Your ARPU is flatlining... but you can fix it - YouTube

They are going to lose so much money.

They're being idiots.

I will admit. But it's not.

It's not from a lack of intelligence or lack of effort. It's

one of those things we see all the time because they're so disorganized. But

we can help them with this

It happened again.

A VP of sales at one of our pricing customers

decided to yell at someone on our team, and that is typically when I get involved.

Now, it's easy to write this person off as just some brash sales bro, and we have

definitely addressed his behavior.

But I've seen this over and over again to know that this is

just something that happens when people try to change their pricing.

You may think that the biggest barrier to optimizing

your monetization is going to be data or some sort of intelligence,

but nope, the biggest barrier is internal politics.

I didn't see that one coming, did you?

Pricing is emotional and it's impacted by every single team at the company.

So everyone's got an opinion and all those opinions

lead to a lot of fear of getting blamed if something goes wrong.

Now, in the face of that fear, most of us either throw tantrums like a toddler,

like this individual, or do absolutely nothing

with analysis, paralysis and all of that fear basically costs you money.

Here's a breakdown of the growth in revenue per customer ARPU RPA, ACB.

However, you're measuring it, we normalized it, don't worry.

But here's a breakdown of the growth in revenue

per customer base on how often a company changes something about the monetization.

Notice that those companies that change pricing

quarterly are seeing the biggest gains in revenue per customer,

and most companies

actually fall into the only changing pricing every three years bucket.

So chances are if you are watching this, I'm talking to you,

you are one of those companies

and I'd like you to actually come clean comment below what bucket you fall into.

Do you change your prices every quarter, every year?

Or every three years?

I'll pick one person from the comments and replies for a free pricing audit

and I'll wait. I'll give you a second. Oh, wait.

Okay.

I'm assuming you want to get better.

So what are these companies doing that are changing

pricing so quickly that you aren't doing currently?

They have this magical superpower

and that magical superpower is something known as

a pricing committee.

Yeah, I know

that sounds boring, bureaucratic, just terrible.

But this modicum of process, this little amount of process

allows them to cut through the noise and emotions to move quickly

and make a lot more revenue.

You want a lot more revenue?

Yeah, I thought so. Cool.

Let's walk through the function of a pricing committee,

the make up of a pricing committee and the tempo of our pricing committee.

So you can implement one and get those similar gains

Okay.

First up, I know I have been doing this long enough to know that some of you

are going Patrick, raising your prices every three months is insane.

Thankfully, that's not what I'm referring to when I speak about pricing changes

and optimization and your monetization is anything,

absolutely anything that influences the value of your product.

These could be anything from international izing.

Your pricing to readjusting your value metric

is anything that influences that revenue per customer.

So to widen your brain a bit, here's a non-exhaustive list

of pricing changes that you could be doing every single quarter.

Note that some of these take a lot more effort than others.

And also some of these, like raising

your prices probably will only take place once per year.

Pricing committees give you a central team to manage the data,

the people and the infrastructure around changes to your pricing.

They allow you to move with confidence

at a high tempo, and all pricing committees have three main aims.

First, pricing version control monetization has a lot of moving parts.

So your business is a central repository for pricing history and knowledge.

Adjustments you make will have unintended consequences, and some optimizations

will take an enormous effort to steer the ship.

All of these changes need to be tracked and documented.

You also need enough people in the committee to prevent

all that knowledge disappearing when one person leaves.

Next up, pricing committees need to structure feedback

from all stakeholders and minimize politics.

One of the worst mistakes you can make in pricing is one part of the

or doing all of the research and coming up with a decision.

And then boom, as soon as they present that to everyone else who has to implement

it. Hitting a brick wall, a feedback

that basically delays implementation indefinitely.

Pricing committees give clear lanes for all stakeholders

to express their feedback depending on the gravity of that change.

Hearing this feedback allows those leaders of the pricing

committee to address it with data or adjustments going forward.

Last thing a pricing committee needs to streamline implementation

and track progress Deadlines and process are your friend when it comes to pricing.

A good number of people will be needed for the implementation,

so centralizing the committee allows that enablement to happen quickly.

You'll also be able to make adjustments as bugs come up.

And remember,

the ultimate goal is to increase that revenue per customer over time.

So as you make changes, there's going to be unintended and intended consequences

A pricing committee allows you to move quickly to make adjustments while also

minimizing the fallout of those unintended consequences.

Okay, so you're on board because you're still watching.

So let's cover who the heck is on this committee

and who in the world is in charge.

In short, whoever has outsized influence on implementation

or outside feedback on a pricing change needs to be in the room.

Putting the pricing committee together with this thesis can get really tricky,

because if you're watching this, you're

probably part of a mid-sized, if not a large organization.

So you have a lot of people who fit this description.

We've actually found following the Amazon concept of two pizza teams to be best.

And basically what this means that you're committed

needs to be small enough that it can be said by two pizzas, which really is a max

of ten people know kind of figuring out how to game the system here.

Keep in mind, this constraint doesn't mean other individuals

won't be given a chance to provide feedback.

We just found that anything over

this number defeats most of the purposes of the pricing committee

and basically makes it really, really hard to make pricing changes.

Your mileage is going to vary,

but here's a breakdown of who's typically in the core pricing committee.

Notice a couple of things.

There are core committee members and then a pricing influencer group

made up of the next degree from the committee.

Those influencers will be able to provide asynchronous feedback,

but just won't be in the room for the final decision.

Also, if your earlier stage, there may only be two of you

in the entire committee, and that's totally fine.

You'll ironically move a lot quicker and ultimately make more pricing changes

Obviously, these are going to be very expensive meetings,

but keep in mind that this committee is there for feedback and knowledge

rather than doing the actual day to day of pricing that research the coordination

of the committee and keeping the trains

running on time is done by someone known as a pricing coordinator.

In most organizations, the coordinator

is a product or marketing manager who takes up pricing is 20% of their time.

As your organization grows and definitely by 100 million in annual revenue,

you should have a full time person dedicated to pricing.

Now, two big pieces on this pricing coordinator,

they need to love customer research.

Pricing research has just targeted customer research.

And if you think this is just going to be SL engineering, looking at U.

Corp Dev and finance, this is not going to be okay.

Second, they have to be able to speak truth to power.

You're going to have some sort of exact try to bully the pricing process.

It happens all the time.

You know, like it

leave and finding someone who's good at soft power and garnering feedback

from more introverted personalities is absolutely crucial here.

Now, keep in mind, one of the benefits of this pricing

coordinator position is it is a fantastic growth opportunity

for someone who could be a future exec one because they'll be dealing

with all the exacts in the company,

but to

because they're going to get a ton

of mentorship from you and how to present and how to synthesize this information.

Now, who's in charge, even though you have a good crop of folks

involved in the pricing committee and there's a lot of pricing influencers,

you need one final decision maker one,

not, two not, oh, we're going to make this decision as a group.

Not well, John really needs to have buy in because you're not going to get by it.

You're not going to get a decision,

you're not going to get the monies that come from pricing

because nothing is going to happen.

And I know it sounds pedantic and condescending,

but I've just seen relatively well-designed pricing committees fail

because no one was deputized

as being the person to make the final call on a deadline.

Your org is going to vary, but if you're between zero

and $100 million a year, it's typically going to be the CEO, head of marketing

or head of product above 100 million.

You should have a very clear pricing leader,

but it still may be the head of marketing or product making the final decision.

Most importantly, make sure it's someone with trust in authority.

Pricing changes always have tradeoffs.

Something's going to go wrong. Something's going to go right.

There's going to be unintended consequences,

and someone with authority

and trust can provide enough cover to make adjustments and stay the course

through all of that institutional fear that will prop up your work.

All right.

Your pricing committees involvement will depend on the gravity of the change

you're making.

We'll break down a couple of levels of changes,

but normally the committee really only needs two to five times per quarter.

Influencers will typically submit feedback once per quarter,

and the coordinator will spend 20 to 100% of their time on pricing.

Let's first look at larger changes.

Now, the core tempo, you should be focused on an organization is implementing

one medium to large change per quarter, running the following process.

In week one, the committee meets and confirms the project for the quarter,

sharing all of their initial thoughts and feedback in weeks.

One through six, the coordinator goes off and utilizing the feedback designed

to research sprint

and goes out and collects a bunch of data to determine a course of action

and a recommendation in week seven, that coordinator will present the findings

and provide a recommendation to the committee.

The committee almost always debates the recommendation and provides

a bunch of questions which the coordinator then needs to go out and chase down.

And then in week eight, the committee meets again

with the coordinator

walking through the objections and answering all of the fun questions.

Sometimes this process

will repeat a couple of times depending on the gravity of the change,

and then the coordinator

will send out the proposed changes in research to the influence or group

to get that final feedback.

And once everything's decided which nine through 13 or basically spent implementing

after final approval and reporting on those initial changes.

Remember, this is a framework.

Your mileage is going to vary, but the coordinator will have plenty of ad hoc

discussions with different stakeholders for keeping the trains moving.

Now, one thing to keep in mind is I highly recommend

you start with something pretty easy to implement,

things like internationalizing

your pricing are much easier than changes to your core pricing metric.

We found that the easier the initial project looks,

the more momentum you get, and then that momentum begets more momentum

Don't be afraid to use your committee for smaller changes as well.

Things like redesigning your pricing page, experimenting with a new discount,

or even deciding if you should publish your pricing page or not.

Are all really, really good projects to work the pricing committee's muscles.

These optimizations normally don't require data or low risk enough to move quickly,

and also the process with these can remain pretty much the same,

but it'll end up being compressed and maybe even asynchronously.

Just make sure the communication is flowing transparently

throughout the committee.

A lot of these small changes end up being optimizations.

You'll want to try the opposite of in two to three years as the company evolves.

So ensuring the

different versions of pricing are tracked and the knowledge saved

allows the organization to move quickly

Tempo, tempo.

Tempo.

Not quite my tempo.

That is the name of the game when it comes to pricing.

The larger the org typically the worse the tempo and momentum.

Hopefully you realize none of this is rocket science.

You just need the confidence to treat this

like any other project management that you've done in your company.

Just focus on those fundamentals.

Make changes regularly,

however small, and those pricing gains will continue to roll through.

I'm sure you have a ton of opinions about this, so let me know.

Did I inspire you to change your pricing more frequently?

Are you already hitting up your team members to form a pricing committee?

Do you already have a pricing committee?

And I left something out that others would learn from.

Leave a comment below.

And diehard profile fans know, especially if those who have been

to a webinar that I've run.

I answer every single question and respond to every single comment.

So I'll see in the comments