Do you charge enough for your products or services? Or maybe your prices are a bit too high, and you could increase revenue by lowering them and attracting more customers. And perhaps your entire monetization model could be reshaped to your benefit.
The job of a pricing consultant is to answer those (and many more) questions and work out such dilemmas. The ultimate goal is not only to increase revenue but make companies more aware of all the elements that lead to good pricing and more capable of analyzing them and making better decisions.
In this article, we’ll explain how we help maximize it.
Pricing consulting: expectations vs. reality
In the last several years, more and more companies have become aware of pricing’s role in the grand scheme of things. It’s a hot new topic, and as it usually goes with hot new topics, there are quite a lot of misconceptions about it.
Pricing consulting is often understood as a set of universal tricks that can be implemented in every company and will always increase revenue. Many of those tricks are well-known to anyone who knows the basics of behavioral economics. For example, you might have heard that:
- it’s better to have $14,90 than $15
- if you have a SaaS, your top pricing plan should be significantly more expensive than the middle option
- it’s risky to have lifetime discounts
It’s pretty easy to stumble upon similar tips when scrolling Linkedin or browsing business websites, and they often ignite the discussion in companies. They’re the ice-breaker when it comes to pricing, especially in businesses that haven’t touched their pricing in quite a while.
So, the story usually goes like this. A business owner or a manager reads a few articles about pricing, hears a few great stories about increased profitability, and then reaches out to a company like ours. What happens next is almost always pretty surprising because we don’t really focus on prices right from the get-go.
The process of pricing consulting
Instead of focusing on just the prices, we start by analyzing all the relevant data, including MRR, discounting, churn, segmentation, researching the competition, and positioning. We often ask questions that don’t seem to have a direct connection to pricing, and because of it, we’re often asked.
Why do we ask all those questions? How are those things relevant?
And the answer is simple. Because pricing is the cherry on top of a magnificent cake. It’s a striker that scores easy goals after a series of perfect runs and passes from the entire team.
And just like that striker, pricing is just a result of a well-thought strategy and system that makes it work in the most profitable way possible.
You can be sure that pricing is one of the biggest reasons Apple is such a giant in the smartphone business. Undoubtedly, they include all those factors when setting the price for a new iPhone and all the crazy “overpriced” accessories that still find their customers. And that leads us to the next crucial question.
How do we know it works?
The average price for a music album in CD version is around $10-15. So, if you ever release an album, you should probably set the price somewhere within that range, right?
Well, there’s a Haitian rapper Mach-Hommy who sells his albums for no less than a few hundred dollars, some for even $3,000. Obviously, he doesn’t print millions of copies of them, but they’re usually sold out on the spot. He made a conscious decision, it’s how he values his work, and clearly, it works.
It works exactly the same way in business. Understanding the value and all that contributes to it makes a world of difference. Just by implementing new pricing, most companies can increase revenue by 10-15%, some even more than that. That’s what we know because that’s what we’ve done repeatedly over the years in many different companies.
What should you expect when hiring a pricing consultant?
As we said in the previous paragraphs, you can expect a lot of questions and surveys. After we have enough information, we can draw the first conclusions. We often go for quick and easy wins that will bring immediate benefits. For example, we might prepare a plan to take care of client grandfathering and make a few adjustments to discounting strategy.
Just like a dentist won’t fix all your teeth during one visit, a pricing consultant won’t be able to create a perfectly tailored value-based pricing in a couple of weeks. Generally, the process in Valueships includes four steps:
1. Revenue Engine Diagnostic
2. Differentiation and positioning
3. Dollarizing Value
4. Implementation & go-to-market
All those steps are necessary, but after we’re done, the job is (almost) over.
When should you expect results?
Compared to marketing, sales, and other areas, the best part about pricing consulting is that results are immediate. There’s no way around it. You increase your prices and watch the numbers grow. Nothing is simpler than that.
However, there’s another, less tangible, but equally important angle. It’s the difference in how the company approaches pricing as a whole. The awareness of what pricing is and what components have to be factored in significantly increases organizational confidence. It translates to better selling, marketing, communication, and all the other seemingly unimportant aspects.
A great example of that is our pricing project for Brand24. The increase in average revenue per user (ARPU) by 23% is an excellent result by itself. However, throughout our cooperation, pricing has finally become a point of discussion inside the company. It’s become clear that if the product evolves, so should the pricing.
How to play with price with confidence?
At the same time, there’s no doubt that good pricing almost always increases revenue, so companies are very tempted to try to implement changes and try something new.
So, to avoid costly mistakes, companies look for external support. In our case studies, you can read about some of those companies and how it worked out for them.
And if you’re in need of a pricing consultant right now, feel free to arrange a free consultation with us here.
