data) ← Today 🙂

3. How to Turn Insights into Recommendations

4. Q&A with Pat Meegan about Pricing Implementation

Today, we’ll focus on using internally sourced data when conducting pricing research. Internal data fluency can make or break a pricing project. Stakeholders with a grip on internal data have more specific questions, fully-formed hypotheses, and underlying motivation for the work.

Internal data breaks down across a number of categories, including:

• SaaS Metrics

• Product Usage Data

• Sales Data

• Customer Interviews

There’s more, but those are the key areas we focused on today. Let’s get to it.

PS. Take the Maple Street Pricing Strategy Assessment to identify pricing opportunities at your company.

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Internal Data Collection

Successful external data collection hinges on forming the right questions to ask prospective customers.

Successful internal data collection hinges on asking the right questions to the right people within your organization.

Weirdly, the latter can often be harder.

Sometimes, it’s easier to formulate questions for strangers than people you know. Beyond that, SaaS companies often have a hard time cobbling together even the most basis metrics and internal data.

If you’re embarking on a pricing project, there’s a chance it’s rooted in an underperforming SaaS metric, but if not — they’re a great place to start.

SaaS Metrics

To keep it simple, we’ve highlighted a key SaaS metric for each of the core levers of pricing and packaging: Acquisition, Monetization, and Retention.

To be clear, these are the basics — there are many more worth noting. If you’re interested in going deeper, I highly recommend the work of David Skok, Kyle Poyar, and Alex Clayton at Meritech Capital.

Acquisition: LTV (Lifetime Value):CAC (Customer Acquisition Cost) Ratio

Your LTV:CAC Ratio measures how profitably you can acquire new customers. The classic SaaS benchmark is a ratio of 3:1. Under that, and you’re not profitable enough, above it and you could likely spend more on marketing.

Monetization: ACV (Average Contract Value)

ACV illustrates the annual recurring revenue of your average customer. It’s an important metric for a couple reasons:

• ACV often reflects market position and strategy.

• ACV is especially useful for modeling growth implications.

ACV is central to the power of pricing. If you have thousands of customers, and can increase ACV, even by a small fraction, it can have a tremendous impact.

Retention: NDR (Net Dollar Retention)

NDR measures how your customer base is growing over time. For a given period:

• NDR = (Starting MRR + Expansion MRR - Contraction MRR - Churn)/Starting MRR x 100

If NDR is over 100%, your existing customers are expanding. If it’s under 100%, they’re contracting. NDR of 120% is a widely respected benchmark.

The hardest part about SaaS metrics is that many companies aren’t measuring them anywhere. This can depend on your billing platform and whether or not you’re using a tool for subscription metrics (e.g., ProfitWell).

Product Usage Data

Product usage data can reveal pricing and packaging opportunities, but it can also keep you honest about your opportunity to leverage a new pricing strategy.

Often, we’ll work with clients who have an internal hypothesis about implementing a new usage metric only to realize the data doesn’t support it.

An effective hybrid pricing model means differentiating your product across consumption and capabilities. The most effective way to leverage product data is to look for patterns across features and usage. The follow questions should help you identify useful signals.

Features

• What features are most frequently used by different customer segments?

• How does actual feature usage differ by customer segment?

• Which features are most often used together across different customer segments?

Usage

• Generally, what levels of usage are associated with different tiers of customers?

• Specifically, how do your users distribute across the price metrics?

  • Looking at internal usage data is crucial if you are implementing new usage limits as part of a pricing and packaging update. A quick gut-check on your existing customers can help you both model the impact on revenue, and tell you whether a proposed usage limit makes sense.

Additionally, it’s helpful to review your product roadmap to consider the balance between addressing deficiencies and innovating for value.

Product Roadmap

• Does your roadmap address high value, high WTP items? 

• Is the roadmap addressing deficiencies more than innovating for value?

Sales Data

The sharpest pricing operators have a constant feedback loop with their sales team. There’s so much you can learn from Sales, both from digging into customer data, and from going directly to the source and listening to Gong calls. Below are a few areas to dig into when formulating your internal research.

• Product Performance Trends

  • Revenue by product 

  • Revenue by pricing structure (usage, one time fees, licensing, etc. ).

  • Distribution of contract values (e.g., creating a histogram of contract values to identify clusters).

• Expansion/Contraction Drivers

  • Is the current model working? In other words, are you seeing expected expansion along the dimensions that are built into your pricing model (e.g., feature-driven upgrades, consumption, etc.)?

  • Why are customers expanding or contracting?

  • What are attach rates for add-on products or professional services?

    • Is there an opportunity to bundle into the core offering or productize services? 

• Sales Commentary

  • Anecdotal Feedback — Hearing how your pricing and packaging resonates with prospects directly from frontline sales reps can be invaluable. It’s not clean data or easy to categorize in a spreadsheet, but it can be some of the most impactful feedback on opportunities for redesign.

  • Call Recordings — Gong is a goldmine. Listening to calls and observing how the value proposition resonates, what objections are coming up repeatedly, and how prospects react to pricing can be instrumental to improvement.

    • This also helps you understand how reps are handling discovery, value selling, and negotiation to determine what non-pricing design items need improvement. No matter how perfect the back-end pricing is, if the front end isn’t executing optimally, there is a significant opportunity.

Customer Interviews

Another way to gather pricing insights is by talking to customers. Last post, we covered qualitative interviews and much of that applies here especially the bank of questions from Kyle Poyar’s recent post.

Otherwise, there are three things to keep in mind:

Get buy-in from Customer Success: The Customer Success team will likely be the ones reaching out to schedule interviews on your behalf. Make sure they are bought into the project, and understand why you need to speak with different types of customers. AMs, like sales reps, tend to be busy — if necessary, incentivize them.

• Further, scheduling interviews is hard, and the conversion rate is always lower than you hope/expect. If you need to talk to 10 customers, plan to have CS reps reach out to ~30 to ensure you get there. Worst case, you schedule more calls than necessary, which means more data and insights.

Handle Customer Interviews Internally: Outsourcing interviews is not ideal for externally sourced data, but in a pinch, it’ll get the job done. There is no outsourcing with customers — these conversations will be jam-packed with nuance and can reveal some of the most impactful insights you gather. It’s critical to carve out time for these conversations so you don’t lose any of the details.

Create a System for Responses: Whether you templatize the question set, create a spreadsheet to track answers, or both — make sure you’re gathering data in a way that allows you to easily compare responses. This doesn’t mean you need to follow your questions verbatim — going off script can reveal tons of insights. But templates for note-taking and a well-organized spreadsheet will save you tons of time tracking down soundbites, and make it easier to draw recommendations from the answers.

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That’s all for today. Thanks for reading! Tune in next time for our guide on using internal data to make pricing decisions.

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Whenever you’re ready, there are a few ways I can help you:

1. PricingSaaS Software: AI-powered pricing alerts for PLG SaaS companies.

2. PricingSaaS Services: Rapid research and ongoing support for growing SaaS companies.

3. Pricing Coaching: Schedule a call with me to talk through your pricing challenges and determine the best course of action.