No pressure, but the success or failure of launching new software capabilities can determine the financial health of your company. After months of investment in development, testing, and marketing, the potential payoff from landing new logos and expanding current client subscriptions is what you need to demonstrate growth to your current (and future) investors. Like everything else in life, packaging and pricing decisions are about making tradeoffs: in this case between the priorities of Product, Sales, Client, and Finance personas.
What do these personas care about? With apologies to Tolstoy, each unhappy team is unhappy in its own way, but it’s safe to believe the following motivations are true:
- Sales wants to get paid
- Clients want it for free
- Product wants adoption
- Finance wants accretive growth
Of course we could add complexity to these incentives, and you will likely face some of these complexities (and others) in your business. Does top line growth or profitability matter more to your investors in the pursuit of Rule of 40 growth? Does new logo acquisition or current client expansion matter more to your industry analysts? Does your Sales comp plan pay the same commission rate on expansion sales as new sales (i.e., is the cost of sales equivalent)? Is your product team incented on feature adoption, or build quality? Is the new feature a strong positive differentiator vs competitors, or ‘table stakes?’ And more. For now, let’s keep a simplified view and compare a few practical options to launch your new feature.
Bundle it in
In this scenario, include the new feature at no additional charge with an existing product or edition without changing the list price. Current clients already using the edition that contains the new feature will ‘just get it’ when they receive the new release. Sales will get paid when new clients purchase this edition, or when existing clients upgrade from a lower-tier edition. Finance will likely yawn unless the new feature generates significant market share growth.
This option is best suited for situations when the feature is ‘table stakes’ and restores parity to competitors’ equivalent offerings, or when adding the feature to a top-tier edition increases the perceived value and drives upsell among the existing client base. If your competitive intelligence has shown low win rates and poor perceived value of an existing edition, and your test clients showed relatively low willingness to pay for the new feature on a standalone basis, this option might be your best choice.
Raise the price
When the new feature is highly differentiating and sample buyers demonstrate a high willingness to pay, set a higher price for bundles/editions that include it. Current clients will likely be ‘grandfathered in’ to start using the new feature before a higher price kicks in at renewal. Client Success and Product Marketing teams will use this preview period to gather feedback and testimonials to validate the expected value of the new feature. These proof points will help to diffuse any resistance to the increased price from new buyers. Both Sales and Finance teams will be thrilled by the higher transaction value, assuming that win rate and deal cycle length (key variables in the Sales Velocity Equation) don’t drop concurrently.
Give them the option
A middle-ground option makes the new feature a paid add-on to existing products or bundles. This configuration can get Sales teams excited to sell something new to existing customers who are mid-term in their contract (and retire some quota in the process). Be careful that the new feature, with a value prop of its own, doesn’t get “thrown in” at a discount to close deals — undermining the Product Marketing team’s ability to validate the market’s willingness to pay, trashing the Finance team’s margin forecasts, or artificially depressing the Product team’s adoption trends (if the feature is ignored by buyers who were indifferent to it in the first place). A paid add-on will require a new “SKU” in your catalog and add complexity to provisioning/shipment and run-books for your Ops teams. If your organization has immature Product Launch processes, make sure to give these teams 4-8 weeks notice so they can review, modify, and test their procedures to support the new feature as a paid add-on.
But wait, there’s more
Launch planning can feel like a tug-of-war between numerous groups with competing priorities and often misaligned incentives. While it’s impossible to predict how your clients, prospects, and competitors will react to your launch, the concepts above might help you make a more informed decision on how to package and price the new feature.
For more information about packaging, pricing, and product launch, try these resources:
- The Strategy and Tactics of Pricing
- Top Five Software Pricing and Packaging Mistakes
- 18 Steps to Take Before You Launch a Product or Service
I spend most of my days thinking about packaging, pricing, monetization, and the lead-to-cash cycle for a B2B SaaS business. I’m open to questions, feedback, challenges, and new ideas from people in the same situation – please leave a comment or contact me directly.
This post first appeared at leadertainment.com. Image credit: schoolspecialty.com