How To Do Pricing Research

The Art of Pricing Your B2B SaaS Product: Three Tools for Developing a Winning Strategy.

Pieter van Noordennen | Mar 30, 2023

How To Do Pricing Research

Pricing a B2B SaaS product is a crucial aspect of the growth strategy for any startup. A well-structured pricing plan can help you attract customers and generate revenue, while a poorly designed one can hinder growth and limit your potential. In this article, I will share my insights and experiences in developing a pricing strategy for startups, focusing on three key tools: Monadic surveys, Conjoint surveys, and leveraging your sales team.

These are tactics I picked up first in Catherine Tucker’s “Pricing” class at MIT Sloan, and have since refined while building and launching B2B SaaS products at both TripAdvisor and for our cybersecurity startup, Slim.AI.

When used together, these three tools will get you solid, actionable learnings early in the development process, without the need for massive go-to-market operations, complicated polling mechanisms that produce few results (looking at you, Van Westendorp), or relying on the loudest voice in the room.

Let’s dive in.

Monadic Surveys

Monadic surveys are simple, single-question surveys designed to gauge the price a customer is willing to pay for a product. To provide context, you need to present a scenario and a reference price, which is a commonly available public price. This helps to situate the user and get better results.

For instance, you might present a potential buyer with a product description and a scenario where they are shopping at a local convenience store, and a Snickers bar is $1.69. Then, you would ask what they would pay for your product.

The simplicity of Monadic surveys allows for easy data segmentation, helping you identify areas of opportunity and resistance in your pricing model. However, to understand which features your customers truly value, you may need a more complex Conjoint survey.

Conjoint Surveys

Conjoint surveys are more challenging to administer, write, and analyze than Monadic surveys, but they can provide powerful results. They involve presenting survey takers with a series of questions featuring different product configurations at various price points. Users are asked to choose the bundle of features they prefer at a given price.

For example, let’s say you’re selling a computer with various CPU, RAM, Video Card, and Monitor options, and you’re considering prices of $800, $1200, and $2400 based on Monadic survey results. A conjoint survey would present the user with a mix of these options and ask them to choose their preferred configuration and price.

When done correctly, Conjoint surveys can reveal a linear relationship between price and features, allowing you to assign a dollar value to each feature and determine which have the highest willingness to pay. The challenge lies in the complexity of the survey and the potential for user fatigue.

At some point, you need to actually talk to humans to get feedback on your pricing.

Leveraging Your Sales Team

Your sales team is an invaluable resource for gathering price data from the market, as they are in constant communication with customers and potential customers. However, it is crucial to approach this collaboration strategically to avoid potential pitfalls.

Here are three tips for effectively leveraging your sales team:

Make it an experiment: Engage 2-3 experienced sales reps in a controlled experiment, asking them to report every conversation and result in a spreadsheet. This will allow you to analyze the data systematically and reduce the impact of individual sales abilities.
Incentivize wisely: Salespeople thrive on incentives, but be cautious in designing them for this experiment. Rather than rewarding each sale, consider using metrics like net dollars sold or average revenue per sale to minimize potential biases.
Treat feedback like user research: Sales conversations offer invaluable insights into customer needs and preferences. However, it’s essential to evaluate feedback with a discerning eye, staying true to your vision and strategy while addressing customer pain points effectively.

Most of all: Talk to them. I’ve found that in working with various customer-facing functions, they tend to focus on the thing that is blocking the sale (i.e., a missing feature, a competitor’s offering, or the overall price tag) in their notes. But often, there’s a lot of buried and nuanced feedback they are picking up that can help you unlock value for customers without getting into a “faster horses” situation.

Common Pitfalls and What to Avoid

While the methods mentioned above are powerful tools for pricing your product, it’s essential to be aware of potential pitfalls that can derail your pricing strategy.

Avoid frameworks that lack practical experience, such as “Van Westendorp” or “price laddering.” Speaking from experience, while these tactics sound great in an executive planning deck, you’re likely to come back six weeks later with the rousing conclusion that people don’t like paying for things.
Be cautious of internal price anchoring, which can lead to misalignment between your company’s expectations and customer willingness to pay. Just because you want someone to pay a certain amount (based on your costs or expectations), doesn’t mean they will.
Be mindful of the potential for customer fatigue in Conjoint surveys, as too many questions or features can lead to less accurate results.
When leveraging your sales team, maintain a structured approach to avoid having sales leaders interpreting results for you, which can lead to biased conclusions.
Listen to customer feedback during sales conversations, but be careful not to let well-intentioned but misguided feedback derail your product strategy. Stay focused on your vision and devise a roadmap that genuinely addresses customer pain points.

Conclusion: Keep Learning

The important thing to remember about pricing is that it is a journey and not a destination. As Patrick Crawford advised in his interview on Lenny’s Podcast, continuously optimize your pricing through small experiments and be open to making adjustments as you learn from the market. He advises clients to make one subtle change to your pricing strategy each month and continue to learn and iterate. In future posts, I’ll be writing more about how to experiment with your pricing once your product is in-market.

GPT-4 helped with the editing of this article.