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Episode 41  |  12:13 min

40: How To Price Your Product

Episode 41  |  12:13 min  |  10.25.2016

40: How To Price Your Product

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This is a podcast episode titled, 40: How To Price Your Product. The summary for this episode is: If you liked this episode, we bet that you’ll love our blog content. blog.drift.com/#subscribe Subscribe to never miss a post & join the 20,000+ other pros committed to getting better every day. --- David shares a story about getting bills from two products (Slack and Trell), his reaction to both, and what it made him think about pricing. We talk about how we're thinking about pricing at Drift and aligning our incentives with our customer's success, plus David shares what he's learned about pricing over the years. Connect With Us #seekingwisdom Follow David (twitter.com/dcancel) and Dave (twitter.com/davegerhardt) on Twitter. Come hang out with us at seekingwisdom.io and on Twitter @seekingwisdomio. Learn more about Drift at Drift.com
If you liked this episode, we bet that you’ll love our blog content. blog.drift.com/#subscribe Subscribe to never miss a post & join the 20,000+ other pros committed to getting better every day. --- David shares a story about getting bills from two products (Slack and Trell), his reaction to both, and what it made him think about pricing. We talk about how we're thinking about pricing at Drift and aligning our incentives with our customer's success, plus David shares what he's learned about pricing over the years. Connect With Us #seekingwisdom Follow David (twitter.com/dcancel) and Dave (twitter.com/davegerhardt) on Twitter. Come hang out with us at seekingwisdom.io and on Twitter @seekingwisdomio. Learn more about Drift at Drift.com

Speaker 1: Boom.

Dave: Boom.

Speaker 1: Boom. Boom. Boom. Boom.

Dave: You tee it up. Tee this one up. What are we going to talk about?

Speaker 1: We're going to talk about pricing.

Dave: Pricing.

Speaker 1: Let's do this. I'm so excited.

Dave: I can't believe we've gone almost over 40 episodes without talking about pricing.

Speaker 1: 40 episodes? What?

Dave: I think so. I think so.

Speaker 1: Damn.

Dave: We're getting up there. We're getting up there. Okay, so we've been talking about pricing a lot because we're an early- stage company, but it doesn't even matter. You-

Speaker 1: Pricing is something that never goes away.

Dave: It never goes away. So, you don't want to hear us talk about that pricing is like a thing of now because we're going to dealing this every month.

Speaker 1: Every month. We're going to have another episode on this over the future, but we're going to talk about pricing now because it's something that we are thinking about all the time.

Dave: Yeah.

Speaker 1: And we find most product companies, whether they're SaaS companies, hardware companies, info products, whatever they are, they're non- stop thinking about pricing and value.

Dave: Yeah. So, you felt this first- hand, and I want you to tell this story on the podcast. This was a real thing that happened to us at Drift with tools that we're using, and you told it to us at a company meeting to kind of share this whole idea around pricing, so I want you to share that story right now.

Speaker 1: All right. So, next week we're having our company meeting, and this story actually happened on our last company meeting a month ago. So, at Drift we have a company meeting every month. We bring the team together. We sit down, and we go over the good, the bad, what's happening, how can we learn from this and improve. Right?

Dave: Yep. Yep.

Speaker 1: So, we either win or we learn, there's no losing, we win or we learn.

Dave: Yeah.

Speaker 1: And so, I sat down and I wanted to come up with a story to talk about pricing and how I think modern businesses should price their products. And so, I used an example of products that we all use internally. And so, the first example was I put up a bill that I had just gotten from Trello. So, Trello if you don't know is a great product management tool. We love them. We use it. Matt Bilotti, our product manager, hey Matt.

Dave: Super fan.

Speaker 1: Super fan. Dies, bleeds Trello. Loves Trello.

Dave: Yeah.

Speaker 1: But anyway, put up this slide and said, " Do you know how much this bill for Trello is?" And I pull up the slide, " How much?"

Dave: 1, 700 bucks.

Speaker 1: 1, 700 bucks a year. Holy crap.

Dave: And if we looked around the room, there's 20 of us now.

Speaker 1: Yeah.

Dave: We all kind of like passively use Trello.

Speaker 1: Yeah. So, we sort of use it. We love it, but we kind of use it, right, Dave?

Dave: Yeah, we kind of use it, and they were charging us based on the sheer number of people that we had in the paid plan.

Speaker 1: Yeah. And they do a great thing which Slack does as well, and we do at Drift which is really if you're not using a certain number of users, or in our case, contacts, we take that off your bill because we believe in this idea of fair billing. But despite having this fair billing practice, Trello, the bill, 1, 700 bucks made me think. So, I sent that bill to Matt, our super fan of Trello, and said, " Should we pay this? Should we be signing up for a $1, 700 bill for another year of Trello?" And so he, and Elias went off and kind of discussed this thing. And so, they came back and they recommended that we downgrade to the free version of Trello. This is amazing.

Dave: Meanwhile, at the same time, you get a bill from Slack.

Speaker 1: So, I get a bill from Slack. We use Slack and we love Slack just like we love Trello, and I got a bill for Slack and I think it was around$1,200 or $ 1, 300, again, for an annual plan, and I got that bill, and I immediately thought, " Pay."

Dave: This is cheap.

Speaker 1: Cheap. I was like, " Wow, this is cheap. This is awesome."

Dave: Right.

Speaker 1: I paid the bill. The bill could've been three times as much. Don't do that Slack.

Dave: But you still would've paid it.

Speaker 1: I still would've paid it.

Dave: Yep.

Speaker 1: Why? Because I see the value, because we use it every day in our business, and I can't imagine Slack going away, right?

Dave: Yeah.

Speaker 1: As an internal product.

Dave: Yeah.

Speaker 1: Contrast that to Trello. Trello was something that we love from a brand standpoint. We're all fans of. We all use it. Not nearly as much, but we use it. And yet, Matt, the super fan, told us that we should downgrade to free. And there was a perfect thing in there which was a perfect story and his recommendation was we downgrade for free because we weren't using any of the features that we were being charged for. So, there was not an alignment between how they were pricing and the value that we were receiving.

Dave: So, that's exactly the point and why we wanted to do this as a podcast. This was exactly the story that you told at the company meeting.

Speaker 1: Mm- hmm( affirmative).

Dave: Which is this is a quote from our friend Clay, over at Leadpages, he had a great post about pricing, I'll link to it in the show notes, they decided to make. They bought this company Drip for email, and they basically made-

Speaker 1: Drip.

Dave: Drip.

Speaker 1: Not Drift.

Dave: Not Drift. Drip.

Speaker 1: Okay.

Dave: So, it can be a tongue- twister. drift. com, that's us. And he said, " Most SaaS businesses operate under the gym membership model where they make all of their money from customers who barely use the product, but don't bother to quit."

Speaker 1: Boom.

Dave: Right?

Speaker 1: There we go.

Dave: And so on the surface, you're like, " Yeah, that sounds great, every month you get a bill and they hide it." Like there's a crosstalk-

Speaker 1: Or in some cases we hear, they don't even send you a bill each month, they just charge your credit card.

Dave: We have heard that prices just go up.

Speaker 1: There are some companies that do that.

Dave: Oh, you got billed, it's on your credit card statement.

Speaker 1: Yep.

Dave: And so this is really interesting, right?

Speaker 1: Mm-hmm (affirmative).

Dave: Because we've been thinking the type of business we want to be and the relationship we want to have with our customers, and how we want our pricing model to reflect that, and this is like when you told this story, I think this is when the light bulb went off with our team, and for me, personally, for sure, it's like how can we make a pricing model that aligns us with the success of our customers?"

Speaker 1: Absolutely.

Dave: And Clay goes onto talk about how non- consumption is the biggest threat to your business. Seems good on the surface because you're getting revenue.

Speaker 1: Exactly. And so, he, with his Drip product, and us, with Drift here, we've thought the same thing and we've thought, " That is why we have a free plan. We want to take non- consumption off the table. And we only want to charge people for the success that they're having with our product, and we want to align how much we charge, which is very little, with the success that they're having in their business today." And in that story that I told in the company meeting, it was actually another software provider, so I actually had three examples, I had Trello, Slack, and then I had FullStory. And we love FullStory, great product.

Dave: Yep.

Speaker 1: Especially again, Matt and Elias, super- duper fans.

Dave: Yep.

Speaker 1: But I get a bill from FullStory who charges us$ 200 a month, so more than Slack, so that's 2, 400 bucks a month. More than Slack. More than Trello. And despite my love and the usefulness of FullStory, only Matt and Elias on our team use it, so not many people in the organization use it, and so every month they get an email to me that says, " Do we still need FullStory?"

Dave: And every month they reply, " Yes, don't you dare cancel it."

Speaker 1: Hell yes. Yeah, they say, " Hell, yes." And they'll say they'll pay for it themselves if they need to because they love it so much. But the point there is FullStory despite being super useful to us, and them valuing it so much, the value that it's bringing is not apparent to the entire organization, so it's not transparent in the value it's bringing, and so I have to ask that question each month.

Dave: Right.

Speaker 1: I don't have to ask that question when it's Slack, and I sort of ask the question with Trello because we all see the value, but I just wanted to confirm if we needed it. And so, we think about pricing every single day. As we're growing our company we're thinking about how do we align our pricing? I'm sure our pricing will continue to change as we learn more and we become more educated. But we want to have this model, and we think new businesses are going to move to this model of taking non- consumption off the table because software is racing towards free. And really, only charge those people who are actively using it, and who are deriving value from that software.

Dave: Yeah, and I think, so it's great for customers, like we are aligned with their success.

Speaker 1: Yes.

Dave: But it also changes the model for us from a sales perspective, where it's not beneficial for us to attract customers who are non- consuming-

Speaker 1: Mm- hmm( affirmative).

Dave: ...they're just going to churn.

Speaker 1: Yeah.

Dave: The first month when they get that bill, that bill is not going to be, " Oh, I only paid Drift this much." That bill is going to be like, " Oh, shit, this is thing I need to cancel."

Speaker 1: Exactly. And so, we need to get out ahead of that. And as we think about sales, and we just hired a couple of salespeople onto the team, we're looking for people who are a little bit different, who aren't your traditional sales person. We believe in this new model of we want to help upgrade people who raise their hands, hand- raisers in the base. Meaning they are actively using our product already, and they raise their hand for more capabilities. That is, as we say, helping is the new selling, and so we're looking for salespeople who can help. Just like we say, customer engagement is the new marketing, helping is the new selling, and so that means the salesperson and the sales model has to change to match that.

Dave: Totally. Those are our two favorite lines, like customer experience is the new marketing and helping is the new selling. I want to wrap up with this, just give me your take on what have you learned about pricing over the years?

Speaker 1: One, it always changes, and so you constantly have to refine it as you learn more from your customers.

Dave: Is it a spreadsheet thing or a gut thing?

Speaker 1: Oh, good question. In the early days, it's a gut thing. It's both. It's always a gut thing, but later, you get more and more data about what's actively being used, and back to your note on consumption, on how do we match your consumptions? So, it continues to change over years. I'm interested in hearing from the people the Seeking Wisdom community. And want to know, what are the software products that you happily, just like I did with Slack, you can't use Slack because I already used that, that you happily pay for each month, or your company happily pays for, and if you Tweet at us, or better yet, hashtag us on Instagram# seekingwisdom-

Dave: Ooh, switching it out.

Speaker 1: We're branching out. Switching it out.

Dave: Okay.

Speaker 1: And post a picture of the product that you love. We're going to hook you up with some fine swag and gifts from Drift.

Dave: I like that. I like when you take it up a notch, that's good.

Speaker 1: We got to. Double, double-

Dave: Yeah. Yeah.

Speaker 1: Two acts.

Dave: I'm going to give you one example because I am a listener of this podcast too.

Speaker 1: Oh, okay, but you don't get any swag or gifts.

Dave: No, I don't. That's fine. I have plenty. I have plenty of medium Drift T- shirts.

Speaker 1: All right.

Dave: This is a low-end inaudible, I remember feeling that way when Spotify first came out.

Speaker 1: Yeah?

Dave: I remember being like, " This is an unlimited iTunes for$ 10.00 a month. Are you kidding me, how could I not pay for that?"

Speaker 1: And do you still feel that way?

Dave: Yeah, I can't remember the last time I've seen a bill from them on GO on my credit card, it's just-

Speaker 1: It just goes.

Dave: ...they take my money every month.

Speaker 1: That's amazing.

Dave: It's easy.

Speaker 1: So you can't use Spotify.

Dave: Can't use that.

Speaker 1: Can't use Slack, all right, we used those. Remember# seekingwisdom on Instagram. And send us a message and we're going to send you a gift basket from Drift.

Dave: A gift inaudible. I love that. Some-

Speaker 1: Yeah. A gift potpourri. Yeah.

Dave: Isn't that nice? All right, that's it for this week's episode of Seeking Wisdom.

Speaker 1: Five- star ratings only.

Dave: Five- star rating. They come in... Oh, it's so great.

Speaker 1: They come in every week.

Dave: It's my favorite email of the week when you forward me those.

Speaker 1: They're coming every week. We need more. Dave gets lonely.

Dave: Yeah.

Speaker 1: He needs validation. Let's blow it up.

Dave: Yeah, and if you're feeling the need, come get us out at drift. com, we'll be there.

Speaker 1: That's it.

Dave: All right.

Speaker 1: See ya. Hashtag us on Instagram# seekingwisdom.

Dave: Ooh, switching that out.

Speaker 1: We're branching out. We're switching it out.

Dave: Okay.

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