BoS Online AMA on Pricing: Chris Mele

Transcript

Mark Littlewood: Chris, yes. How did you get into pricing? Who are you? Why did I invite you those sorts of things?

Chris Mele: Well, I first met Mark coming out of my first software company that I owned in the late 90s, and I had hired software pricing partners when we moved to the cloud over the oh eight financial crisis. And so the first thing that happened was somebody said: Hey, you know, if we’re going to change how we price, and this is going to be a subscription, gee whiz, this kind of changes our business model, should we reach out and get help to which, of course, I was like, No, you don’t need to do that.

One of the board members was like, No, you need to do that. We met software pricing partners, and the next five years I would learn, if only I had done it earlier, I probably wouldn’t have had to raise as much capital and sell as much ownership. So we were being funded in the Angel Network there, here in Charlotte.

So then when I exited in 2013 I was on my way to interview for another job at a software company. I was going to run a software company down in Charlotte, and then just picked up the phone, called one of the partners here. And I think his exact quote was he was really frustrated. He swore a lot and said that he couldn’t find a partner. One thing led to another, and then I ended up somehow doing this career shift that I love.

So we’ll talk about today why pricing is so much more than the price point, and I’m happy to share with you all of the very expensive mistakes that I’ve made along the way.

Mark Littlewood: So hands up, who is, who feels they’re charging too much for their software.

Who feels they’re charging too little? Ah, very unscientific survey, but interesting. Okay, thank you.

And various people have sort of said, oh, I want to help. I want help with one thing or another on this session.

So we’re going to start off with Robert Fryers, from Cambridge. Robert, I’m going to pin you and Christopher or Jan. Can pin Robert and Christopher.

Mark Littlewood: Okay, so love you to say who you are,

Robert Fryers: yeah, sure, sure. So I’m Robert. I’m CEO, founder of a company called Spotter. We make a combined hardware and software products, which is monitoring insect pests. It’s an early warning system for bugs, basically like smoke detector for insects, so that instead of blanket spraying stuff after you’ve seen the damage, you can get in and deal with it early, before it spreads, and be more targeted.

And we have a variety of products for different insects. And the one I wanted to quiz you about, Chris is our product for hotels.

So we make, we make a monitoring service where so as a subscription model that we sell to hotels for detecting bed bugs, and we charge on a per room per night basis for that. And to support that model, there’s a little box of box of tricks, about the size of a pack of cards that goes underneath the mattress.

So there’s a hardware element in there, which puts a lower floor on how cheap we can make it, because we still got a ton of profit, and can’t turn that right. So things like freemium don’t really apply. To apply, we can do them, but they’d be very expensive to do because we’d love to have the hardware.

And what we’ve found, we’ve built this up with about 100 customers now, so it’s growing reasonably steady, about 20, 25% growth a year over the last few years, since COVID and hotels reopen, so it’s okay, but we’d love to work out how to turbocharge it. And what we find at the moment is we get big barriers to adoption. But once we’re in retention is fantastic. You’re around 110% net retention.

Chris Mele: Has it the barrier to adoption. What do you think it is?

Robert Fryers: It’s always articulated as price and budget. Now, of course, whether that’s the reality behind the scenes, but that’s certainly, that’s what the customer says, is its price and availability of budget that generally, that the people making the decisions in an individual hotel, the general manager, has very, very little discretionary spend.

Yeah, they might be in charge of a hotel that has a budget of 2 to $5 million but then the discretionary spend might be 5k a year. Everything else has to be pre planned budget, because it’s a very mature industry where, you know, not much changes, and they’re often relatively young people pretty early in their careers. It’s not actually that senior a decision making role for that General Manager position in a lot of hotels.

So we really struggled to get this written into the budget in a way that doesn’t, either we want to avoid undermining the price in advance, so we don’t want to give it away too cheap to get through the door.

But when we go in with our asking price, which all of our existing customers are very happy to pay and carry on paying, which says to me, we’re probably not massively overcharging, because you’d expect to see churn if we were and we’re not, but we’re really struggling to accelerate the sales process, and we have a sales cycle that’s something like five or six months, which is painfully slow.

Chris Mele: What is an average transaction for you?

Robert Fryers: For an individual property about five to $10,000 that would be the, that would be the annual recurring revenue value to us.

Chis Mele: Do they pay separately for that electronic thing that?

Robert Fryers: Not at the moment, no. So right now, we have a very simple, flat pricing structure. Is just a service per bed per night, and you sign up for a number of years, and if sign up for one year, you get a price. If you sign up three years, get a slightly cheaper price.

But it’s a straight service fee. We don’t charge setup fees to cover that, to cover the hardware cost up front, because we tried that very briefly in the early days. But because of this, you know, not trying, trying to minimize the size of the hurdles getting through the door. We took quite quickly, took that away again, and just went into the pure service model.

Chis Mele: The cost per device?

Robert Fryers: about the we pay off in the first year, but by the end of the first year, so and then after that, is into into profit. So over a three year contract, our gross profits about 65% and we think our average customer is going to have something like a seven or a year average life. I mean, the churn is so low at the moment, it might well be longer than that, but so over the life, the CAC to CLV is looking very promising. It’s just growth rate is limiting

Chris Mele: And so on. The roadblock, then it’s part budget, but you find that the hotels by sorry,

Robert Fryers: That’s that’s your efforts going overhead.

Chris Mele: So it’s the is the way that the hotel buys, let’s just say I had a 500 rooms. Did I buy for all the rooms, some of the rooms, like, what happens?

Robert Fryers: We push pretty hard for it to be in all the rooms, because a bit like a smoke detector, you don’t know where this problem is going to occur. It comes in on someone’s bag, if you only protect half your hotel. Sort of was the point.

But actually, one of the things we’ve started doing recently is that we get a lot of requests for, you know, I need to see it working before I can sign off on this. So we have just started doing some limited partial installations, but usually only where there’s a clear transition from you.

We’ll let you have one floor of the hotel for three months, but only if you’re signing a contract for the full roll out. Unless something goes wrong, there’ll be a break clause in there, but the default is it rolls straight through. But we’ve pushed pretty hard right from the beginning to sell the entire property, because otherwise, what we found in the past, we’ve had some customers where we’ve installed, you know, 30 rooms out of 200 and then they complain that they found a bed bug at the other side of the hotel. Well, you didn’t, you didn’t monitor those rooms.

Chris Mele: So there’s this pattern that happens in the sort of it’s really in the utility space, regulated in retail, but in specific, if I’m in IoT and I’m instrumenting my machinery, so let’s say I have a chemical plant, and your value prop to me, similarly, is you don’t want to have bed bugs, you know, you know, you don’t wanna have a chemical spill.

The issue comes into, I don’t really wanna instrument the full plant, but if I should happen to have had a chemical spill, boy, I really wanna instrument the full plant. And I wonder if that’s not kind of, some of the effect that’s happening where it’s like, well, I don’t know that I have bed bugs. I know I don’t want to have them, but like, if, boy, if I had bed bugs, I’d be betting I’d be instrumenting that entire hotel. But if I don’t, it’s more of a preventative, almost like an insurance policy.

Robert Fryers: Yeah, so we have two segments of buyers.

One is exactly as you’ve just described, our insurance buyers. They tend to be high end hotels where they’re really worried about their reputation, they maybe haven’t had many problems in the past, but you know, if one of the celebrity guests gets bitten, then that’s a massive, massive problem for them. They want to make sure that never happens, and they’re buying exactly as you say, it’s an insurance policy.

They’re about half our customers, and then the other half are what we call our operational buyers. So about 90% of hotels will have a bed bug problem in a given year. It’s pretty common.

Chris Mele: Robert, thank you. Lots of questions on my next trip.

Robert Fryers: Yeah, and about, about a third of hotels will have more than five, and that that more than five, more than five bed bug incidents a year across the hotel, and there they generally make up our, what we call the operational buyers, the ones who have sort of regular cost of doing business type pain, and they want to make it go away.

Chris Mele: But they’re gonna, you’re saying their tendency is to just instrument part of the hotel. Or will they instrument the entire hotel?

Robert Fryers: There were quite often, and this, yeah, I think the point you’re getting at there is, is the pain? Yeah, how big is the pain here? Quite often they they don’t recognize the cost it’s having on their reputation. They see the compensation claims, and they see the pest controller call outs, and both of those numbers don’t look too scary. And what they don’t factor in is how much business they’re losing because they’ve lost half a star on Trip Advisor because of gory pictures of bed bugs.

Chris Mele: Yeah, that’s gross. Thank you. Um, so on the on the way that you charge. Then, just bringing it full circle, it’s a per bed per night. And then what happens if I buy 100 rooms versus 1000 rooms?

Robert Fryers: Yeah, there was discounts for larger, larger groups. Yeah, that’s right. Or larger properties, yeah. So the two, the two dimensions that we offer discounts from headline price are size of the installation and length of contract.

Chris Mele: Gotcha. Okay, so I guess the problem that you’re experiencing is difficult to tell is it, is it budget related, or is it I’m not incentivized properly to give you all of like anytime that you want to instrument a portion of something?

What it likely means is the the nudging effects to get me to come all in might be missing. So if I’m going to pilot there’s a there’s risk vectors that customers want to mitigate.

One would be financial risk, right? Yeah, that would be why the pilot’s happening. The other one is just, I don’t know who the heck you are, and I don’t know if it’s a proven technology. I mean, you’re putting a deck of cards under the bed with some radio frequency, like, is that even going to work? So there’s that kind of execution risk. We’ll say is what’s being mitigated there.

So I think you have to zero in on what kind of risk the customer is trying to address. And the job of the pricing model is to properly nudge them to get over those risk hurdles so that they don’t instrument 100 of the 1000 beds. They instrument all 1000 of the beds.

So if you handle the what we call volume pricing, hey, the more you buy or the better the per bed, per night rate you want to be able to test that and harmonize that to the effect that you want to have happen if that’s all being handled kind of on a case by case basis, and the customer pressures you for a discount, you say, Well, gee whiz. Is a lot of beds. I’ll give you this.

You might be missing the data that says, Well, is it like a 22% discount that gets them to come all in, or is it just a 28% discount to get them? So the last question I’ll ask you is, are that is that discounting structure standardized so that you can measure and test, or is it more informal on a deal by deal basis?

Robert Fryers: It’s it’s somewhere in the middle. So we have a sort of a set of guidelines for our sales teams, and then give them some some latitude within those to to cut deals. So, yeah, I’m certainly not measuring and testing at the moment.

Chris Mele: So what you want to do, which is hard to get to, is your job as a comp. So most companies give their channels direct sales. Will get rid of self service, and then partner channels, they give their their their teams, a partial solution, right?

So, so, for example, if I and this is very common, you’re not doing anything odd here. Everybody does this.

They’ll tie a discretionary discount up to 25% you gotta go talk to Brad. And if it goes above 40% you gotta talk to Kevin. If it goes above that, you gotta talk to Robert.

What you want to do is you want your pricing strategy, your pricing approach, the mechanics behind the scenes that says, well, regardless of the configuration of what I’m selling for both product and services, my job as a company to give to my channels is what we call a scheduled net price.

If you buy 1000 beds, it looks like this. If you buy 800 beds, it looks like that. And if you come in and want to do a pilot, sorry, it’s full list, and then discounts are earned, they’re not given, and here’s how they’re earned. But that needs to be programmatic, because when you have a scheduled net price, that means you’ve done the homework that your profitability on all those different configurations and all those different volumes is where you want it to be.

And that hypothesis that you’re constructing, which every pricing strategy is, that it’s going to be a hypothesis you’re going to vet in the marketplace later. You’re going to produce more features to get another hypothesis you’re going to vet to see if you can raise prices so that that’s a continual part of the journey. Every hypothesis then needs to be vetted. And what you want to do is to measure the reps not on a flat I’ll give you up to 25% discretionary. I’ll give you within X percent of my scheduled net price.

Robert Fryers: Could you elaborate on that a bit?

Chris Mele: Let’s say that I know that at 1000 rooms, my per bed per night, I’ll just keep Matthews. It goes from 10 bucks to $1 Yeah, yeah. What I want to be able to tell the rep is I’ll give you within a few percentage points of that scheduled net price of $1 I’ll let you go down to 90 cents, or I’ll let you go down to 85 cents Max. I don’t want to say I’ll give you up to 25% as a discount, because a 25 purchase percent discount on $100 is a very different concession than a 25% discount on a $250,000 rollout.

So the game for rewards and recognitions for reps should be measuring them to a scheduled net price, which is the problem because most software companies cannot produce a scheduled net price. When I say a scheduled net price, I say, we start with list. You’re a nonprofit or education, so we’re going to agree to knock a certain percentage off of list, because we want to do that as a business.

Then we get to volume. If you buy 1000 beds, we give you this extra incentive. And then we get to contract length incentives, and we get to payment term incentives, like, if you pay me up front, I’ll give you all that programmatic nature. Then gives this thing called a scheduled net price.

That scheduled net price is what we show the customer to say, if you buy and come all in, this is what that looks like. This is our hypothesis, right? We’re trying to get the behavior from the customer, and the customer is like, Well, gee whiz, I don’t like that. I’d like to negotiate. We want to tell the rep, don’t just discount up to 25% you have to get within a certain percentage of our scheduled net price. The company scheduled net price.

Robert Fryers:  Sorry, and How’s that different to let it say, saying they’ve got to get within 25% of that, that that scheduled net price, because allowing them to discount 25% down from it.

Chris Mele: You’re scheduled. You likely have a scheduled net price already, it sounds like because you have some form of a volume, but as soon as you say it’s informal or it’s not published, the first step is get it published…

Robert Fryers: Like it’s published internally. It’s not published to customers, so that

Chris Mele: That scheduled net price that you’re leading in with, when you give the reps up to 25% of that scheduled net price, or are you giving them just a carte blanche.

Robert Fryers: No, I’m giving them that. So they have a little calculator. They plug in a number of rooms, years of contract, and as you say, payment, schedule, net price, it spits out a number. And then I said, If you want then you’re already percent percentage off that to close deals.

Chris Mele: Then you’re already doing that. So so I think then if And when’s the last time that you touched that?

Robert Fryers:: Couple of months ago.

Chris Mele: Okay, so then you’re updating it periodically.

Robert Fryers: Yeah, it hasn’t changed a huge amount.

Chris Mele: You haven’t raised prices in a while.

Robert Fryers: We haven’t, no though. Probably the last time we raised them was April last year.

Chris Mele: And you raised the list price. Or did you monkey?

Robert Fryers: Yeah, we raised, everything. We’re just just inflation adjustment to everything.

Chris Mele: Okay, gotcha.

So, so that that hypothesis that you’ve built into that pricing calculator is what you’re testing. And I wonder if you could break off a test for some of the customers who are breaking down these pilots and buying smaller to enrich and play around with a discount schedule that is a little bit more aggressive, that typically happens at higher volumes.

So what happens in your discount schedule? It’s usually what’s called a tiered schedule that comes from a gentleman named Bob Dolan back in the 80s. It was designed, it’s called tiered pricing. It was designed for manufacturing, specifically for me to get you to hold my inventory and reduce overall system costs. It’s a bit of a kluge for the software industry, but that is a form of volume pricing.

It’s a stair step. The problem happens sometimes is you don’t give reps a million stair steps. You give them 567, maybe 10, and then somebody shows up and they’re buying in that 10th tier, but they’re buying like a huge amount of rooms. Do you ever have an outlier that comes in and wants to buy a huge amount of quantity of like a…

Robert Fryers: So are the calculator I built for the team doesn’t have tears. It’s continuous. So every room you knock a little bit, it’s a smooth curve, not A, not A, not a step.

Chris Mele: So then you you basically, then I think the next step for you is to test a new volume disc, and you don’t have to make a huge adjustment. And I’m not saying so.

So in general, once a year, you should raise list prices, and then quarterly, you should be fine tuning that volume discount schedule, because what you’re doing is you’re harmonizing for the nudges that you want to make customers come in. So if you’re noticing a group of customers who aren’t coming all in, I think you have a nudging problem.

I think you might have volume players who are buying a lot, but they’re not getting the proper incentives in order to come all in, or they’re trying to mitigate some aspect of risk that has nothing to do with Financials, which means your pricing model could be okay, but what’s really happening is it’s execution risk. I don’t trust the device, or there’s some other aspect of what you’re rolling out that they’re not comfortable with. So

Robert Fryers: Yeah. And how would you tease? Oh, okay. And the way you’re saying tease those apart is just, just pick a card of of deals coming through the pipeline and just give them a very different.

Chris Mele: Yeah, there’s two. So, so for teasing out what’s happening for the buyer that you lose is you ask them questions as for standard win loss stuff, and you find out what the issue was, and you have, hopefully have a dialog with them, or you ask them during the sales process what, what’s going on when you want to do some form of a test because you believe that you are under priced or leaving money on the table, which typically is expressed as I feel like everybody over a certain number of rooms, like we’re just not getting the numbers, or we have to discount a little bit extra, and we’re not getting the average sales price that we’re after. That’s the moment when you want to test a little bit to try to figure out what’s happening there.

I don’t some of this, Robert, ties into your roadmap in the form of, like, how much software you’re really putting out. Is there a software component on top of this device that it gives me?

Robert Fryers: Yeah, so the customers interface to this is they get. It’s largely the value they get is largely derived from getting an email that tells them room 216 has a problem. Yeah, we very much de emphasize the devices in the sales process.

They’re just, they’re just the the boring tool that we put in to make this system work, what we’re giving you is early warning. So, but our customers, you know, our users, are generally, generally, they don’t touch the system unless there’s unless we tell them there’s something they need to see. Yeah, in the same way as you don’t log into the like the monitoring hub of your smoke alarms, unless you think there’s something wrong with them or if they’ve gone off. So a lot of our users are not very active, and our users are almost never our decision makers as well.

Chris Mele: So so talk to us a little bit about why the per bed. So you’re doing a per bed night rather than a per bed.

Robert Fryers: Well, we’re doing we actually charge. We actually charge, usually monthly or annually. That we calculated up from a per bed per night and rented room, then no per night, it’s

Robert Fryers: It’s per it’s per room, yes, per room per night, whether or not the rooms occupied. Interesting point of whether it’s per rented room. We could do that model. Obviously, we’re tying ourselves to something that we don’t have any influence over or control over. We have had a couple of customers ask us about that, particularly seasonal hotels where they don’t have many people staying in the winter, or we haven’t pursued it, but I’m open to it.

It’s it required. Would require us to integrate with their property management system, to extract whether the room is occupied or not.

Chris Mele:  So the per bed per night, I think I misunderstood. I was just assuming. So what? There really is no difference, then between a per bed and a per bed night, you’re just taking the per bed times, what, 360

Robert Fryers: Yeah. Whether it’s per bed per year, per bed per month, per bed per night, it’s yeah, it’s the same amount of money. And the payment schedule might be annually. It might be monthly. We never charge daily.

The reason we asked we only articulated as a per bed per night, because the hotel industry operates on a per night basis. So all that, that’s how they think about the economics of rooms.

Chris Mele: But really it’s a per bed.

Robert Fryers: per year. It’s still, it’s just a recurring revenue, yeah,

Chris Mele: Really a per bed model you’ve expressed the nightly because they speak and talk in terms of nightly

Robert Fryers: Exactly, yeah, yeah, but we report internally in ARR.

Chris Mele: Ok got it. So on the switching gears, on the concept of the per rented that’s a metric swap that carries with it all sorts of risk, right? I mean, if we have another pandemic, you’re going to take a bath, yep.

So, like, you really want to be careful when you link your pricing to your customer’s execution prowess. Now, in another pandemic, they’re still probably going to hit you up with, Hey, I don’t have but like, you have a contract. It was built on per beds. It’s not tied to whether or not they’re rented or not. So with all these kinds of metric switches, sometimes we get really excited with, ooh, we’re only going to charge you what you use. But we’ve sometimes forget, like, in certain market, events we can’t control, like, you know, you could really get hurt. So part of choosing that is to determine, is you determining what kind of risk you want to absorb.

Robert Fryers: I think in that particular case, it’s probably not too big an issue. I’ve had you, we’ve probably spoken to on a couple of 1000s potential customers, and about 100 actual customers. And I think only two or three have ever asked for that.

Chris Mele: Yeah, yeah. It seems I would, prior to COVID, I would, probably would not have spent a huge amount of time worrying about a pandemic after COVID and bird flu.

Robert Fryers: Yeah, we launched this product in February 2020, it was had a brilliant first two weeks, and then, yeah, then it got painful.

Chris Mele: So, so back to then the original question for you. You’re really on the hunt to try to ascertain how to lower the barrier for somebody Yeah, to come in.

Robert Fryers: Yeah, and what? So there’s two things. One is, I’d like to accelerate the sales process, so instead of six months, it’s two, and I’m willing to give up short term some revenue to make that happen, because we have seen good retention.

There’s an untested risk in there of, okay, if people do partials or discounted or whatever, the way we lower that barrier is, can we then convert them up to full price? That we haven’t tested whether we can do that yet, but based on the retention we have, I feel reasonably confident of that, certainly confident enough to put some money at risk to test the idea. So it’s yeah, what’s the right way of lowering that initial barrier to again,

Chris Mele: I think, I think you have a qualitative homework assignment to start asking questions and find out what is the customer trying to mitigate? Is there some aspect of risk, or is it really just you’re jammed into selling to somebody who really doesn’t have any budget approval, and his request goes up among the other 5000 requests, and you’re just not getting?

Yeah, and all of that, I think, wraps around this phenomenon that I’m not sure how Top of Mind Bed bugs are, until you start having an issue.

Robert Fryers: I think, I think everything is, I think it’s the latter of the options you just gave. And I think that’s true, that this is a when it’s on fire, they care a lot, and the rest of the time they’ve got other fires they’re dealing with is fairly common for us. There is a there’s a of all of our products. This is the one probably with the weakest, compelling pain driving the sale.

Chris Mele: You could have some interesting sales promotions too around.

Listen, we’ll instrument the hotel. And if we don’t discover a bed bug issue, like, we’ll start billing you once we discover a bed bug, like, if the issue truly is that phenomenon that I don’t really see the value until I get bit pun intended, then you want to start to attack that vector as well. And that could be more in the rollout timing and other aspects. But I don’t, I’m not.

It doesn’t sound you might have a price point challenge in the form of how that curve has been shaped, whether or not it’s been harmonized at larger volume buys, and whether it’s nudging people to come all in. Or you could have a completely separate issue related to, it’s just not a, it’s like, it’s just not a top of mind issue that you’re fighting through.

Robert Fryers: Yeah, which would then say, actually, if people like it once they’ve got it, but it doesn’t, it doesn’t grab their attention long enough to battle through their procurement process and get the budget approved. That’s probably saying the like, bring that initial hurdle right down in, like, you know, those you just been saying there, you know, don’t pay anything until you catch something or, you know, we’ll, you know, put it in for put it in for free. Some of you promise to put it in the budget for next year. I mean, obviously we’ll need some contracting around that to not be crazy risk. But some way of making it an easy yes to begin with.

Chris Mele: Yeah, and, and, I think if you don’t think you have a problem, then you find a way to say, that’s fine. We’ll instrument and we’ll roll it out. We’re convinced that you do have a problem, because most hotels do. And if you’re convinced that eventually it’s just a matter of time, maybe, maybe the promotion is, you know, a couple of months for when we find the first issue, then we start, we start billing, yeah, the issue.

Mark Littlewood: I think Bed bugs are a very well known, well recognized hotel issue. Yeah,

Chris Mele: Is that? I’m not, I don’t know. I don’t know if that’s…

Mark Littlewood: Within the industry. Within the industry massive, and they have like dogs that come in sniffing for bed bugs. I’ve caught I’ve caught bed bugs. Caught bed bugs, so I’ve been bitten by bug bugs. It’s nothing like having an AI auto correct ed in the background.

Yeah, you get them a lot in upmarket hotels. They like cleaner hotels than dirtier hotels, it’s yeah, anyway, right. There’s great question, are you moving forward with that? Robert, have you got…

Robert Fryers: Yeah, that’s, yeah. I mean, there’s sort of, there’s things we’ve been talking around there, you know, back in the team that think it’s converted. We just kind of take some risks and and do some experiments. I think, the next step.

Mark Littlewood: So, which brings me almost paid Robert to set that up to another next question. How do you experiment with pricing?

Chris Mele: Oh, this is a great question.

Mark Littlewood  Thank you. I’m here all day, Chris, if you want.

Chris Mele: Okay, so, so let’s do a little history lesson for 10 seconds or 15 seconds. So pricing is one of those things that engineers don’t. You know, we’re very product focused. I have a computer science degree. Believe me, we spent millions on product. And when we’re sitting in the room with our board and somebody asked, like, How much money did we spend on developing the pricing strategy for the cloud, you know, was horribly embarrassing because, you know, we didn’t see it as a discipline. So that implies that, therefore, it is a process of some sort. And the general process would be that you are resetting your list prices each year, preferably raising them, lowering them as a different phenomenon.

That means you’ve probably overshot, which is a different set of problems, but I’m going to focus on the fact that you haven’t overshot.

By the way, when you treat pricing as an event, we’re going to do a big study this year, and then we’re not going to touch it for three years, you tend to overshoot, and that’s when you can get into a problem, because if you overshoot, it means you’ve raised your prices too much, and you’ve inadvertently affected the demand for your software and your services, and now we’re starting to see demand slow, and that’s that’s just a nasty place to be in.

So we don’t want that to happen. So in general, we need a process by which we would look at our roadmap and so Robert, for you, dashboards, alerts, other kinds of things that wrap around that hardware and bring that to life as is value that you’re trying to express there, so that each year you could raise your list prices, preferably not because you’re doing a cost of living adjustment, not because of inflation, but rather because of value.

So we would rather see prices raised and the list of cool new features and things that you’re getting as part of the subscription stream, rather than we haven’t really done much on the software, we’re going to do a cost of living adjustment, adjustment. It just doesn’t play as strongly with the customer.

Then throughout the year, best of breed companies, quarterly will do what we call sculpting, which says they’re looking at that incentive playbook.

You know, I started at list, and I’m starting to give you a volume incentive or a regional adjustment, if you’re playing globally, and all these things that we do to calculate that schedule net price, they’re they’re hypothesizing that, hey, contract length incentive of five and a half percent. Like, what would happen if it was only 5% could we recapture that half a percent of margin and and that quarterly is called sculpting your net prices.

And ideally those net prices would be raising. What we don’t want to do is an AB test.

So there’s a famous, well, relatively famous, it was with base camp, and it’s a Harvard case study. What base camp did is they did a test and they took a population of customers and charged them twice as much.

Surprise. Volume dropped, demand dropped precipitously.

What the case study does not address is, well, what happened to those customers that paid twice as much, and what happened when Robert and I go have a beer and I happen to be the one that paid twice as much, and I find out Robert paid half of what I did?

I mean, I’m going to be really, really upset.

I’m probably going to go back and just rip your software out of spite, because I’m that upset about it.

So AB testing is really a no no. That’s a more consumer kind of play that has crept in.

So in B to B, we don’t want to do that. We want to take judicious steps more often and pressure test, because what we’re trying to do is to get that net price harmonized with today’s value that we’re delivering. If you are undervalued and you raised your hand, it likely is because you’re not doing that as as a process, and you’re not putting those hypotheses out in the market to validate and learn.

And so then, over time, if you put enough new features and things in your software, you’re going to become undervalued. You’re going to be giving away things that you’re not paid for. And then, in the old days, you had on premise software, we would give you the upfront quarter million, and then 18 to 22% annual maintenance.

This really nasty thing happened when we went to the cloud in the on prem before the cloud. When we got to the end of the year, I would publish a v2 we did this on we were on prem for 10 years before we went to the cloud. Our v2 was a big money maker because you had to upgrade. Of course, we had some labor involved in configuration and things, but we would charge you for the v2 upgrade or the v3 upgrade, or the if you prefer the year 2008 2009 version, whatever, when we went to the cloud, it’s amazing to me how many customers did two things.

Number one, some set of software companies forgot they had hosting costs, oops. And then secondly, the bigger mistake was everything collapsed into the maintenance stream, so all of a sudden, the features that you used to do for bug fix, break, fix, Karen feeding, kind of stuff, and then all the new stuff that we would traditionally have put in that v3 and charged you for it all just collapsed into the maintenance stream.

And there’s a there is a enormous amount of software companies who still do this today, and what happens is they sold the software five years ago. They haven’t touched their pricing back then, maybe it was an okay deal. Today. Now they look back and of course, they’ve plowed, you know, 100 new features in the software, but yesterday’s customer is still paying yesterday’s price, and that’s the problem. If you don’t treat it as a process, it is just a matter of time before you become devalued. You’ll be giving away more features and more value than what you’re getting paid for. So that’s the talk track slash history lesson on that.

Mark Littlewood: Nice. That’s great. Now we are going to and I love it when we get a chance to kind of dig into some specific things. I appreciate Robert your sharing. It’s great.

A couple of other questions that we had pre in: Marvin, I’m happy not to be on while we do this. So Marvin, you had a question around churning on your lowest tier plans.

I mean, one thing, I think we all know, Chris just said it was worth reiterating B to B and B to C are probably different. You know, there are different, different strategies. Can you explain, you know, your briefly what your business is and what you mean by raising your prices and losing people.

Marvin: So yeah, I’ll try and be very quick. Chris, nice to meet you. Really pleasure. And thank you, Mark and the business software team for pulling this together in the first place.

By way of context, sed basically exists to help organizations run conferences and other events, and we do that through our event management platform. So everything that you typically need from running a call for presenters, process, the registration and ticketing process and event website, you know, to post event communication feedback, we basically handle that.

And part of what we are trying to do as an organization is us internally, is move from this very event based, sort of set up a situation, to more of an ongoing platform, ongoing usage, basically providing value outside of the event.

We want that to be our entry point. That’s our current entry point, and we want to be able to provide value outside of that.

So over the last 12 to 18 months, we’ve basically made a bunch of changes, one of which being, we change. You know, people can still buy per event setups, but we basically went from a reoccurring model to a recurring model. And as part of the change, we basically allow people to have, our customers to have unlimited numbers, number of events, and the smaller events, we give them to them for free. We don’t charge any cost for them.

And the point of that was just to try and create some more touch points for usage in connection with these changes, we also did a couple of other things.

So yes, we moved everything over to the subscription oriented format, but we also changed our plans and pricing and a little bit of repackaging, and for all intents and purposes, we moved the overall price up, you know, call it on average, would be 20 or 30% probably more than that in some cases. And we did some analysis, trying to see, like, what the difference, uh, changes would be.

And we knew there was going to be we knew there was a likely to be churn from the lower tier customers. There’s potentially going to be churn across the whole portfolio, but we expected it more in the lower end than we did, you know at the higher end, and what we expect to happen just more so than we anticipate on the lower end of the equation.

And so that’s something that we’re we’re dealing with, or that we dealt with, I should say, because these changes all started happening basically in April 2024, and so it’s been a full year transitioning everyone over. The transition from reoccurring to occurring like that’s gone very smoothly, not, you know, don’t really have any issues problems there.

That’s kind of gone as actually better than planned and the but those still, those lower tier kind of customers that were having those events every year, and again, some events don’t have stuff every year tends to be like 18 months or 24 months, or stuff like that.

But we’re still working on those accounts. But I say all this to say that we have both value based pricing, so a good, better, best pricing model, along with usage based pricing, which is really tied to the size of the event.

So the larger the event you have, the the more you’re you’re going to end up paying. We give some discounts for economies of scale as things get bigger, but that’s the basic sort of setup and construct.

And while I think that the I’m sorry if I’m getting too much context and background, I think the while the value metric for us is around, and we think for our customers, too, is around like the per participant, per attendee, per you know, usage based model. I’m not really sure if that’s the best way for us to price things and sort of thinking of it like, similarly to, like, a Netflix, for example, right?

Like, I think their value based metric is, like, you know, amount of streaming or hours watched of their their service. But like, you can charge a flat subscription fee. And then, you know, they basically do feature, not feature meeting. But like, you know you want a higher level of streaming service right to pay a little bit more. And I know and recognize this, there’s always going to be a little bit of mix of that, and like, B to B, kind of SaaS pricing.

But I guess ultimately, I’m trying to assess, like, does it make sense for us to test out, you know, a different model that’s not based on the number of attendees, and just, you know, focus it more on my features that that are being used that would help us to be a little bit more unique, I think, in the marketplace and that. So that’s one question I have.

Chris Mele: Marvin, do you ever get questions?

Mark Littlewood: Well, gotta stay with one question first. Let’s go that one.

Chris Mele: Well, but my, my, my quick question is, Do customers ever struggle to know the participant counts prior to the event, when the registration hasn’t happened yet?

Marvin: Yeah, the the short answer is, yes. We don’t do like individual seats, like it’s per per bucket of 250, people, so most people can get it, you know, within that range, but sometimes they don’t know.

Chris Mele: Yeah. So go ahead with the your I don’t know if you had a an end to the question that, no, no, that was, I mean, yeah. So there’s a great corollary here that I think you could be up against. So in the voice of the customer space, there are many different survey platforms, and this was maybe five to 10 years ago, the dominant way that people got really excited back when, when they started charging was, I’m going to charge you based on the number of responses to the survey.

And I think you can see the corollary. So now all of a sudden we get to, let’s say, a big conference or a big company, take a global player that says, Okay, that’s great, Marvin, but here’s the thing, like, I’m sending surveys out to my customers, I’m sending surveys out internally to my employees, and I’m sending surveys out to our partners, and each year, I put out 77,000 surveys.

I have no earthly idea how many people are going to respond to that, which is code for me saying I have no earthly idea what you’re asking me to pay you, which is just a non starter, right? So in the world that people, it was Mark will appreciate this. It was Bill all that’s conversation my first year at BoS, when he said, The problem in the software industry is people keep creating new terms for the same damn thing.

And his example was, it’s not a pivot, it’s a change in business strategy. So I’m going to tag consumption and usage based as just misnomers, right? Like anything that you charge by really is some expression of consuming or using or really talking about is the range of quantities on the sales floor or with our partners or on our self service channels.

So if I dragged your meter on an event and I’m trying to do like, is it 2000 participants? Is it 22,000 or is it 200,000 like, I’m gonna have a really hard time with that. So in our world, when you get too close to the wire, this is our internal speak Kerry knows this, you start to create and express these challenges in the intersection of pricing and selling, which is what we’re doing here.

I mean, this is a sales enablement sort of I pricing needs to grease the skids so you can attract new customers and then retain them by renewing them, preferably upgrading them also.

So, so what we are trying to do here is to make it really easy. So in in the case where we’re getting into really large quantities, some of our customers will give you quotes based on page views that could be measured in the billions. You know these are, these are numbers that are hard to get your arms around. There are times when we will recommend that you move backwards. In other words, don’t charge by responses.

Do your homework, like in your Netflix example, I promise you they did the homework. They know the average user consumes this many hours, so then, therefore, I can do a flat fee, and maybe I have a term and condition over here where, like, if you stream 24 by seven, like, I reserve the right to have a conversation with you because you’re consuming math. You know, some things awry. Like people don’t do that right.

So they’ve done their homework, and they can express that and make it easy, because in the intersection of pricing and selling, if you charge me based on the hours that I’m consuming, that’s a per show price.

Now all of a sudden there’s a barrier. I have to make a decision every time that I want to consume a video. Am I going to charge $2 and I don’t know about you, but I really want to see Season Two of Last of Us, and I’m waiting until they’re all out, so I should binge watch it over the weekend.

I’m like, What am I doing? Like, why don’t I just, you know, watch it when it comes out. But anyway, that’s the human nature part of it. So I wonder, I wonder if you’re not onto something there, which is the participant is creating these kinds of barriers, and you can ask these questions because, or you can inspect your sales team or yourself in these sales transactions.

And the first thing to do is like, can people, can your buyers estimate this number consistently? And I don’t know the answer to that, but if they can’t, you need to fix that for them.

Marvin: Yeah, I would guess the I’m not directly involved. Honestly, none of our sales team does that. But, you know, I poke in every now and again and look at the stuff, but roughly, I would say maybe 30% of the people don’t know, like, how many people they’re they’re going to be expecting, especially because, yeah, especially because the way we charge right now is per participant per event over the course of the year, and so they’re having to suss out that big like, Okay, what is everything we’re going to be doing over the course of the year. Are we expecting for each event? How many of them are small and won’t get counted? Yeah, exactly.

Chris Mele: But, so the big lesson learned, I think, in pricing in general, is people are okay with paying for that which they use, but people have a really hard time if they end up buying too much and then they feel like, I kind of, you know, I’m sitting a bunch of this virtual license seats on the shelf, which is a problem, or if they buy too little, it’s a bit of the egg on the face. And the budget cycle, like, Oops, I know I said I needed 20 grand, but it turns out I need 60 grand. And those are really big problematic things too.

I think that the thing to keep in mind on a metric is to proceed really carefully and thoughtfully. Because you’re you’re re gearing almost everything in the organization, from how you forecast to how you report up. I mean, the metric change itself to what goes in the Quantity field of the contract is the riskiest change of them all. There’s the trifecta, right? We always talk about, you have licensing. That’s what we’re talking about here, the license metric, the value metric, the thing that goes in the Quantity field, biggest risk. Packaging, not as big of a risk, but still, you can muck things up pretty good if you come up with some goofy packages. And then there’s the price point portion, which is probably the assuming you’re not overshooting, like we talked earlier, probably can be the most mitigated in the form of just executed in multiple steps, if for no other reason than to just avoid overshooting, which, again, means it’s a process.

So I think that you have a problem with the metric. That’s what it sounds like. So I wonder if you want to potentially play around with stepping back to and you can just imagine it as a hierarchy. You’re like, Okay, well, I inspected inside the event, and I’m looking at the participants. If I inspect it inside the participants, I charge them based on the number of tracks they registered for in the actual parts of the conference they attended, which would be madness, right?

But like, Let’s go the other way. If we come out of the head of the participant, then we’re looking back at events or something like in that level of what we’re counting.

And then the question is, you know, if you only have a handful of events, then maybe I don’t the problem with not knowing the number of events is events by themselves are sporadic, and that is problematic on a subscription basis, because I don’t want to pay for a subscription if I have, like, a down, if there’s three or four months where I’m not running an event. So you you do have to address, I think, both the sporadic nature of the event and those that are just cranking out the events in some predictable fashion.

And then the final thing I would say is, on a metric, never show a customer two different metrics. Never go to a customer and say, well, I’ll give you a model based on participants, but here’s a model based on events, because the two models will compute a different net price. So guess which one I’m going to pick. This is called optimizing to the least possible revenue outcome.

So when you’re trying to play around with that other metric, you can play around Robin. You can cordon off one error out of every five deals. Let’s bring them over here. Let’s you know, build the event based, or whatever the alternative is, and let’s test it and see, do we break down these barriers and then we start to get a little beach head, and then we can kind of shift those folks over, but just never, ever, never give me two metrics to choose from, because you already know which one I’m going to pick. Yeah.

Marvin: And for this very reason, we show our subscription pricing like monthly, but we charge it annually upfront, and the price for per event and subscription Are They’re Always the same. It’s not, you know, it always makes sense for them to go into the subscription, as opposed to the per event, which they gained by anyway.

Chris Mele: But you said that you were charging by purchase, so you’re charging by event and…

Marvin: No, no, no. It’s the pricing. Basically, the way that it works, from a usage perspective, is per event, per participant, right? I’m a person at five events. I get charged for five different

Chris Mele: Wow. So that’s even gnarlier for me to estimate, because number of participants that go to more than one event. Yeah, that’s, I think you got quite a bit of sales friction on that one. Marvin.

Mark Littlewood: It gets more complicated as well. I mean, as an observation, hey, event organizer here, or event disorganizer here. Volume pricing is interesting in this stuff, because the bigger an event, weirdly, the less valuable any particular attendee is.

So something like SaaS, which is, well, it was 30,000 people at its heyday. You ain’t going to get 30,000 founders and CEOs in the same room. It was loads of startups sending 10 of their people, and how much does an event organizer want to spend keeping those people happy? Because they ultimately know they are just there for the drinking.

So Marvin come and very happy to set up a separate conversation, because I’ve got some I’ve had lots of conversations on and off the record with various other event organizers and things. There’s huge unsolved problems there.

I’ve, I mean, I have to say, I feel quite lucky that at BoS for the in person events, we very deliberately keep them to a level where a lot of the kind of magic of the networking and the event apps and things isn’t isn’t needed. It’s much more. But scaling that is really tough, and I know what other people think, right? Thank you. We may come back if we have questions, but it’s time for Ivan, who we’re going to share a slide of Ivan’s pricing.

Mark Littlewood: Who’s got the slide to share? I can’t find it. I certainly can’t concentrate on two things at once. Yeah, so we’ve got a slide.

Ivan, you wanted to talk about, or how you have questions about how to simplify your pricing, which so when you talk about this with Chris, I want to know why you think simplifying is the answer, because that sounds very different to completely rethinking.

So have you, have you kind of had a big rethink and now you want to tweak or do you just hope that it’s not so bad that you shouldn’t tweak it all?

Ivan: Yeah, thank you. Thank you Mark and thank you for the opportunity.

So yeah, context, we also find BoS, but in software, we have a test automation platform that helps automating all the testing for for software pretty quickly. So at the end, we have come to this pricing base on on outcomes. We could say, like when we are selling, we try to make the case for the EROI like, Hey, if you hire test automation engineers that write scripts, they will get you 40 tests per month.

Work with MOOC test and get the outcome of two engineers by a fraction of the of the price, which is 100 tests per month, the lower part there.

But also, we have found that one of the customers care about two things, like the total number of tests that they have in the in the software, and the velocity, or how many new tests they get per month. So those are kind of the two main levers. So we have a struggle to to combine them, because some customers care more about like, I have a big pain. I need a speed right now.

Other customers say, No, I can go slowly, but I care in the long term, how much you will charge me for how many tests you have. So basically, we found that they care almost always either or some boat, but almost always either or and when we introduce the pricing, it always brings questions about the other, the other component, so it makes it complex, and they start negotiating or or maybe they didn’t think about that being a concern, and now it’s a concern in negotiation and the selling process.

So basically, in short, they care either about total number of tests or a speed or monthly test, and when we bring the other, the other factor they that usually brings more questions and complex day, and makes more complex the conversation that if they just care about one of the items. And the last iteration is this, like, kind of we say, okay, let’s put, like, a large limit. 1000 test competitors are having 300 test limit.

Let’s just blow out that. We don’t care about much about that. We don’t it doesn’t include too many calls for us. And let’s standardize 100 new tests per month, like the standard, and if they want to ramp up, we see on the right additional 100 tests, 2500 more per month to ramp up the speed.

And related to that, then they ask, Hey, what is a test? And we had to standardize about 15 steps in the software as a test, because customers were asking, what is a test? And we see a lot of variability.

Some customers have 15 steps test, or there’s 100 so we have to standardize that, because that is more correlated with cost how large the test is. So in short, it’s getting complex, and it’s getting we are getting too many questions about how many tests I need and will 1500 steps is fair or like so, yeah, that’s in a nutshell, the summary of and it’s getting complicated.

Chris Mele: So that I understand, is this like unit testing and integration testing, or what? What is the use case for the web test that you’re doing is it performance?

Ivan: Yeah, integration, functionality, mostly regression testing, like the main user development process with your customers development process. So basically, the development teams trigger hundreds or 1000s of tests right after they have code, got it and we create those tests.

Chris Mele: Okay? So then, if I hear you correctly, you started the journey charging by the test. But then some customers were plowing a huge amount of steps inside the test. So then you got more specific by saying, on average, you can have 15 steps per web test, hence, the 15,000 unique steps for 1000 web tests. Is that correct? That’s right.

Okay, so did you do that because you found that customers were cramming too much stuff in a web test to take advantage of the model, or does that? Was that more just because they were confused?

Ivan: More because… I have to say that we, we are a customer success to help implementing the software. So the larger details, the more work we have to do. So that’s why we have to standardize that. Because, I mean, if it was a 15 step steps or a 150 step steps, practically, the cost for us was growing a lot because we needed more time to implement it. So that’s why.

Chris Mele: Okay, and then what? What is the you, what is this when you say built or rebuilt, why did you call that out? Because, what does it mean when you rebuilt? Like that’s just the test that I’m consuming. What? So it’s three ft. QA, outcome, oh, you’re saying that your professional services or your customer success is going to help them building up to 100 tests, is that what that is correct?

Ivan: You’re saying that they will get the outcome of three full time engineers, like if they had the the outcome, like if they had three full time engineers. So, but we use AI to we usually get a few hours and get that outcome. So at the end, we are trying to do their ROI based on on how many engineers they would have to hire to get that kind of outcomes. And regarding rebuild, yeah.

Chris Mele: Well, this, it’s throwing me at the bottom here, where it says include so. So what you’re saying is, in as part of the 5000 a month, I get the equivalent of three full time QAs as an outcome. But what is the but you’re limiting me to 100 tests for those three full time folks to either build or rebuild my up to 1000 web tests. Is that right?

Ivan: Oh, yes, yes. Yes. So if one wonder, like, what we try to do in the sales process and these previous slides, is like, hey, in average, if you hire a software developer to write the scripts, automated scripts, it will generate 40 or 50 per month. So, and you have to design those pairs so you get the outcome of three full time QA is at a fraction of one the revealed part.

Chris Mele: You’re recasting underneath the 5000 per month. You’re recasting this benefit of what I’m getting. Yes, okay, so I think that that is not expressed in the best way, because it looks to me as if it’s more constraints around how you price, and it’s throwing me to try to understand what it is that that bottom section is doing, but going back up to the top part, your model is so let’s Draw the corollary and workflow and Carrie is really familiar with this in workflows, is not all workflows are created equal.

And if I charge you based on the number of workflows, it turns out that I can change my customers behavior or your your behavior, and you start shoving a bunch of crap into a workflow that has a gazillion steps in it that then makes it really difficult to debug, in which case, then you say our software sucks.

And really the answer is that we’re charging by workflow, and we’ve inadvertently changed the behavior, which is why I was asking you, Ivan, if customers had changed their behavior, but it doesn’t sound like customers were inadvertently putting tons of steps in a web test. It sounds like you were just protecting the downside risk of your cost. Is that fair?

Ivan: They were not putting many steps to take advantage of the process, but they wanted some flow, some user journeys to be large, 100 step, 150 so that’s okay for me, for these steps to be valuable, it has to do all of these. And he was taking us to test about 100 steps. Yeah, yeah.

Chris Mele: And in the mix of tests that your customers configure in your software, is it just I have a handful of really large tests, and the majority of them are relatively small, or do you see an entire customer who just configures really large web tests with a ton of steps?

Ivan: Yes, the latter, the latter is usually either a lot of large tests or a lot of small tests. Yeah, so

Chris Mele: I think what you have here, so remember the trifecta, actually, you know what?

Let me show you this real quick, just as a concept, see if I can take over the share mark. All right, one second here, tell me when you see this tree here. Okay, so in this build up, you have the, what we always call the trifecta that I referenced earlier, licensing what goes in the Quantity field.

In this case, you’re charging by web tests, but I would argue you’re really charging by some form of the steps within the test. And that’s where I think things are getting really confusing. And I’ll talk about that in just a second. Then you have the offering. So by the way, the licensing model is just like the architecture of the revenue stream the offering model says like, Well, how am I going to bring forward my capabilities, both products and service?

And put that in some semblance of order, if you remember the old days when we used to go into Best Buy prior to COVID and choose a TV, you know, 30 TVs on the screen is pretty mind boggling. If you have dozens and dozens of features, it’s pretty mind boggling to try to buy what you offer a la carte.

So we put things in packages, and we create bundles of things to make it easy for customers to take down our software. And of course, doing that right is really key. And then once we understand what goes in the Quantity field, which is the only thing we get to scale our price, you know, quantity times list. That’s the range of quantities and the range of dollars that we see on the sales floor.

And then what we once we know what it is we’re offering, then and only then can we attach a price to the thing that we’re offering. And so the pricing models job is just to scale a reasonable, rational schedule net price that we talked about earlier, to make all of this glue together and work.

So what we’re talking about here is your licensing model. But I think that what has what often happens, and you can see lots of examples of this on publicly traded software companies websites, you’ll start to see a collapsing of the licensing model into the offering model, where what we say is, well, I’ll give you addition one, and it’s good for 1000 tests, and I’ll give you addition number two, and version number two is good for 10,000 tests.

And then all of a sudden a customer shows up and says, Well, I only have 4400 tests. And then we just, we literally litter all of these partial use cases and mess into the sales process.

So what I’m about to talk to you about is the licensing model and the offering model. But when you start putting numbers on feature level, things that segmentation gone wrong, that is not the way that you want to package software. It creates all kinds of situations and problems. So I’m going to ask you to share your screen back again, Ivan, so that we can talk about the license and offering model specifically as it relates to what you were just showing. Let me All right, go ahead and share yours.

So I think what’s happening here is that you likely have customers who, some are configured in ways that have relatively simple web tests, they don’t involve a lot of steps in bulk.

And then you have customers who are like, really, really, like, really, really complicated, right? So what you are doing is you’re using the licensing hammer to solve the problem, and we want to use the packaging screwdriver. This is a terrible analogy, sorry guys, to bring that to bear.

And I think what you have is a hidden capability, which is you have a platform, and you have a version of the platform that works for really complicated web tests, and it’s a and so if I was to look at this, I would imagine, on the left hand side I have, like, the everyday web test version, and on the right hand side I might have, by the way, I know nothing about your business. Ivan, this is just food for thought. Please don’t make this change tomorrow, but think about it. I think you might be having another package which is a higher list price that handles web tests above a certain threshold of step volume as expressed as a capability, not as a license metric.

Because what the license metric in this case, is doing is you’re talking web tests, but then you’re talking inside of the web test, unique test steps, and it’s getting really odd and confusing to understand how the pricing works.

But really, you’re just charging by web tests and offer one and an offer two, you’re charging by web tests, except you have this added capability that handles really large test volume, or, I’m sorry, really complicated tests, because what you’re trying to do is you’re trying to capture more money from the cost, but also from the value that you’re providing for Those really complicated scenarios of really involved web tests. Now, back to the metric for just a moment, all that stuff on the bottom I’d drop. I mean, I literally would express this as you know.

I mean, we can talk about every product has a minimum up to 1000 web tests. Just know that if I only have 200 web tests, this offer probably isn’t for me. So you want to be careful with expressions like this, depending on who you’re targeting. If you were targeting folks with four or five and 600 web tests, this could be argued to be a turn off, but you have a platform that scales to a certain volume, and there is a minimum that you’re probably expressing here.

I don’t know if the minimum is 5000 a month. Or maybe there’s a different minimum Ivan, I don’t know, but I think it’s just charging by web tests and then all that stuff on the bottom that looks like marketing speak that got a little too technical, and you’re just, you know, you could kind of like, just show it really simply on the left there. Now I should be able to buy more web tests. And so if I look at this, it looks like $5 a web test, right?

And maybe if I want more web tests on this offer, one that is pretty nominal, normal web test, then I would have a price that hopefully gets better with volume. And then over on the right, if I had, you know, maybe it’s $7.50 per web test because it’s this added capability, or it’s $10 per whatever. But you’re going to need a volume component in here, like when we were talking to Robert earlier. I need to see that if I have 10,000 web tests that, you know, my price per web test is better with volume, and I don’t see that anywhere in here.

Sort of like, hey, the more you buy, your job of the pricing model is to get full penetration into the customer account.

And what is happening when you roll out software you are nothing’s typically more valuable than the first tranche. So let’s take an ER, let’s take a sales, purchasing, shipping and receiving system, you know, I’m going to deploy the first tranche of users, and I’m going to get management and purchasing and the sales team on the software. And then after 60 days, I’ve got a scheduling module, and I want to get those folks on the software. But then they’re going to say, this real story, by the way, my story actually, then they’re gonna say, well, $100 a month, like they’re just using the scheduling features of the software, not using all of that. And what has happened is we have penetrated. We’re trying to penetrate more deeply. You know, this is where stickiness comes from.

Every software is poised for entanglement. Operational entanglement doesn’t mean they’ll get there, but the job of the pricing model is to become operationally entangled, to get your software in as many workflows as you can. So that thing is going to be brutal to rip back out again, right? That increases the customer switching cost, provided you keep them happy and you’re not trapping them, then they’ll they’ll stay with you forever, kind of argument. But when we get that poise for operational entanglement. We often get stuck at that moment. For me, it was with the scheduling team. So the job of the volume pricing is to honor two things. Number one, you get economies of scale, llms and token based pricing. Let’s put that on the side, because that is a different phenomenon.

But in general, you get economies of scale. And number two, you are switching user populations that derive partial value from the software. And you know this because of all my high like, if you charge me a flat rate per web test, I’m going to strip off all my high value tests in our world and our level setter platform. It would be around everything related to pricing, everything related to the calculations, everything else.

But then when it comes time for like these, these, these superfluous features over here, I don’t want to spend $5 for that, because I don’t think they’re worth $5 maybe I think they’re worth $1 I’m making this up, I think, for argument’s sake, but, but then what happens is, I’m stripping off portions of my web tests because it’s just not worth it to put them on your software, and your job is to make that a no Mariner, to be able to tell me, Chris, no, wait a minute, at the volume that you’re at the web test is 75 cents.

Like, why wouldn’t you just give us all your web tests? And I would say, oh, yeah, that makes a lot of sense. Okay, off we go. So then when you penetrate more deeply into the account, and you get all those user populations on, we get stickiness.

Ivan: Thank you. Thank you. Yeah, makes sense.

And what about the if we charge like more related to number of tests, and we kind of make that to reduce, depending on the volume that goes but what about the size of the test?

Because we could be having the challenge of having customers with 15 steps, and maybe some with 300 steps, which is practically 20 of the other of the other tests and and that correlates with cost for us.

So how should we kind of communicate? What do you suggest about communicating or or the pricing for super large tests and regular tests, or something like that? Yeah.

Chris Mele: Well, what I’m proposing is a bit of of a bucketing like concept, where, if so, so if you’re really accurate, then you would charge by steps.

And then for all my mix of steps which happened to range from two steps to 100 and all your mixes which happened to range from 10,000 to 20,000 because you’re a really complicated tester, then I would cover all of that.

The problem is, it’s really hard to sell that, because it’s very complicated, because, because, in a sense, we’re back to Robert’s conversation. Now I have to ask you, Ivan, listen, know that you have 7500 tests, and I know that you have a roadmap, and you’re going to be building another 1500 tests this year. How many steps are going to be in all of those?

And that some of those numbers might be unknowable, which doesn’t mean that you can’t still be successful at that. It just means it’s going to be more complicated to extract an estimate that a buyer would be comfortable in making, which means you have to say, Well, based on this kind of ERP software like I can tell you that your tests kind of look like this, and they look like that.

And here’s the rationale, and you start selling differently, you’re affecting kind of the way in which you sell. So, so what I’m proposing is maybe starting simply and saying, Well, maybe, maybe we break it into two or three buckets. You know, you could take that example I used earlier and say, Well, we have low, medium and high. Low is up to 15 steps.

Medium is up to 100 steps, and anything over 100 steps is considered high and, oh, by the way, in our terms and conditions, if you have like, over 5000 steps, like you need to talk to us, that’s a little protection, you know, to kind of So, because what you don’t ever want to do is say, on the upper tier, oh, it’s unlimited, because somebody’s going to show up and have like, 75,000 steps in every web test, and you’re going To get pummeled, okay?

But you can start to express this capability you have, which scales with your costs inside your offering model, and not necessarily in the licensing part of the model. And then just kind of stepping back to that diagram I showed earlier, if you can kind of bring it up in your mind, you know, the job of the licensing model is, is to overlay on your revenue model and enable expansion sales. I have 1000 tests, and I have another 1000. I’d like to buy another 1000.

That’s an expansion sale. I call you up at month six. So let’s say it’s a year contract, and you’re like, holy moly, it’s raining money. This is amazing. This then layers on the recurring revenue, the annuity stream, and it gives you a lot of lift inside of the valuation and the performance of the business model.

The offering models job is to stimulate upsells for your sales team and your partners, to be able to say, Well, look, Ivan, I know you have 1000 tests, but I have noticed some of your tests are a little bit more complicated. Would you like to upgrade from basic to Pro?

And it’s an extra $2.50 a test, but here’s how that works. So that here’s how that works. So that’s an upsell, where the customer saying, I don’t need any more volume, I just need more capabilities.

And then we get into pricing and the offering model, where we start to enable cross sells, which is one day, as you grow, you’ll have a second product, and you’ll start asking yourself the question, how do I affect my labor model? Because maybe today I’m selling product one, and in 90 days, I have a whole account management team following up with sale number one to say, Do you want to buy module number two? And you ask yourself the question, could I get the customer to buy cross selling?

Could I get them to buy products one and two together? Even though there’s a lag time in between. I could compress that time with my pricing and my offering, put a package together and give them the appropriate bump and the appropriate nudge.

Because if I can do that, boy, I could get rid of a whole account management second layer on my cost, labor salary cost, and I could really become efficient so that that trifecta that we’re expressing in monetization that just lays right over top of your revenue model.

And often what we find in software companies is one or two of those are just shut down. They’re just not activating. And I think in this case, you want to think about some packaging to solve the problem, rather than the licensing.

Mark Littlewood: Yeah, I may not be representative that I have to say that’s possibly one of the most complicated. I don’t know whether that’s a marketing page or a pricing page. Ivan.

Chris Mele: Ivan, the way, I think what Mark is saying is it is a little borderline incomprehensible. I had a little challenge just trying to kind of understand the expression. And I think you could simplify that tremendously, and real breath of fresh air on the sales front,

Mark Littlewood: Yeah, I Okay, right. We are, we are running out of time, but wow, some really interesting things. Do you have anything that you want to come back on quickly. Ivan, just as a clarification.

Ivan: Um, no, thank you. I think I have enough to follow. Yeah, thank you, Chris and Mark, yeah, and I saw your your image. Mark, thank you for that. Yeah.

Mark Littlewood: Oh, well, I literally put something absolutely nonsensical into chat, GPT. But if you took something like that and you said, GPT, my customers are blah, you know, give it some really, really, very specific prompts. You would get something, you know, you get your juices flowing.

Okay, before we wrap up. And thank you very much the questions. Robert, Marvin, anyone else, anything you want to kind of come back on just…

Robert: I was hoping Chris could just do a one minute version of the sculpting process you described as the, you know, as the better alternative than AB testing for B to B. I didn’t quite catch what you meant by that.

Chris Mele: Sure. So with every so remember, every time that you change a price, you you are struck with the legacy account base on yesterday’s price.

And so you just know, as soon as you turn it into a process, you’re going to be doing that multiple times, right? So now, all of a sudden, we’re and this is one of the arguments, to only touch it once in every blue moon, because we’re timing it for a sales kickoff in January, which, by the way, is when everybody wants their new pricing. And that phenomenon locks us into an environment where we don’t get to kind of sculpt.

And in our world, sculpting is where we are. We are. We have a an interpolation, kind of technique that we use in our software to sculpt what that net price should be across the range of SKUs and the range of outcomes. But what we also do is we compute the delta difference, and we optimize for the smallest possible difference when we’re making price changes.

So it turns out that when I make a pricing change, so let’s say I’m in January, I roll out new list prices, and then come March, I decide that, you know what, we’ve had some good roadmap progress. I feel like we’re undervalued. Maybe I did a little homework on the qualitative side with my win loss report, and now my average sales price of 12,000 I want to raise to 13,000 I’m just totally making this up.

And I want, I have a I have a hypothesis here that we’re undervalued, and I’m gonna, I’m gonna do that. I feel like we’re gonna pick up some stuff on the roadmap. So that sculpting exercise is what we’re doing here. But that’s not just drawing a curve and that then, please don’t draw curves with regressions in Excel. That’s not pricing regression is correlation.

That’s not price setting. So be very careful with things like logarithmic, all that stuff is regression analysis that I’m talking price setting. And price setting is the rate at which list is coming off to form that scheduled net price.

And then, of course, as your execution arm, you’re giving some flexibility to the sales teams, and you’re saying, I’m going to let you compute a landed price within a approval deal desk, whatever threshold that that flow of those dollars is what we’re sculpting, is what we’re trying to smooth out and to understand and to marry that, not just with the quantitative analysis, but with the qualitative insights we’re getting from customers and from competitors customers, ideally, and so when we sculpt then we’re expressing two things.

We’re expressing what we think the new price, in this case, the 12 to 13,000 but we’re also expressing the map of yesterday’s customers to today’s pricing and what that delta difference looks like. Because we have to understand that if we’re making this change and retiring a SKU like how does that customer one day make it to the new SKU so that they don’t feel abandoned, and they’re not looking at a at a at a price increase. That’s absurd.

It turns out that when you express pricing, whether it’s an Excel or a calculator or whatever, you can inadvertently give really large price deltas price increases. So if I just said, Well, I’m going to increase prices across board 3% and I played that out across list and net, and then landed price, I can deliver all kinds of variation to my legacy account base, and who pays more and who pays less? And I can tell you, the ones that pay less will be the first in line, like I love the new pricing, and the ones that pay more are going to freak out because they don’t like that.

So we want to frame that in the form of an upgrade. And part of the offering models. Job is conceptually, monetization is put putting a wedge, if you imagined like a river flowing of all this new value that you’re delivering, monetization is putting a wedge the offering model is going to put a wedge into there and say, Hold on a second. What’s care and feeding and maintenance and part of what you paid for, and what’s like new value that we innovated on, that we should get paid for.

And then how do we express that in a way to take our next hypothesis and maybe we have another add on or some part of the offering model, which is very hard to do, Robert, because you don’t want to over complicate it with a million different add ons. I mean, you are, you are kind of revisiting this constantly. It’s a bit like agile in the form of storyboards. And now we’re going to build libraries of value, but you have to keep the offering model simple. So that process licensing is an event that we do very rarely, but packaging and pricing is part of the sculpting exercise.

You’re harmonizing the packaging and you’re playing a very sophisticated game to not, you know, not, not have a new offer just by name, that the customer then pays more money for, and they’re like, this looks exactly like what I had yesterday. Like you can’t you know, you have to have new value to play this game on the roadmap. So those that have aggressive rollouts and sprint cycles who are doing this can play this game if your road maps relatively quiet and you’re releasing a no big deal feature once a year. Probably going to be really hard to do this, but if you have a rate of change there.

That’s where the pricing process and the sculpting process, and that increasing the net price periodically, part of the process is really important. And if you do that, you don’t have to do you wouldn’t want to do both. You wouldn’t the alternative This is, I don’t do that, and I’m going to do a cost of living adjustment and fight it out with my customers once a year.

Or I would never recommend an inflationary adjustment, just because when inflation comes back down, all those companies that did that now, their customers are like, hey, inflation is back down. So can I have the reverse of the adjustment that you gave me three years ago? So that’s like, so anytime you can hide behind the value truly that you’re providing is just a way better argument.

Mark Littlewood: Brilliant. We literally have RAID run out of time, and I have a sneaking suspicion that without having any other people with questions coming on board, we could have run this for another two hours. Super helpful. Thank you. Any so could you, if I share contact details for everybody here, Chris can you or Carrie send them that little the things that you shared sure earlier on, perfect. Thank you.

Thank you very much, everybody for coming there were some great questions there, and can’t help feeling that there’s so many interesting content related things about solving people’s problems. Robert, have you made progress?

Robert: Yeah, I think so. I think so. Some terminology I need to go and look at. But yeah.

Mark Littlewood: Yeah. What’s the terminology? What’s number one?

Robert: Don’t worry, it’ll add that. Thanks. Yeah, it was good.

Mark Littlewood: Marvin, have you made progress?

Marvin: Oh, yeah, certainly. I we’ve got a few more things to check out and test to see. You know what could be a potential metric that’s easy for the customer to know and tie it back to value as well.

Mark Littlewood: Ivan, what’s your yes, your post it note to do coming out of this?

Ivan: Let’s think about this packaging so we can cover these scenarios and have a flexibility and be able to upsell. Well, yeah, packaging is key. Actually, I will listen again after using the recording, because a lot of good, good insights, yeah, thank you. Cool.

Mark Littlewood: I’ve got another image to share with you. But anyway, great, Chris, thank you so much.

Was super, super interesting, really? Wow, lots of things spinning Jan, what have I failed to say? Well, we’ll keep the adverts short the ball. We’ll pretend we’re on BBC and not do any adverts we run conferences and things come. I know Marvin and Chris, you’ll you can update Chris on your progress in in in Raleigh, but otherwise.

Chris Mele: I hope to see everybody at BoS this year.

Mark Littlewood: Will be very cool. Thank you. Any other Jan, anything that we need to…

Jann: To those who haven’t answered the poll that’s up on their screen?

Oh, is the poll still up there? Yeah, we’ll see. I Yeah, we’ll find that. We’ll let you know what happened on it, and we’ll see what the next one I think we’ve, we’ve got, I don’t know if anyone saw Jeff’s talk yes last year at Bos.

Us on, yeah, productivity and workflow and all sorts of stuff. We’ve got a session with him tomorrow to dig into that, which is exciting and plenty more stuff going on.

But Chris, thank you. I hope that you will go and raise your prices and make a lot more money as a result. That’s very cool. Thank you very much indeed. Let us know how we can help you.

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