Roadmap-Driven Pricing and Packaging
Jasdeep Garcha
·
09/08/2024
This post is based on a recent conversation with John Kotowski, a product leader and co-founder of Pricing SaaS. His journey from developer to product, and eventually to founder, offers valuable insights into the challenges and opportunities in company building and for effective monetization. This post synthesizes key takeaways from our discussion, providing actionable advice for product and engineering leaders navigating the complexities of SaaS pricing and packaging.
"Align your product investments with pricing and packaging changes at the same time you're planning your product roadmap. It will have immense impact on growth." - John Kotowski
Pricing vs. Packaging: Pricing is the dollar amount charged, while packaging defines what users get for that price.
Importance of Ownership in Monetization: Clear ownership is critical for successful monetization initiatives, but most organizations lack a single person or team that owns it.
Impact of AI on Monetization: AI has materially changed the cost equation for businesses in product delivery, product value, and in operations.
Align Product Roadmaps with Pricing and Packaging Initiatives: Making sure they are both aligned ensures new product value lines up with commercial goals and changes.
We use a variety of words when we talk about monetization: quotes, meters, usage-based, bundles, add ons. Effectively, they all boil down to three concepts:
Pricing - what a user pays for your product
Packaging - what value is delivered for that price
Monetization - the practice of commercializing your product across the buying journey
In PricingSaaS’ Q1 survey of the market, almost half of respondents changed their packaging, while only 12% changed their pricing. We often think about these concepts as linked - changing one necessitates changing the other -, but that’s often not the case.
In fact, packaging is arguably the more important lever for customers and businesses because it aligns value with what a customer is paying and, when set up well, allows businesses to scale with their customers.
Pricing and packaging is an input to monetization, which encompasses the entire buyer journey, from initial engagement to final purchase.
The challenge at most B2B SaaS businesses often stems from a lack of clear ownership and standardized frameworks within organizations. There still is no “right” way to do pricing and packaging, and it is treated as a bit of a snowflake from company to company. This is problematic early on, and gets worse as companies grow because most early decisions are near-term optimized and consensus-driven.
For instance, when John led product at Format, he walked into a business that had invested incrementally in homegrown solutions for managing pricing, packaging, cohort management, and more. That became cumbersome as the company scaled for a couple of reasons:
They required significant resources to maintain
Every change required significant re-engineering in addition to coordination across multiple teams, making the process particularly resource-intensive.
Ideally whomever owns pricing and packaging implements a clear system to guide decision making, and those decisions happen continuously. That should also flow into how the systems and processes are architected in order to optimize for flexibility when the business needs to respond to customer demands or market shifts.
For instance, the rapid development of AI has materially challenged how many businesses are approaching the cost and format of their services. Notably, it has changed the cost equation for businesses in product delivery (costs less), product value (costs more), and in operations (costs less).
One way to establish clear ownership and expectations is to tightly integrate pricing and packaging into product roadmaps. It is one of the most powerful strategies for product leaders to not only assert ownership of pricing and packaging, but also implicitly align the rest of the business.
Planning commercial changes concurrently with product delivery ensures that new features are introduced with clear value propositions and corresponding monetization strategy, rather than passively released internally and externally via decks and documentation.
Product leaders should consider doing the following to develop these types of roadmaps:
Partner tightly with commercial counterparts to understand business goals
Integrate pricing and packaging into product requirement documents so that new surface area is developed with business impact in mind
How will this be priced?
What package will it be a part of?
How do competitors charge for this?
What are customers willing to pay?
Clearly outline roadmaps that also highlight anticipated business outcomes, and any required monetization investments.
This proactive approach to pricing and packaging can drive significant growth and clarity.
Monetization is a challenging practice not only because of the numerous components that a business needs to get right to program a buying journey, but also because it means a variety of things to different stakeholders and it is never properly owned even at later stage companies.
It’s worth taking a couple of lessons away from this article:
Don’t be shy about asserting ownership of pricing and packaging - your business will be better for it.
Use a consistent system to align your business around monetization initiatives that serves to align product and commercial investments organically