Think you can get by on a “just for now” pricing model? Think again. “Nothing is as permanent as a temporary fix,” warns Akshat Gupta, Pricing and Monetization Lead at Airtable.
“You have to be really careful about the short term decisions you're making, because they can be impossible to untangle later as the model becomes entrenched in your processes,” he explains. While experimentation is essential at early stage startups, you must be extremely thoughtful about picking your starting point with the longer term in mind.
Founding teams need to remain vigilant about band-aid solutions becoming permanent. If you leave your v1 pricing strategy to languish as your organization scales, this presents a major threat to business growth, leaving ample opportunity for your competitors to leapfrog past you with a smarter pricing model.
So how do you balance experimentation with thoughtfulness, while optimizing pricing for maximal business growth? To get to the bottom of it, we sat down with three experts—Lekha Doshi, VP of Global Operations at LinkedIn; Ross Biestman, Chief Revenue Officer at ServiceTitan; and Akshat Gupta, Pricing and Monetization Lead at Airtable.
Product market fit versus pricing—which comes first?
There’s a “chicken or egg” style conundrum at the heart of pricing: Does product-market fit come first, or a sound pricing model?
“I believe that product market fit should come first, but pricing should be a fast follow,” says Akshat. “It's not an afterthought.” While many startups initially focus on product-market fit and address pricing much further down the line, Akshat insists this isn’t the right answer either. “Pricing should inform your product roadmap and packaging as you go-to-market.”
It’s important for companies to have a monetization mindset early on. “But not before finding product market fit,” says Akshat. He points out that many companies target startups in the early days, but eventually realize that they need to appeal to enterprises to monetize better. The problem is that they often discover they lack key features to even start a conversation with enterprises. What’s more, these features are not on the roadmap for many years. That’s why it’s crucial to have a rough sketch of the future when you pick your initial pricing strategy, even if you don’t have a perfect blueprint of the years ahead.
Lekha agrees that product-market fit should come first, having witnessed the importance of this approach firsthand at LinkedIn over a decade ago. LinkedIn invented the concept of passive recruiting. Previously employers would post jobs to appeal to talent actively looking for a new job. Linkedin developed a market around passive recruiting—the practice of trying to attract folks who are not necessarily looking, since these are often the best, most in-demand talent. The pricing question for Lekha became: “Do you price that against a $100 job board listing? Or are you actually solving a different problem for recruiters?”
“After we talked to many customers, it became clear that what we were providing was actually way more valuable,” says Lekha. “The alternatives to what we provided either took expensive agencies or countless human hours to get close to.”
In hindsight, Lekha attributes the massive success of the product to achieving product-market fit before nailing down a pricing model. When they brought the new offering to market, “It was easy for our sales team to explain our subscription-based pricing model because we had a really compelling story around why what we were delivering was substantially more valuable than what they were initially seeking.”
Common pricing mistakes to avoid
The costliest mistake Ross sees organizations make around pricing is being wishy washy about their goals. “Start with a hypothesis,” he advises. “If we change X, how will this change the market's receptiveness? After you pick a hypothesis, establish very specific success criteria. It can't just be, ‘we want to charge more for our software.’”
Ross shares some examples of worthy, specific goals to pursue.
- “We want to increase close rates.”
- “We want to pursue new segments of the market that are currently priced out.”
- “We want to attach really valuable products to our already successful customers.”
In his current role at ServiceTitan, after picking a hypothesis and honing in on specific success criteria, Ross and his team dove deep into customer research. “We took a handful of our best sellers off the phones and out of the field, which was terrifying to be honest. We dedicated them to revamping pricing for two quarters, knowing that it would lead to a dip in MRR and ARR bookings. But we knew that ultimately, if we got this right, it was going to pay dividends in the future.”
Ross formed a “tiger team” who would go out on the front lines and then report to the steering committee about the success of different testing iterations of pricing levers, anchors, discounts, and packages. “We quite literally had our team walking the halls of these industrial warehouses and HVAC shops,” he recalls. One of his biggest lessons was discovering how his customers priced their own products and services. He then aligned his own software payment structure to their fee structure, allowing them to tether the value they provide to the profits their customers earn.
How do you balance the trade-off between adoption and monetization? “That's a key question that comes up regardless of the size or the maturity of the company,” says Akshat. “The answer can be very different even for different products within the same company.”
In Akshat’s previous role at Stripe, he worked on a product with an extremely generous freemium model. The leadership team reasoned that it was the right move, given that this product was in its early stages, was feature-light compared to competitors, and targeted price sensitive startups. But over time, as the company got more serious about software and services as a strategic area, they wanted to extract more value.
“As I dug into customer research, I learned that most customers were not even aware of the freemium model, and that was not the reason why they were coming to this product,” says Akshat. “Among other things, they loved that it was easy to integrate with their tech stack.”
He also noticed that the freemium offering was so generous that many of these customers would not even hit their usage limit in a year. “Basically we were just giving away the product for free, which as a pricing person, I obviously sought to change.”
This led to a lot of tough conversations with cross-functional leadership, because leaders were reluctant to lose any adoption in the name of monetization. “We eventually decided to completely remove the freemium model. Remarkably, we didn't see any change in adoption. It was not an intuitive learning, but one we could have only discovered through deep customer research.”
Building a dedicated pricing team
Historically at ServiceTitan, pricing had been a shared responsibility across marketing, sales, and finance. However, over time, Ross eventually found that “the body of work became so much that only dedicating 10 or 20% of our week to pricing and packaging wasn't enough to keep up.” This squeeze led Ross to make a full-time hire to own the pricing effort, who reports to the CFO. While the Finance team owns pricing officially, it remains a cross-functional effort.
“Pricing should be an evergreen initiative. That's why we felt it needed a dedicated owner to stay on top of things as our go-to-market structure became more complex, we created new products for upsell, and found new segments to pursue. In retrospect, I will tell you that I wish we had made a full-time pricing hire sooner.”
At LinkedIn, pricing sits the marketing organization—right between sales and products.
“Marketing is the ideal home for pricing at LinkedIn. We rely on a collaboration with the product team to optimize packaging of various feature sets. And then at the same time, we stay tight with sales to be close to the customer to understand what's actually working.”
“Since pricing is a cross-functional body of work in many ways, it's actually really hard to do it really well, especially at large companies,” says Lekha. “But the number one thing I see that separates those who succeed from those who flounder is a constant feedback loop between your company and your customers.”
Lekha also underscores that good data is mission critical. “It's very important to have the muscle to measure incrementality of the impact of pricing,” she says. In addition, building a pricing team means being a visionary leader who rallies your team around common goals.
“The best way to do that is to have conviction on how much impact is going to have on the top line and the bottom line. You have to deeply believe in the power of pricing. When you feel it in your bones and express that to those around you, that’s how you sell it to your team.”