2329 - How to Communicate Worth in Your SaaS Pricing Using the Value Equation with Product Tranquility's Dan Balcauski

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0:58With us right now, it is Dan Belkowski. Dan, you are the founder and chief pricing officer with Product Tranquility. Your website is producttranquility.com. I'm so excited to talk about pricing with you because I got pricing questions right now. So we'll do a little bit of a live lab if you're okay with that and model to our friends that are listening to us, because I'm sure you'll be able to go through a lot of the principles that you do. before we get to that point, Dan, I'd love to learn. I always love finding out what our guests are kind of passionate about on the outside of work. Maybe it could just be something you're currently into.

1:36What's been on your radar lately? Yeah, so great to be here, Josh. Thank you for having me. Appreciate the opportunity. So, you know, I think like everyone else, I'm currently spending a bunch of time in AI, but I think that's a little bit generic. I think the one thing that really caught my attention yesterday, there's a guy whose name is Dr. K who's been showing up on a bunch of podcasts and I consumed all I think three hours of his appearance on the flagrant show and what I loved about him is that he's a classically trained western psychiatrist but also spent about seven years training as a monk in India so he has a very cool blend of eastern and western schools of thought and now he helps good you know you're talking about healthy gamer yes healthy game oh my god no I've been following him for a while.

2:23He's great. He's amazing. And I wish I had your level of depth on him because he just has come across my radar and he's just absolutely fascinating. So I've really been loving his material. I think he does just a masterful job of hitting it just right, particularly as he talks a lot about behavior, certainly talks about addiction quite a bit. And he does it in just a very, very non-shaming, kind of very holistic way and very evidence-based, which I'm a big fan of. Yeah, his YouTube content is just spectacular. I mean, you could go through, and again, to our friend that's listening, you don't know who I'm talking about.

3:07Just go on YouTube and search for Healthy Gamer GG, all one word, Healthy Gamer GG, and then just click on videos, sort by popularity, and have fun going down the rabbit hole. And he generally does a little bit longer form content too. So it's usually a little beefy, but I love it. I'm with you. I like, I think especially like right now, like I'm really into the kind of stuff he talks about. So, well, cool. Well, we have, we have a mutual shared appreciation for Dr. K. Dan, I'm, I have a, I have an appreciation for the work you do. Do you mind giving us a, Just starting off a quick overview of your superpowers.

3:49Yeah, so superpowers. I don't know if I would use that term, but yeah. So as you mentioned, I run a firm called Product Requility based out of Austin, Texas. We help B2B SaaS CEOs define pricing and packaging for new products. I spent 20 years of my career plus at this point in software, starting as a builder on the engineering side, moving into product management. And over time, as a builder, realized, hey, we're really focused on shipping features and providing value, but there seemed to be a mismatch of the energy of how we actually capture that value. And so that insight crystallized during my MBA internship.

4:30I worked for the internship for a successful Silicon Valley company. And one of the challenges on the CEO's desk was, should they do a freemium product or or not, or premium model. And so a couple of things I worked on that summer, I did some research and realized that it only works under very specific and surprisingly rare circumstances. So I've got a longer rant on my anti-freemium approach, but generally find it's not the right approach for things. And today I have the privilege of helping B2B SaaS transform their pricing from a confusing liability into a strategic advantage. Well, okay. So let's start by talking about how most founders, somebody comes up with a price and if it's an SMB founder, they've got a SaaS platform that they and the team have put together.

5:22Where does most pricing come from? I knew you'd laugh. Pulled out the rear end, I would say, for the most part. Usually, probably some mix of, I did 20 minutes of desk research trying to figure out what other competitors might be pricing, potentially some hearty debates with a co-founder or in the executive team meeting. And unfortunately, not much beyond that. We, okay, now I'm going to just be very transparent. I'm going to lay it all out where we are now. This is going to be publishing in 45 days from now. So we'll have an opportunity because Josh is likely going to take some massive action based on, and I think this is going to be fairly easy for you.

6:13I've been through your blog a little bit. I think I already know where You're going to go with this, but let's just play it out. So we have a podcast guesting platform. And currently in that world, it is just a complete and utter crap show. Like most of the podcast guesting work that's being done by agencies is nothing but spam. I know that because we run and operate or have launched close to 300 B2B interview podcasts. I see the same bad behavior. That's just the norm. It's very PR, and I don't want to spend too much time on this, but just to kind of frame it, typically these agencies are charging about$1 ,000 a month.

6:57They usually get their clients on a couple of three, two, three, maybe four podcasts in a month. And it's usually very disappointing because they're spamming in order to get that. So that's the broken problem, right? So we've solved it, created basically a credit karma for podcast guesting. So that's now a guest knows exactly what level of shows they should be based on their level of authority. And then we know we have thousands of podcasts and we know what their average pod verified score is. So now guests know exactly the stages that they should be on, the ones that they qualify for. And then it then takes them through.

7:37No, no, no, no. Don't spam at these folks. These are higher level podcasters. Here is how they want to engage. And then we give them the exact process to be able to land that show. And lo and behold, most of that is done old school PR through relationship building. Anyway, so that's the platform. It's called PodVerified. And we think that our regular pricing, just based on kind of the market, based on some little bit of feedback talking with folks, the continuity pricing is eventually, we think, is going to be at about a$2.97 a month price point. And maybe it could be higher, it could be lower.

8:13I'm, I'm really just want to make sure that it's very fair and demonstrates a super great ROI for our clients so that we get great viral lift. We have a founders club right now. And we thought, well, in lieu of, you know, we're not going to do crowdfunding because that's challenging. We're also we were so we started with like a founders club offer where we were going to do 1000. I'm almost done here. We're going to do 1000 dollars for six months. So we've offered that right now. We've kind of been anchoring that. And I find that most of our clients, most of our guests are going to be very, a lot of solo practitioners, a lot of your solo coaches.

8:52They probably have like a VA or two, but that's our very standard person. The feedback we've got, we've sold them. We've sold, you know, a good chunk of those thousand dollar founders club members. But it seems like the rank and file, that's a little too risky for them. And also to kind of prepay for six months also feels like a commitment for them as well at that level. So we're considering just saying, well, listen, why don't we just go ahead and allow this platform, allow people to use it at like maybe like a 197 a month price point during a beta? Because we're very much in beta. It's not the complete product right now.

9:28It's pretty good. But, you know, I wouldn't say it's ready for prime prime time. All right. There's all the data, Dan. I don't want to take too much of this podcast and thank you for your graciousness in letting me pontificate a bit. Got it. So there's a bunch of interesting points in that story you laid out. So it's a new product, number one, that's important. You have identified a general pain point out there with existing podcast booking agencies and you've developed a solution. The first question I always have for folks is who in that world is concerned with the problem that you solved? You mentioned this problem of the current podcast booking agencies spam everyone.

10:21if uh the the question is is like if i hire a podcast booking agency does the value that you're describing does that map to my experience as the the guest who's getting booked because i'm not getting spammed right all i know is like as a host are a peer booking well but yeah oh as no as a well i'm assuming like if it's a podcast agency you're like that, that the guest is paying the agency to get them placed on the podcast. Yes. And so the question is, is there is, is on there, is there a perception of value around that problem that you described? Because the question is not, I've taken the long way around because I think that you may surprise you to say this, but like the most important problem at your stage of an offer or question is not the price point, but the value.

11:15Right. So a lot of early stage companies, you know, pricing at any stage of company is always an issue. Right. Much like, hey, delivering value is always in making sure our value is understood and communicated and is increasing over time. Right. That's always a problem. But the earliest stages, the price point is not your most important consideration. You have to go out and understand, given our problem, is the perception of that value worth anything to be charged? So often, you know, early stage, especially software companies, right, generally pre the world of AI, almost infinitesimal incremental cost to serve, storage, compute, network bandwidth on AWS as, you know, for adding another customer is almost infinitesimal.

12:06And so people are like, oh, well, I'll write this software. You know, I'm a solo engineer and I wrote the whole thing and I'll go out and I'll just get a bunch of users and I'm not going to charge them anything. I think that's a bad approach. You need to charge something because value is the pleasure, price is the pain, and you need to be able to get validated signal that what you've provided is actually having value. And the way that you get that validation is by charging something. But you need the early stages of a company. It's really to validate that you're solving a problem in the way that people like it to be solved, less so optimizing that exact sort of price point.

12:44along with your the situation that you outlined i think one thing that is a variable which i would you know it wasn't explicitly described but um just because i i know this space as a as a customer as well is the price what we call the price model so your entire premise was on the price point okay I got$249, maybe have a Founders Club discount for early buyers. But oftentimes, the key questions we're helping our clients think through is, what is the right pricing model? And there is like in the old world of software, you used to go to Office Depot or Office Max, you buy a copy of Microsoft Office in a shrink wrap box, and then you just use that forever.

13:36And now, you know, if you go to buy, you know, Microsoft Office, Microsoft wants to charge you Office 365, and I'll charge you on a subscription basis for a long time, right? So that'd be subscription versus perpetual, but there's also a pay as you go model. And so the other alternative is that you have pay for performance, like we charge you based upon placements. And so all of those, that's just one of several different kinds of levers that we think through. But that can even be much more impactful ultimately than the price point. Because I say when it comes to pricing, most executives think that what you charge determines your success.

14:16In fact, who and how you charge determines your success. So in this world, I would spend most of my time figuring out what the price tag goes on and little time going, what number goes on the price tag. So what do I mean by that? So I mentioned the one dimension of price model. The other thing is oftentimes we want to create good choice framing for customers. So if I come to you, Josh, and I say, hey, I've got this awesome new podcast product. It's$249 a month. What is your decision?

14:53well you've only told me the point the pain you haven't told me the value okay oh yeah i've only yeah i've only told you yeah you're you're i'll i'll short circuit it just because you don't have a lot of time yeah your decision is buy or don't buy versus hey josh we've got this awesome new product look we got a we got an entry level 249 version it gets you this, this, this. We've also got like a premium version at$4.99 that gives you this and this. Which one of those would better suit the situation that you're in now? Generally, I'm going to choose premium based on my stage of business, but that's without, you know, kind of going through everything.

15:34And so whether or not which one you choose, what I've done there is I've reframed your decision point. The decision point now is not, am I going to do business with you or not buy or don't buy it's which one of these am I going to buy right and so this is the other dimension that is left out of the when we're just on price point because I want to think about what are the different offers that I can have that frames the value such that I'm having a conversation about which one of these and and the value differential versus do I need this service at all or not now that's not to be tricky that's not to be like sell somebody something they absolutely don't need, right?

16:15You're assuming we're having a sales conversation. You're in the market for something, but I've intentionally reframed how we're looking at the problem and changing the differential value versus like, oh, okay, I'm either going to buy this thing or not. It's either a take it or leave it versus which one of these should I buy? Do you see the dimension there that that changes? Oh yeah. Well, I mean, sales as A, B closed as opposed to like a yes, no, of course, right? Yes. Yes. Yeah. So oftentimes these are the types of questions that when folks are asking about pricing, if we're boiling pricing down to just a conversation about the number itself, we're losing a lot of the power of thinking through the broader dimensions.

16:56I'll say pricing, but I often mean always pricing and packaging. So what is the price metric? How does price scale per piece of value that I consume? So in software, It's often either seats or API calls or number of gigabytes of data stored, right? Something along that line. You know, if I go to McDonald's and I buy a hamburger, the price is per hamburger, right? I could, a Big Mac is, inflation, it's probably$5 these days. But if I buy 10 Big Macs, I pay$50, right? So the price scales with that. Likewise, you know, the, well, I'm not going to McDonald's and getting subscription. I think they tried that at Taco Bell.

17:34I don't know if that's good for anybody's health or pocketbook, but we'll leave that aside, but also things like price fences. I go to the same thing, go to McDonald's. I could buy the small, medium, or large drink. The price, if you look at it from what are they delivering, the price per ounce actually gets more affordable as I buy more. So we see this as volume changes or as identity change, right? So you may have the, oftentimes what we'll see is in a B2B market, oh, well, we've got special pricing for if you're an educational institution or if you're a nonprofit or if you're a company based in Ukraine when the war in Ukraine broke out.

18:16Actually, I've worked with some clients actually had identity fences like that where they had those breakouts. And so we try to expand beyond the idea of the price point. Now, the other thing that you mentioned, going back to your specific example, we have this new product. We're really worried about the price point. I would say there's usually a couple of key assumptions there. So one is don't undermine yourself by the fact that the maturity of your offering is not quite where you want it to be. Because we often think about, many of your listeners may have heard about this concept in psychology of anchoring.

18:56You know, if I go into the car dealership to buy a car, right? Like I'm going to name off the bat the lowest price I like, I hope I can get away with, right? Because that's going to pull the conversation in that direction, even if I'd never think I'm going to get it. And so what ends up happening to us as we're leading businesses, as we're selling the products, we see all of the downsides, all the things our product could be in the future and isn't there yet. We know all the bugs. because we know all the things that aren't quite mature in the way we would like them. And so we anchor ourselves to a diminished view of what the value is, when in fact, there's probably buyers out there who would be completely ecstatic about the value that you're offering them in its current form today and have been dying and searching for a solution.

19:44So this is always where we want to try to get outside of the building, talk to our prospects, talk to our customers, have those pricing conversations early to understand what their perception of the value of the product is, because we will always try to anchor that down because we know all of that going in of the product's not on its level of maturity. And I'd say the other piece of assumption that's baked into your question there is there's this fear that like, oh, I'm going to launch this product and we're going to launch this price point. And then it's than it's like I've made the decision.

20:17But pricing, much like the value deliverer, is always changing. Oh, yeah. Market conditions are always changing. And so you don't want to shoot yourself in the foot by like creating a price point that just anchors the market low and says, oh, this is a$99 product. And there's never going to be anything except$99. But that can evolve over time. So I think something like having a Founders Club membership or early adopter, you know, Hey, like for a limited time only we're offering 50 % off. You know, I think those type of promotional discounts early on in a product life cycle can be very effective, but I think also, you know, don't be afraid to learn as you get this product into market.

21:00I love that. Yeah. And, and, and thankfully, I mean, we we've known, Hey, you know, when you're, and hopefully you have that luxury. Do you mind just sharing it? I know we've gone a little bit long here. Do you mind sharing just maybe about the importance of that early, you know, kind of like when you're first kind of putting it out there to the market, you're gaining feedback, you're soliciting ideas, you're kind of figuring out what the market wants. Do you mind maybe just sharing just a bit more about that phase of product launch? Yeah. So I think one way to frame it is, you know, you don't have a choice of whether or not you will have a pricing conversation with your customers, your only decision is when.

21:40And I think too many customers leave that when for, hey, we've put this into the market and now the salesperson's on the phone trying to sell it to our first customers. That's kind of the latest decision point possible because now you're actually offering someone to hand over their credit card or sign a PO or whatever it might be. And so if we're earlier in the stage, we can have conversations with prospects or with folks who look like our target market and have pricing conversations. Now I generally, as a rule of thumb, the way I frame them is like value conversations. Hey, what are you doing today?

22:16How has that worked for you? Where has that not worked for you? When have you moved to another solution? Have you used another podcast agency before? How did that go? Okay. Here's this thing that we're thinking of, is this something you'd be interested in buying? Okay. Is what price point would be too cheap such that you would question its quality? At what price point would this product be so expensive it would be prohibitive? At what price point would this product be a bargain and you'd buy it? At what price point would this product be getting expensive, but you would still buy it? And so that sequence of questions, I didn't come up with them.

22:58They're famous Dutch economist, last name Van Westendorp, which is what the model is called. If anyone wants to throw it in a chat, GVT or Google after this conversation, it's called the Van Westendorp pricing sensitivity meter. Those questions help us frame what are the ranges of acceptable price points for the value that help us get a purchase on the perceived value that person has of the thing that we're bringing to market. And I will also note that in those conversations, especially early on, but actually it applies to all stages of the life cycle, the number that they say is much less important than the follow-up question, which is why.

23:42I'm offering this service. Hey, what price point would this be? You'd consider this a bargain. Oh, I think it'd be a bargain at$99 a month. Cool. Why is that? And now what you're going to get is a mental model from your prospect? Well, because currently I have my virtual assistant doing all my outreach and I pay them$20 an hour and it takes them at least five hours to get me a book, a booking. And so like, I'm already paying that out of pocket. And so like, I'd, I'd much rather have them doing stuff that's tighter into my business than having them place me on podcast, right? Whatever they say, but then, you know, what are they comparing you against?

24:18Like what is the other relevant alternatives that can solve that same problem for them or that they're using today? Right. And it applies as well to the other questions. Does that help? Yes, absolutely. I've been taking some notes here. I don't know if anyone, the listener has been, I hear someone typing in the background, what's going on? That was me. Dan, let's give some next steps to our friends that's been listening. And I want to say thank you so much for your willingness to kind of show your process and show your thinking while you kind of present a 101 over some of the higher level tenants of your methodology.

24:58Your website is producttranquility.com. Who are your clients? Who should be reaching out? Who should be engaging? Just talk about next steps. Yeah, well, like I said, at the beginning of the show, we work with primarily B2B SaaS CEOs in scale-up phase. And so, like I said, I spent my entire career in software, so I spend all my time in the software world. but you know happy to connect with listeners on LinkedIn you can find me Dan Bulkowski just let me let send me a note let me know you heard on the podcast so I can separate it from the rest of the LinkedIn spam that I get and so and then I'm soon to launch and hopefully by the time this podcast goes out it'll be it'll be in the wild I just finished up the doc yesterday but I I created a CEO pricing scorecard that folks could use to figure out their level of maturity in some areas of potential improvement with some action prescriptions.

25:56So if folks connect with me on LinkedIn or just send me a note, happy to send that over folks way. I love it. You also, Dan, you're a podcaster. Why did we not talk about that? Your podcast is called SaaS Scaling Secrets, insights from B2B SaaS CEOs with Dan Bukowski. So to our friend that's listening, you could just search for that, hit subscribe, start listening. I'm going to subscribe, start listening to Dan because it's top of mind for me, certainly. Dan Bukowski, again, your website, producttranquility.com, of which you are the founder and chief pricing officer. Dan, it's been a wonderful conversation.

26:34Thank you so much for this. Thank you, Josh.

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