Episode Transcript
[00:00:00] Speaker A: What I found was between companies starting to monetize and getting to product market fit, they increased their acv, or their average contract value, by 60%.
[00:00:11] Speaker B: Yo, mic check. What's up, everybody? You're listening to the street pricing podcast, the only show where proven SaaS leaders share their mindsets and mistakes in pricing. So we can all stop guessing and start growing. Enjoy. Subscribe, and tell a friend. Now let's break it down with your host and sought after Slayer of bad pricing, Marcos Rivera.
[00:00:34] Speaker C: What's up? And welcome to the Street Pricing podcast. I'm Marcos Rivera, author, founder and pricing coach. And today's guest does not need an introduction. This is the man behind growth unhidged. If you're not reading it, you should read it. He's also an operating partner at Openview. I'd like to welcome today Kyle Poyer. Kyle, welcome.
[00:00:52] Speaker A: Thanks for having me on.
[00:00:53] Speaker C: Now, listen, man, I've known you for a really long time, right? We can get into some of that later, but could you reveal how old.
[00:00:58] Speaker A: We are too early in the podcast for that.
[00:01:03] Speaker C: True that, true that. But it'll leak out by itself, right? Why don't you give the audience just a quick one two on you, what.
[00:01:09] Speaker A: You'Re up to, what you're about. Yeah, for sure. So I am a longtime pricing nerd. I started my career at Simon Kucher, which is one of the larger consulting firms specializing in pricing and packaging. Was there for six years. It was my first job out of school, had a great experience, and then I moved to the VC side of things at OpenView about eight years ago. Openview invests in b, two b software companies that are growing through the expansion stage. So generally series a, series b at investment, and then as an operating partner. I work closely with the founders and portfolio teams around growth and go to market strategy. And probably no surprise to you, one of the most hot topics across all of them is how do we monetize our products? And so I've worked with probably 30 plus portfolio companies around pricing and packaging over the years, and then I'm an open book. So I like to share anything I'm learning. I like to open source it and share it publicly. And so I share a lot of stories, research and data around monetization and other topics pretty publicly. That's me in a nutshell. I think we met, was it at the Saster conference? I think I was doing a pricing talk. You were in your previous gig, hadn't started pricing IO then.
[00:02:21] Speaker C: Yes. So this was back in my vista days. I was at a conference. You're right. I think it was Saster and you gave a really good talk on pricing and the audience just like swarmed you after that. You were just in this middle of this gigantic ocean of people and I thought, you know, I think I'm going to grab something to eat then something. I said, you know what, let me, wait, let me go ahead and say hi to this guy because I really connected with a lot of what you said. As someone that's helping a lot of portfolio companies with their pricing and you also helping a lot of portfolio companies, I just said, man, I need to talk to this guy because there aren't that many of us out there, right? So let's say hello and we've been in touch ever since. And I also gave you a big shout out in my book and just really mad respect for your point of view and some of your candidness, actually, which I really love. So let's talk a little bit about the roadmap today. Right. So today this roadmap is typically formatted by the book street pricing. Right? So we get into rewind what big story in the past, play what's going on today that's working, and then fast forward what will work in the future. But I'm going to add a modification if that's all right. Right. So because you're not in the thick of things in a portfolio company, we're going to come at this at a slightly different angle because you see things at a much more broader spectrum. So I'm going to come at with a few different questions for rewind, play and fast forward. We're going to have a little fun with this today. Is that cool, Kyle?
[00:03:41] Speaker A: Sounds great.
[00:03:42] Speaker C: All right. Fantastic. There is one special question I have for you at the very end, and we're going to save that for the very end. So here's the thing, rewind. Let's talk a little bit about, I think when companies start their evolution of pricing, this is something you and I have also talked about before. They typically are underpriced. They're usually finding themselves finding product market fit and all that, and they start gaining some momentum and nobody wants to screw things up, nobody wants to slow down sales. We got to get customers in. But as that happens over time and you keep building and adding value and expanding, then there's this natural point where you start to be underpriced and then these natural jumps and evolutions as the life cycle continues. And I want to go one step behind that. I want to understand what are really these companies doing at these junctures as they're jumping in price and capturing more of their value. How does that sound?
[00:04:34] Speaker A: Yeah, that sounds great. Let's dive in.
[00:04:36] Speaker C: All right, man. So open things up, right? Give me that beautiful perspective. You did it a few times before in growth unhitched like those nice jumps or evolutions, and then we'll get behind it.
[00:04:46] Speaker A: So I regularly survey SaaS companies and I surveyed 1000 b, two b software companies around their pricing evolution. And what I found was between companies starting to monetize and getting to product market fit, they increase their atv or their average contract value by 60% or average annual contract value by 60%. So pretty big jump ultimately in price in a short period of time. Then when they go from that product market fit stage to growth stage, they increase acv by another 40%. And then when they get from there to that Exeter IPO stage as they're approaching 100 million, there's another 20% acv. So you add all that up, there's a lot of growth over time comes from pricing and packaging and the compound effects of it. But what I've noticed is that's not just price increases. Hey, we're going to increase price by 20% every year. There's actually some really interesting things going on behind the scenes.
[00:05:42] Speaker C: Yeah, I completely agree with that. And the thing is you can see the jumps, right. And by percentages makes a lot of sense. There are other things happening. It gets a little bit tougher to raise that price. You got competition, you got raising expectations from customers. All those things start to factor and weigh that in. So let's focus in on and telescope into that first jump. It's a big one, right. And it's probably the most scary. So I want to unpack that a little bit. What are companies doing to make that first jump?
[00:06:09] Speaker A: The big thing for me is that first jump from seed to product market fit is about confidence. People actually have a lot more confidence to charge closer to what they're worth. And so in the early days for many startups, you don't want anything to get in the way of getting customers to try the product, give you that feedback to make a better product. So you're intentionally up, maybe underpriced. In the early days you offer sweetheart deals to your design partners. I often tend to find in some of these early contracts you have flat rate pricing where there's an unlimited deal for the customer regardless of how much they use or how many users they have. You don't necessarily know what metric to charge based on and so unlimited is just easier to manage all around and also doesn't create friction in deals. And so early on, you have that increased confidence about, hey, you're starting to understand who is that ideal customer that you're selling to, who's actually valuing your product the most, right? Instead of selling to everyone, you get much clearer about that ICP, and you find that that ICP has a much higher willingness to pay than the average person out there. And so you start to build more confidence and repetition around asking more about what you're worth. The other thing I've learned is that in those early days, your growth comes from new customers who you've never talked to before, because you just don't have much of an install base. And with new customers, they don't notice price increases. To them, this is just how your pricing works. And it's either fair or it's not fair. And so you're able to use that to really get a lot of feedback by testing pricing changes with new cohorts until you start to find that balance between, you're starting to capture more of the value your product creates, but you're not creating too much friction where you're losing deals or slowing down the sales cycle.
[00:07:54] Speaker C: Brilliant, man. Brilliant. I think that when I think about that confidence building you talk about, that's a big, big theme for me. It's all over my book when I talk about pricing is confidence, but where does that really come from? And what you said that the repetition, right, like just doing it over and over again, but also, if you do it right, the feedback loops that come in in this early stage, I have this other saying of learn before you earn. And so I think that first period is really about understanding who you're really a good fit for, who you're not, frankly, which is also really important, understanding how they're getting value, how that value is growing. And like you said, when you're winning, you can also kind of understand the value. You almost believe more in the value, right. Because there's lots of insecurities in the beginning stages of any journey on the entrepreneur spectrum, right? But when it comes to SaaS, there's just so many moving parts. The product is changing, the markets are changing, competitors are coming in and out. And so it's a very high pressure, high stake situation. So you get to the stage where, okay, I feel good about making this price increase changes. You send new customers, which is absolutely right, because they don't have anything to anchor you against or similar to the customer base, right. Now, but let me ask you this about that customer base. What are these guys doing those 60% jumps? Are they just taking them up and uplifting them as well? Are they letting them, I don't know, get grandfathered into the old pricing, which is also a hot topic. What's going on with the base when you see these companies jump so high?
[00:09:18] Speaker A: Well, in these earlier stage, companies say you're 500,000 in ARR right now. You might have targets to get to one and a half, two, 3 million over the next twelve to 18 months. And so most of that growth is going to come from new customers. And you could raise prices on the existing cohorts, but even if you raise prices by 20%, you factor in some churn that's only getting you maybe $100,000. But you need to add over a million to hit your goal. And so there's some room there. But for many folks, they go, hey, look, let's focus on new cohorts.
We also recognize these early folks took a chance on us. We were an unproven startup and they've referred their friends, they've referred other people, they've done case studies with us. These have been really valuable partners. We don't want to overly rock the boat with them. And so in the early days, many of them do leave these design partner types of customers on legacy plans as they go and increase acv with new cohorts.
[00:10:21] Speaker C: Yeah, I always have a little hello hate relationship with the grandfathering thing. I think it's a good tool to use, but it can be abused, right? I mean, folks can kick the can down the road. And I always say, listen, the longer you delay this adjustment in price to get them back to market, the harder it's going to be. And so I always think that you want to be super selective on who you grandfather in. Like you said, maybe a great partner case study, someone who's really helping you win or helping you gain traction in a market. But to every single one, you're right, there's going to be some folks back there who got really sweet deals, maybe times of desperation or big discounts or whatever they are. And some of those are going to churn anyway, right? Some of those that were price buyers are going to leave anyway. And so getting that adjustment and having everyone, this is the big thing for me is that if you let it go too long and you have a decent amount or big enough of your cohort size hanging out in the old legacy models and legacy pricing, and it makes it really tough to take the next step, which I want to get into here, which is that 40% jump which is now you're in growth, you're moving, you're humming, you actually have staff now and people to do stuff. I want to get into that 1 second, but I just want to point out that I think that as long as your cohort, that grandfather cohort is small, relatively small compared to overall base over time, then it's not going to overly hurt the economics.
But yeah, you don't want to rock the boat on someone who's really helping you win. And for what? Another one hundred k? Like you said, it's just not even the juice is not worth the squeeze, man.
[00:11:50] Speaker A: Yeah, absolutely. But it's one of those things where in the early days, especially when you still are trying to figure out what your pricing is, if you migrate those legacy early kind of design partner customers and then you want to change pricing again in a few months because you're still relatively early as business and you want to move them to new pricing again in just a few months later, that can be also really painful. So what I encourage earlier stage folks to think about is, hey, for now at this stage, let's leave existing customers alone, but let's let them know that they're on legacy plans and getting a much better deal. And if they were to return, they'd have to come back on new pricing. So let them know that they've been treated in a special way and that's probably also going to help them feel like true partners with you and appreciate what you're doing. So do that there in that instance. But don't let that become the norm because to your point, as soon as you start reaching scale, let's say you're 1020 million ARR, a lot of your growth is going to come from the install base both in terms of renewals and expansion. In effect, I was just actually doing the math with the latest data set that I have. And as companies hit about 20 plus million in ARR and their growth rate comes below 50%, about half of their growth comes from expanding existing customers and about half comes from acquiring net new customers. And so you got to find ways to keep expanding that install base. And if you just have them stay on the old plans with unlimited pricing kind of flat rate agreements, there's no path for expansion.
[00:13:30] Speaker C: I had to drop my pencil on that one because the thing is that I always thought, and this is a new data point for me because I thought it was around 40 ish percent somewhere in that neighborhood, 35 40% but half. I mean, that also talks a bit about where the right structure is going to help you. Right? The right tiers, the right add ons, right. All that stuff, the right mechanics. And I fully, fully agree that overall, if you don't have a plan to expand, it's going to be really hard for you to reach those growth goals. Right. That's really well said, dude. Let's get into that next jump. Because that next jump, I think at least I have a hypothesis. I'm going to share it a little bit. It might be different than yours, but I think you really got to look at that structure when you start moving into the next, the next foray. But what do you see there with that big 40% jump?
[00:14:13] Speaker A: Yeah, great call out. So if the first stage is all about confidence around pricing, the next stage, in my view, it's about strategy, right? So coming up with a pricing strategy that actually works for a sales team and works to grow the business in at least some foreseeable future. So you have data points on your past customers, you understand the value that they're getting from the product. You know who your ideal customer profile is, right. You know how their usage patterns change over time. You've also launched more and more new products or new features that you might want to charge for separately, or that some customers need, some customers don't need. And so in this stage, you really get smart around what are the packages, what is the metric around your pricing? What's the structure around how you price? To what extent are you following a usage based model, seat based pricing, feature based packages, or some hybrid mix or combination of all of that. And then you want to make sure that that's codified so that your sales team can actually have really clear guidelines around how to approach a customer and how to sell in a consistent way to generate that predictable revenue and not have the CEO need to look at or approve every deal. And you also want to make sure that structure allows you to land new customers at a fair price when people are just getting started and trying out what you have to offer, but then also creates that path for expansion so that you can expand as customers are seeing more and more value over.
[00:15:40] Speaker C: Yeah, word of that. And you mentioned about also getting sales and giving them the right points to help with expansion, but let's flip that to the PLG motion where there is no sales. I'm not sure if you know much about PLG, Kyle. We're going to have to get into that. Right?
[00:15:54] Speaker A: But think a little bit about that topic.
[00:15:58] Speaker C: Give me a little bit of your perspective. If there's no sales whatsoever, this is all product led. What do you see?
[00:16:03] Speaker A: Well, I do think that it can be a bit of a misdirer with PLG, is that there are companies at Lassie and famously for a while had no sales team or no kind of classic sales team. But PLG is often about a spectrum, right? Where you think about your product is actually a really important driver for landing and expanding your customer base. And you can think about that both in terms of, on the acquisition side, free trials, freemium products or free sidecar products, and then a self service conversion, normally at a low dollar size, maybe for an individual or small team, and then expansion. That happens kind of naturally or organically as people collaborate, as you have viral loops, as people use the product more and more, and then often sales comes in later when, hey, look, this customer is using the product a lot more. All of a sudden they have ten plus seats, procurement starting to ask questions, right, security wants a review, and so you start having sales come in for bigger deals. So when PLG comes into play, I really think about how do you deliver value to your target customer before you capture value, so they can really get a taste of the product before they have to buy? And also, how do you design pricing so that that user of the product can try it out, really understand how it works, and then they advocate from the bottom up for it. So often in SaaS, traditional SaaS, we try to get to the decision maker as fast as possible, and we still got to get to the decision maker in PLG businesses if we sell bigger deals. But you often start with that person who's willing to put in the sweat equity to actually try out the product. And that's probably not a vp or c level. That's probably everyday marketing manager, engineer, product manager. But they do the work to find value and they help to advocate for broadening that value within their organization.
[00:17:57] Speaker C: Yeah, and that's the advocacy that gets the engine going. I love that you said that because I always looked at product led as not synonymous with product only. Right. Like, there's other things that happen that guide and get folks up, especially for SaaS companies that are really attacking the full tam, right? You have your smaller buyers, you have mid size, you have large ones and large buyers. Yes, you could have that natural AE motion that goes out there and hunts and takes six to nine months to close a deal. But you could also have folks internally adopt a product quickly with low friction, understanding that value. You get that internal champion and internal advocacy kind of bubling up. And that's a much different angle. I actually think it'd be a very powerful angle for getting folks to win on some of those sales deals, which I want to get into selling SaaS here in just a little bit. But I do have one more jump in that spectrum in that evolution right now. We talked about confidence in the beginning, we talked about strategy in the middle. What happens with that last 20% jump as they're getting bigger and whatever IPO and all those things, what's going on there?
[00:19:04] Speaker A: That stage is all about optimization.
You started off as a relatively simple business with a simple product, probably just one product, but you start going to multiproduct, maybe you started in the US, you go international with additional geos, you go after additional segments with, hey, we have a commercial team and an enterprise team and a strategic accounts team. And so you start to really optimize everything you do around all of those different segments, those countries, those product lines, those add ons. Pricing gets a lot more complex and there's a lot more science that goes into it, a lot more financial modeling, customer analysis. There's more and more of the pricing increases that come from the existing install base. So you also worry a lot about, hey, any changes to pricing and packaging, how much cannibalization might happen. And that's honestly where many companies start looking into bringing in a dedicated pricing employee to really own all of these initiatives as they understand that this doesn't really go away. They're constantly making pricing decisions and they could either do it in a consistent, coherent way or in a one off way where it's like, hey, we're ready to launch. What's the pricing for this product?
[00:20:17] Speaker C: Yes. And everybody hold on to your butts, right? Because here we go. We're about to put this out there. I was thinking a lot about what you just said, the optimization piece, because you're a little bit more mature now in measuring. You have a little bit more staff, you got more data, there's lots of things going on, and you just got good old fashioned experience, right? Like you just sometimes need to do it and see things play out over time to get better at it and continue to get to that point of optimization, right? So if I had to wrap this up in a neat, tidy little bow, right? I'm thinking that first jump is all about confidence, which is, by the way, more art than science at that stage. And then that next jump is all about strategy, which you can start balancing the art and science a little bit more there. But then that last jump optimization is a bit more science than art because of all the data experience and everything you've got. That's how I look at it and put my own little spin. But that's, I think, a phenomenal thing for SaaS founders and operators out there to know, because this is a very natural evolutionary journey. And companies who monetize super well go through this and it's okay. It's not easy, it's hard just to be blunt about it, but it is doable. And if you put the attention, focus, you're going to see the results. Right. You did hint a little bit on, we talked just a smidge on SaaS selling, right? So let's move from rewind, let's get to play. Let's come up into the present day. And man, last year was freaking brutal. One stat that I read was 34% of b. Two B SaaS sales reps hit quota, which is pretty low, right. I always like to go by the 80 80 rule, right?
[00:21:46] Speaker A: There were fewer of them last year than.
[00:21:50] Speaker C: Those crazy waves. You're right, man, there were fewer of them and they were working really hard to try to hit that quota. And just procurement, they just had the upper hand. They had the seed. Cfos are like asking ten x the questions they used to ask before. I mean, it was just getting super tough.
Let's just open things up a little bit on how in today's environment, how could you even leverage pricing, packaging, monetization strategies to help you win, man? Because it's tough out there.
[00:22:16] Speaker A: Yeah, it's a great question.
The thing for me, when I consider what's going on, the first thing I go back to is who's the target customer? And maybe it's changed in this economic environment. And so when I look at many tech companies, they're selling to other tech companies that look like them. And who's left out are main street businesses, or businesses that are more in traditional industries, that are less mature in their digital transformation, but still need software, still also need AI products, would still value a lot of offerings. There isn't as much of a concerted focus on selling to that audience, because they're not the early adopters who get it, who have fast deals, they buy in a different way. And so the first thing I would encourage folks to look at is, hey, are we selling to the right customer right now, the group that is willing to pay for what we have to offer and does see value in it? And how do we build a go to market motion around that target customer, because the last thing you want to do is treat a segmentation problem as if it's a pricing problem, right? Or the pricing is necessarily the first solution. Once you've honed in on that target customer, and maybe that customer is more price sensitive than before or just has a much kind of smaller budget that they're working with, I start looking at what's the realm of the possible in terms of pricing approaches that work well for this customer in this current environment. One that comes to mind, for example, is looking for smart bundling strategies, whether that's within your own products or your products plus other folks'products, because people are looking to have consolidated number of vendors, they hope that that consolidation will lead to reduced overall spend and just less things to manage. Less vendors, less contracts, and ideally also products that just work together. So having less of that SaaS sprawl inside organizations. And so if the trend in 2021 2022 was best to breed point solutions, the trend in 2023 2024 were one stop shop platforms where you get a really great value across a lot of things that you're trying to do. And so look for packaging and bundling approaches where you can deliver that message to customers and help them understand the cost savings by standardizing on your product. And that doesn't necessarily need to mean major discounts. And in fact, there could be smart strategies where you give a part of every product in the core package, but you still have additional packages if people want advanced functionality within a given module, so you still have some of that expansion opportunity.
[00:24:57] Speaker C: Super smart, super smart on all that. It's interesting. The segmentation is not a pricing problem. They're. Right. Segmentation is more about the who and pricing is more about how you're selling to them. Right. They are related, but different. And you don't want to think that a segmentation problem is really a pricing problem. We have to actually solve the segmentation piece first, I think. But the other thing too is your bundling approach. Right. And this is the modularity thing that I was thinking about, where a lot of companies, maybe they saw good, better best on another pricing page and decided to copy that. And they have these three tiers and that's it. Or they have a one and done, which is like we're just going to sell everybody the same product and just one thing and then kind of just gate on either usage or storage or something else. And I think that limits them in the sales process. Right. So if you think of ways that you can create good bundles that resonate, I like to look at them as in terms of use cases, are they actually solving something together? Like my bundling philosophy is that not every product goes together pretty well. It's got to either have some ability to solve the problem deeper or more completely. Either unlock another use case, either bring in a new piece of data. It also can't interrupt your onboarding and implementation too much. So if you bundle too much going on, you could start lifting the onboarding and training effort, which takes longer to get to value in some cases. Right. And so I always make bundling very smart, intentional, like, there has to be a really good reason that you can say loud and proud for the bundle, but man, it is so powerful to get the right combinations in there. I love that and I want to make sure I heard this right. You said bundling with your own products or with others, meaning partnerships and being able to bundle or fit into another ecosystem or another set of products, that's super smart.
[00:26:44] Speaker A: Exactly. Well, in partnerships to that point, partnerships has been a brighter spot in terms of pipeline building and demand generation. So if you have a partner who already has access to the target customer that you're trying to sell to, and they're trying to deepen their relationship to be stickier, to combat churn. Right. Drive a better customer experience, there's more incentive for them to bring you in, especially if the sum of the parts is greater than each part on its own. And so I encourage many folks to look into some of those partnership opportunities and creative ways to work together with partners to both gain access to new customers, but also just deliver a lot more value.
[00:27:23] Speaker C: Yeah, I love that. I love both of those approaches. Actually put one more on top, which is keeping that signing and contracting friction really low. So not putting a ton of clauses, you're going to get a lot of pushback. These buyers are getting bolder. They're pulling out auto renews, they're pulling out auto this and price increases and everything else. So you have to make sure that you're picking your battles, I guess, when it comes to the contracts and not trying to put too much in there and create too many legal cycles.
[00:27:50] Speaker A: Absolutely.
[00:27:50] Speaker C: That's the last one on that one, man.
[00:27:52] Speaker A: At that point, it's interesting. One kind of other bright spot around partnerships that I've seen is folks are looking at partners with some of the bigger cloud players. For example, folks like AWS and AWS customers often commit to a large amount of spend over a year or multiple years. And for many AWS marketplace oriented products, AWS allows the customer to buy third party products via the marketplace, but draw down their AWS credits, or portion of their AWS credits on those third party products. And so the contract's already in place, the relationship's already established. Right. The customer already has allocated budget. It's just sort of taking a piece of that budget towards your solution. And so there's some interesting ways that actually partnering with some of the bigger players or just other players in your space make for an easier buying process for the customer.
[00:28:45] Speaker C: Absolutely. That AWS is a perfect example of that, man. Just to replay this, if you think about it, right, you got that segmentation, that sharpening, that sharpening the focus. You also have the smart bundling, whether with other products or with partners, which can open a lot of doors, which I think is smart. And then I threw in the low friction on the contracting. To me, it's a war out there, right. And so for sharpening your tactics, gaining allies, laying low and picking your battles, I think it's all around the way these B, two B SaaS companies can navigate and still win and keep growing. Right. But I'm going to take us to the last part of our journey here, right, so fast forward, what's going to be in the future or talk about a future in pricing. And I think that a fun one we can get into, Kyle, is AI and how this massive explosion of AI is coming in. Companies are adopting it, making it, sprinkling it into their products, all these things going on. And there's going to be some implications to, I think, pricing and packaging models as a result. So let's open this up real quick, man. AI, what's going on? How do you think it'll influence pricing?
[00:29:52] Speaker A: Yeah, it's a fascinating time and we're really learning in real time here. So for me, the first thing it comes down to is if I look at AI product development, just about every SaaS company shipped at least one AI feature over the last year, right? But many of them shipped it with no plans for monetization. And in some cases that was fine, but in many cases it was sort of like, here's a product, we hope we use it. And, oh, by the way, our costs are going to be a lot higher if you use it a lot. So maybe don't do that. But then you look at some of the savvy software vendors out there and they really try to understand, all right, we're not just shipping AI, we're understanding what are the use cases for the customer that could benefit from AI? What is the magnitude of that challenge that that customer is experiencing and how much savings through time, savings, cost reduction or revenue generation can we generate by bringing AI into these workflows? And you can start to look at pretty sizable business cases with the customer of AI plus software to solve a bigger problem where you normally wouldn't have been able to solve it with software alone. And so if I look at some of these business cases, the economic value generated by AI products can be extremely high, but generally it has to be something that is purpose built or has some sort of vertical alignment around a really clear use case or workflow for the customer. And it's a solution to solving that pain point the customer has, as opposed to a feature that is something that maybe goes with our product, but that we don't really necessarily know the use case or the pain around it just yet. So first thing is understand that business problem you're solving and the size of it. And I think that the upside is a lot of potential value that can be captured. The other thing that I look at is, all right, okay, we understand there's value here that we can capture. How do we capture it? And in SAS, we often think, all right, let's charge a seat license. Is this going to be $50 a seat, $100 a seat, $150 a seat. But with AI, you don't really need a human logging in to see value. In fact, kind of the whole point is that AI is doing a lot of the work, which means humans don't need to log in. And either humans can log in and get superpowers on what they're doing, or a workflow can be accomplished without manual effort required or without as much manual effort required. And so I look at that and I go, all right, well, we can't just charge on seats.
How are we going to do it? And there's some pretty creative approaches that folks are coming up with both around usage based models. And then I think more interesting on the bleeding edge success fee models.
[00:32:38] Speaker C: That's an interesting one too, because success, I always find those to be the hardest pricing models to pull off. Like you really got to understand deeply what's going on with the product, how it's getting outcomes, things like that. And the one area that I really like, I know where you're pointing out, man, there's some per resolution type pricing I've seen out there with some AI models, especially the ones that are more conversational in help centers and things like that. The value is obvious and it's so aligned to go with a resolution because obviously a resolution done by AI helps you, and charging for that makes a lot of sense. And the beauty of it is you don't want fewer resolutions. You may want fewer licenses, right? Because you want as few people to buy it as possible, but I'd love that resolution. Any other examples you've seen out there on that model front?
[00:33:27] Speaker A: Yeah, the resolution pricing in intercom is super smart, and I love when you can align with what the customer is trying to achieve. Another example is just a portfolio company of ours called chargeflow, essentially AI chargeback resolution software. And so if you are a merchant, whether it's shopify merchant, or just anyone selling something online, you've probably seen your share of folks who buy something and then for whatever reason, they're not happy with it, or maybe they couldn't arrive, and instead of asking for a refund from you or returning the product, they go to their credit card and they request a chargeback. Right. You might have done it before. I've done it once or twice. And that's actually a huge pain for a small business to manage. There's a lot of paperwork and documentation they need to share around it, and many of them just aren't able to get to all of these, or don't know how to get to all of these because they don't have that specialized expertise in house. So they lose a lot of money from these fraudulent chargebacks that they don't have a response for. And so what chargeflow does is they say, hey, connect in your systems and we'll be able to take those to file the chargebacks on your behalf using AI and automation, and there's no fee for you if it doesn't work or even just to set up everything, it's free to use and we'll take 25% of whatever money we're able to get back for you. And so that way charge flow is immediately driving ROI. This is revenue that that customer probably wouldn't get right if they wanted to. They could just send the chargebacks that they weren't going to respond to themselves and have it be kind of pure incremental revenue. But I think the other great thing is as more people use this product and it gets smarter, the resolution rate can go up or the time to resolution can go up, right. And so the product gets smarter and smarter and drives more ROI for the customer and more resolutions over time. It's a very win win pricing model, and it actually resonates in this buying environment because the customer knows there's no commitment and it's just kind of purely going to help their bottom line.
[00:35:36] Speaker C: I couldn't have said it better myself. Right? That's that virtuous cycle that we love to see. That's the image and aspiration for a lot of pricing models out there, right? Is can we get super aligned and give value? And you know how much psychological safety you just built into that whole thing, right? A lot of people forget that some models today are loaded with all these different traps of, ooh, I'm going to spend too much, ooh, is it going to have these shelf wear, ooh, this is not going to be good for me in some economic way if you create psychological safety. And that alignment, there is a beautiful example of it. People will buy like they will buy. And I think that's one of the key unlocks there. I'm so glad you brought up those examples because I think folks need to start thinking that way in the AI realm. As AI is not going anywhere anytime soon. It's actually going to continue to evolve and move it through its different phases of the adoption curve. And I always looked at last year as play eye, where we're experimenting and messing around, and this year, as may I, where we're like, okay, shit, this thing's expensive. We got to figure out what use cases and how we want to buy this and apply it. So super wonderful having you on the show, and I want to thank you for bringing and dropping some knowledge bombs. Getting street with us today, man. But I do have my one last question before we wrap up, man. What was your favorite jam growing up in music? Give it to me. It doesn't have to be 90s hip hop. You know me and you know my genre. What was your favorite jam, man? Let us know a little bit about Kyle.
[00:36:59] Speaker A: Honestly, I was a closet Brittany fan growing up, and it's like one of those things where you couldn't admit it or you would be made fun of in school, but I just know going home, watching Trl with Carson and that, oops, I did it again. Music video was just epic.
That was my jam. That was viral before things went viral.
[00:37:24] Speaker C: Oh, my goodness. Closet Brittany fan. You don't need to be closet. It's cool, right? I always, like, slave for you. I remember that concert she did with a big snake on the back of her. And listen, she had the right stuff. Everything you can say about her. She made some phenomenal hits. So I'm giving you a high five here, loud and proud. All good with the Brittany, man. So thank you for bringing that one in.
[00:37:47] Speaker A: A little different from 90s hip hop.
[00:37:50] Speaker C: Just a little bit, but still iconic nonetheless, man. So look, thanks for bringing everything. I think folks are going to get a ton of value from this. Ladies and gentlemen, Kyle Poyer. And for those of you who want to follow him, go to growth unhinged sign up right now. It's loaded with great data, metrics, perspective. Follow him on LinkedIn. Kyle is just, I think, one of the big top thought leaders in the space. All right, so team, please take these lessons to heart. And remember, stop guessing and start growing. Until next time, thank you and much.
[00:38:24] Speaker B: Love for listening to the street pricing podcast with Marcos Rivera. We hope you enjoyed this episode. And don't forget to like and subscribe. If you want to learn more about capturing value, pick up a copy of street pricing on Amazon. Until next time.
