Paddle's Head of Product Marketing on Pricing and Monetization in a Downturn (Stephen Ngo, SaaSOpen 2023)

Introduction: Stephen Ngo and His Role at Paddle

Stephen Ngo

00:00>> Alright, guys. So, I'm Stephen. I am not a Founder, so I am head of product marketing at Paddle. So my role basically is to connect with information streams between the technical expertise and the UX knowledge of the product team as well as, you know, the communication abilities and the skills of the marketing team and so, the few things we think about are, you know, number one, how do we who do we sell to? How do we

Paddle's Product Suite and the ProfitWell Acquisition

Stephen Ngo

00:22>> talk about that product and how do we price and package that product And so Paddle where a all in one, you know, payments, billing, and subscription management, tax management solution. But I actually come over to Paddle from the acquisition of a company called ProfitWell last year, which went for $200,000,000 We have free subscription analytics tool. We also have tools for automating your retention and optimizing your pricing strategy. So a lot of today's presentation is going to

Talk Agenda: Process, Strategy, and Tactics

Stephen Ngo

00:48>> focus on, you know, what I've learned in product marketing, but also our work helping other companies with their pricing strategies themselves. And so over the next twenty minutes, we're going to talk about number one, process. How do you actually get momentum on a pricing decision and who do you put in charge of it? Strategy, how do you think about pricing? What are the fundamentals when you're evaluating your product's roadmap and your current product? And maybe some

Paddle's Subscription Data: 20-25% of the SaaS Market

Stephen Ngo

01:09>> quick hit tactics. Hopefully, will have time. There's a lot to cover here. But you can hopefully win so you can start getting momentum moving to York. So, you know, I mentioned that we have this subscription analytics product. We have thirty, zero subscription companies. Lot of them are SaaS. 20% to 25% of the SaaS market depending on how you count it. So we have a pretty good macroeconomic view into, you know, how people spending their time and

Bad News: B2C Growth Flatlined, B2B Slowing

Stephen Ngo

01:31>> how these different companies are growing. And, you know, I have good news and bad news. It's probably not a surprise. So let's start with the bad news is the market's not doing great right now, right? So we actually constructed an aggregate subscription index of how these different companies are growing, segmented based off of, you know, how each vertical is going. And we basically saw that, you know, growth in the B2C market basically flatlined starting late last

01:55>> year. I'm standing this month this date is three months out of date. But when you look at the b to b side, you know, b to c is often very much a leading indicator for b to b. So if you're assuming that that trend is gonna apply to b to b at some point, then that's pretty worrying. And what's interesting is that, starting, say, July, August last year, we actually started to see growth slow down a

02:16>> lot in B2B space. I've seen the early cut of the fresh data. We actually saw a bit of an uptick in this in January and February of this year, but this is all below before all the Silicon Valley Bank stuff. So who knows what that's gonna impact things. So how can we go after this? Right? And, you know, the good news is there's some fundamentals that you can focus on that will set you up for success,

Pricing Is a Process, Not a One-Time Decision

Stephen Ngo

02:38>> both right now, but also will enable you to iterate much more quickly in the future, ideally when your product improves or when market conditions improve. So let's talk about those fundamentals. So how do you think about your pricing, right? And the first thing I want you to know is this is not a one time deal. You do not look at this once and then move on. It's a process. It's iterative, and you keep doing it. A

03:02>> lot of you probably already talked to customers and have some pricing out there but what I'm going to take you through is a systematic approach of thinking about it and hopefully, if you can implement this, you guys can actually get some, you know, low hanging fruit at the beginning of this process. So we get all the access to all this data and we've talked to thousands of founders in our time. And whenever we ask founders what

The Three Revenue Levers: Acquisition, Pricing, Expansion

Stephen Ngo

03:24>> their main focus is for increasing top line revenue are, they generally fall in three different of levers. There's customer acquisition, sales and marketing, getting new customers in the door. There's pricing and packaging, figuring out how what you're gonna sell to your customers and how much you're gonna get from them for that. And then there's expansion revenue, selling them more products or, you know, the flip side, which is obviously churn. And inevitably, we hear that people are

03:48>> spending almost all the time on that sales and marketing stuff, especially at the founder stage, right? Spending all the almost all their time, they mostly guessed on their pricing work, and they're not really working to gather data on it. And why is this bad? Well, like I said, we gathered data on what they're spending time on and we basically found that, you know, there's way more impact on spending a bit more time on monetization, a bit

04:10>> more time on on retention compared to spending time on acquisition. So you can imagine this as basically as a founder, you know, spend a couple more hours. What's the impact of spending a couple more hours on a month on your pricing? It's gonna be enormous. A lot of people leave retention on the table as well. That's gonna be pretty big. So what I'm basically suggesting to you is just take a couple hours out of a week,

Building a Pricing Committee

Stephen Ngo

04:30>> shift that from working with your BDR team or your marketing team and shift it over to thinking about your pricing and how much value your users are getting out of your product. So, how do we do this internally? One thing we recommend is create a pricing committee. And you know, we often see that this is a big barrier because if, you know, no one owns pricing, then, you never get any momentum And if everyone owns pricing,

04:54>> everyone has complaints, everyone gets into arguments, you never get any momentum out of it. So not having a pricing committee of a designated people to work on this is an enormous barrier. Who should be on this pricing committee? Well, it should be leaders who can kind of surface feedback from different parts of your organization and also see kind of a forest of trees, get an overlay of the land. So someone product, someone from sales, someone from

05:19>> marketing, probably someone from finance in a capital allocation budgeting role as well. And a lot of the time, we also suggest that you add someone as a project manager on this. You know, obviously, you know, founders'time is, you know, pretty precious. So if you have, you know obviously, me from products marketing, I'm biased. I think someone in product marketing could hold this since this is traditionally a remit. But if you have a product manager, this

05:40>> is a very good idea for them to hold as well since, obviously, they know of a product, vision of a persona, and obviously, you know, hitting deadlines of project management is part of agreement. And lastly, you know, you should have a main decision maker of someone who, you know, puts a foot down and then decides what the group is going to go towards to break a time. Very often it's going be CEO or CTO. So, you

06:01>> know, talked a little bit about this but you know, what is this you know, pricing coordinator look like? Well, they should be, you know, housing all the data and all version control and all the documentation around the decisions made. They should be, you know, taking that feedback and pushing through the politics, navigating that. And obviously, they should be focusing on the project management, making sure deadlines are actually set and hit. So, you know, next is what

Establishing a Research Process

Stephen Ngo

06:25>> we I mentioned is establish a research process. I'm gonna get into the strategy a bit here, but at a at a high level, what this basically means is talk to the customer, but I imagine you guys are already doing that, but specifically set up a system for not just talking to customers, but asking a well defined set of questions, knowing what hypotheses you're looking to test, and collecting this data systematically. So, let's talk about the actual

Mapping Buyer Segments and Personas

Stephen Ngo

06:47>> strategy here, right? So, when I think about pricing, I actually break this down to kind of almost three constituent layers here. Number one is map your buyer segments and personas, know who you're selling to. It's match these people to the parts of a product that they value most so you can actually figure out how much value beginning. And then lastly, of course, actually measure value. And you'll notice that, like, pricing is literally one third of this.

07:11>> Two thirds of this is just the the legwork to get there. I'm gonna focus a lot on the legwork because if you get that stuff right, then hitting the pricing point becomes easier and it's some becomes something that you can iterate upon over time. So talk about talking about buyer personas and segments. Buyers obviously have a central tenant of your business, and many of you probably have bunch of different personas, a bunch of different, you know,

07:33>> target segments. And so, like I said, the task is to figure out, can we get enough information on these folks such that we can actually match them to the parts of a product that they and figure out how much value they're getting so you can price based off of that value. And so when we construct personas, we don't just focus on the qualitative, right? You know, you've probably have a persona that looks like this, very qualitative.

07:55>> What is this person's age, their firmographics, what, you know, the seniority, stuff like that. I'm sure all of you probably have something that's at this level, but it's not enough. And the reason is it's all qualitative and certainly qualitative is necessary, but you need to have more. So what we normally do and what we actually do with Price Intelligently with our pricing software is we help you design experiments based off how to collect this data. We

08:21>> help to collect the data for you and then parse through that to get the analysis. Now I know a lot of you are early stage and it's, you know, you're very and when that comes what I would suggest is, you know, obviously, I would love for you to come work with us and do this robustly. But if you're very early stage, you're already interviewing customers, interview ten, twenty, 50 customers, however many you need, start from there

08:42>> because doing that is gonna be much better than doing nothing. And so, you know, hopefully, you you get a start and then maybe, you know, later on, we end up working together. Right? And so, eventually, we end up ideally something like this, right? Valued metrics. What are parts of products do I value most and what elements do I care most about? Which variables? We also, you know, I mentioned we have a subscription analytics product and we

09:06>> attach a lot of these characteristics to that as well. So what is the lifetime value of every customer? What is their willingness to pay? How much are they willing to acquire? And that's important for not just knowing, you know, what, you know, what, how much you value them, but also, you know, helps to construct what we might actually call an anti persona. You know, there's a lot of customers that you can probably technically service, but they're

09:27>> gonna distract you. They're not your core focus. The unit economics isn't there. So a lot of the time, you know, you might have personas that you can technically serve, but they're gonna distract focus you from your team. And so a lot of the time, it might actually serve to simply say, hey. We can serve these people, but we're not gonna focus on them. Maybe we'll take inbound. We're not gonna go after them on outbound.

Value Metrics: What They Are and Why They Matter

Stephen Ngo

09:48>> So let's start talking about, you know, how we kind of like match these people to how much value they're getting. Right? And the first thing is what we call a value metric. You can kind of define this as like the unit of measurement you actually use to set your prices or kind of more theoretically, it's the unit of exchange that you put out in the world. A lot of people here probably price based off of per

10:08>> user. You're basically saying that number of users using this product is how much value we're getting out of this. Some people price based off of, you know, company size. Right? The bigger of a company, the more value they're gonna get out of our product. Depends on depends on your particular company. There's a lot of companies where that works, but not always. So one example I'd like to point to you since everyone probably knows this is HubSpot.

10:29>> Right? HubSpot price is based their value metric is the number of marketing contacts. Why? Because the size of your marketing operation is probably gonna indicate how much value you're gonna get from HubSpot. If I'm a big company with a small audience, I'm not gonna get much value. I don't wanna pay that much. Vice versa, like at ProfitWell, where we were relatively small, but we had a pretty big marketing audience, we have a lot more use for

10:49>> HubSpot. So we should be charged extra for it. So the first thing I would do is figure out, okay, what are potential value metrics that you can set your prices on that are going to be indicative of willingness to pay for your customers? And if you're going to ask me, you know, like, what are, you know, what is a good value metric? Generally, we have like three kind of characteristics. Number one is, like I said, aligns

11:12>> with customer value. It scales with the customer. You know, if they get bigger and get more value, then the value metric should scale with them as well so you can alternate pricing. And lastly, it should be easy to understand. Obviously, if it takes your sales rep ten minutes to explain your pricing model, that's not going to work, right? And it's going to especially hurt if you're PLG, right? If it takes more than thirty seconds for your

11:33>> target users to understand your PLG pricing, they're going to click off, they're going to bounce, you're to lose them. And so again, if you get everything else wrong but you get your value metric right, that provides a foundation for you to revisit this and iterate later. So absolutely get this right.

Feature Packaging: Core, Differentiable, and Add-On Features

Stephen Ngo

11:50>> Something else to know about as well is what we call feature packaging. Basically, you know, it's almost like whenever you see, like, you know, a good, better, best, like a three tier pricing structure, what features do you put in each one based off of who you're trying to sell to? So how do you measure, you know, how do you figure out what's gonna sort on each? So what we what I like to do is actually kind

12:13>> of do an exercise of this stuff of coffee. You know, everyone here probably drinks a ton of it, and we can kind of sort through a lot of different characteristics of coffee that basically suggest how people might price. Right? So let's talk about, like, you know, characteristics like you might have taste, country of origin, like how exotic is the, you know, origin of coffee temperature, you know, is it hot? Is it cold? Is it sufficiently so?

12:35>> It has what impacts, you know, both, you know, my willingness to buy the value I'm getting but also my willingness to pay. And, you know, we actually did a quick exercise on this and we kind of draft how all of these characteristics got there. Taste is, you know, high impact willingness to pay, hype. Actually, let me step back. So, you know, I I have an admission to make which is I drink a lot of cheap, crappy

12:59>> Dunkin'Donuts coffee. Why? Because I don't drink coffee for the taste. I drink it for caffeine and mostly so I have something hot to start the day off with in the in the winter, something cold in the summer. And so it's like, as long as it gets that job done, with the 20 sugars or whatever, then I'm fine. But if were but if Dunkin raised their prices to Starbucks'level, I'd probably buy with Starbucks instead, right?

13:23>> So taste temperature is something where like, you know, it doesn't I'm not necessarily willing to pay just for that cup to be hot, but if it's not hot, then I'm not going to buy it at any price. So it's almost like what we would call a core feature. Then we have taste, Something that broadly increases the demand for that, but that also increases the willingness to pay for that product for for that for those customers. So

13:47>> you could think of Starbucks being something that, you know, hits those basic requirements, but also tastes a bit better. They could command a higher price. They can also go for a broad set of a market. We call this a differentiable feature, something that will actually help you compete across the board. And lastly, we have something like country of origin. Takes a very specialized part of a market to actually care about that stuff. Most of the time,

14:06>> it's gonna be like a local specialty coffee shop. So country of origin becomes something that has a high impact and willingness to pay, but not on relative preference. There's only a small part of a market that really cares about it, but the part of a market that cares about it cares about it a lot. And so, you know, we have we've generally often measured the relative preference for all these things. And when we actually gravies, actually

14:27>> kind of sort them into four different categories. And in particular, there's like core features, stuff that is necessary for your product, but isn't gonna impact the willingness to pay. You have differentiable features, stuff that a lot of people will in fact like and will increase your ability to charge broadly. And lastly, have add ons, stuff that only really applies for a small part of the market, but the people who really do care are willing to pay

How to Change Prices the Right Way

Stephen Ngo

14:49>> more. And so, you know, again, this is a process. Your product should improve over time. The market may improve and that impacts willingness to pay. So as your product brand improves, continue to iterate through this process, and therefore, you can tailor pricing based off of that product market fit. So I mentioned it before, like the idea of like changing prices. We do, in fact, recommend, you know, changing prices relatively often and not making this a once

Messaging Guidelines for Price Changes

Stephen Ngo

15:14>> in a generation thing. So how do you go about this the right way? Well, the most important thing is get the proper messaging. You know, I think we can all think of companies like Gumroad that have, you know, not gotten this quite right in the past. So proper messaging is key and there's generally three guidelines that we give. Number one is relate to the value delivered non internal factors. Don't say, I gotta protect my margins. Say,

15:35>> hey, I know this hurts for you guys but this is gonna help us fund improvement of our products and we have this stuff coming on that's gonna increase the value you get and so related to that. We also recommend being explicit about what you're changing and when. You know, we've had smaller competitors who gave a 30 paragraph email and then put the pricing change in the twenty eighth paragraph. That's just, I don't think that's ethical, But

15:55>> also it implies that, like, you have to hide the amount you're charging instead of being upfront about what you're charging, but also about the benefit about the value you're giving them. So be upfront, but also do be empathetic and do show goodwill and understand that, hey, maybe some of these customers, you know, they've been loyal to you. They signed up for you early on. Maybe it can take some flexibility in kind of terms of grant offering

16:15>> prices. And it really depends on which kind of products you have, right? So we have a huge database of examples of this since we help with this messaging. And this is just one example. I'm happy to Email these out if you if you get my Email but you know, we have an example of like basically communicating the value and showing being empathetic And one thing we often do is at the end, we'll put in the PS

16:41>> like, hey. If this materially impacts you, like, you're you're crunched for cash right now, let's let's talk. We wanna work with you. We really care about the relationship even if we think the pricing change is justified. Cool. Am I out of am I out of time? Yeah. Okay. Got it. Cool. Yeah. So I'm gonna have to leave the add ons out, but, yeah, hopefully, this was helpful. Thank you.