The best time to fix pricing is when urgency is lowest.
I’ve recently spoken with a number of scaling B2B SaaS businesses about their pricing. They had smart products, strong demand and valuable blue-chip client contracts running over many years.
But when a business is experiencing really strong growth, there is very little urgency to fix pricing.
It’s understandable, right?
When you are growing because you have a great product, pricing does not feel like a problem.
Revenue is rising, deals are closing and the board and your investors are happy. Why would you open up the engine mid-flight?
But here’s the reality: growth does not fix a bad pricing model, it hides it. And worse than hiding it, your growth sucks all your bad habits into your operating model, layer by layer, so eventually it becomes “this is how we do business”.
The 3-stage disappearing act.
Stage 1 – the errors are invisible.
In your early growth stage, pricing mistakes produce no visible symptoms. You care far more about winning business than you do about having the best monetisation model that supports growth and enables future value.
Any signals that would normally expose a pricing problem are drowned out by the signal that everyone is excited about: growth.
Stage 2 – the errors appear years later, at renewal.
Once you start to build a book of client contracts that renew annually or even over multiple years, you are baking in your margin profile for many years to come. And when it comes to renewal, you find your old contracts are out of step with the price level you want to sell to new business because your product has improved, and your clients are anchored on the old prices.
Stage 3 – you build your organisation around the problem.
This is the stage almost nobody talks about, and it is the most expensive one. As your revenue grows, the business starts to feel the friction of an incoherent pricing model so it responds by putting new processes in place:
- A discount approval process
- Executive reviews for strategic accounts
- Setting up a deal desk
- Heavy lifting at renewal time
- Approved exceptions that break pricing rules
All of these processes seem the right solution to the problem, but none of them address the root cause.
The cost of bad pricing doesn’t show up as a line in your P&L called “bad pricing”. It shows up as additional headcount, cycle time and margin erosion that everyone attributes to “how our market works”.
What bad pricing looks like in the early stages
The businesses I referred to in the introduction were experiencing hyper-growth but it was apparent from a brief look at their situation that they were building many bad pricing habits:
- Charging different customers different prices with no clear logic as to why
- Charging the same customer different prices for the same product and hoping that they could “get away” with it
- Using the same pricing model for completely different verticals and not understanding why it didn’t transfer
- Using the wrong pricing metric (“per seat”) which hindered growth because the total price was too expensive for prospects
- Spending significant amounts of executive time discussing and debating every large deal
- Focusing on selling what the product does, rather than what it’s worth
- Not having a codified pricing system that can support partners.
Despite all these issues, they both had huge growth opportunities ahead of them.
But what would you do? Would you take the time to address these underlying problems or would you put it in the “I’ll deal with it later” box?
What growth phase leaders should actually do
- Count the workarounds: what proportion of deals are individually negotiated, how many exceptions have been allowed, and how many roles needed to manage your situation (across sales, business development, customer success and finance / billing).
- Ask yourself this question honestly: “what happens if we do nothing about our pricing model for the next two years?” If it’s likely you will start seeing the organisational responses I described above, then you have your answer.
- Price the next opportunity properly, even if you leave the existing base alone. It’s always easier to develop a better pricing model for new business than worry about the impact of price changes on existing customers. Don’t use old pricing models for new products, new markets or new client opportunities. Start afresh and get it right, and see what difference it makes.
Fix it while it’s still cheap
Growth feels like validation, and in most respects it is. But when it comes to pricing, growth is also the best camouflage a problem will ever have.
The businesses that get this right are not the ones waiting for the problem to become critical. They are the ones that address it early on before it becomes too expensive to change.