Are you ready to take your software design to the next level? View the recording of the webinar "Profit Streams™ for Software Design," recorded live on June 6, 2024. Laura Caldie hosted this event, which featured Kevin McCabe, an expert in advanced pricing strategies and profitable software advancement.
During this webinar, Kevin & Laura dive into the Components of the Profit Streams™ Canvas, offering a comprehensive approach to strategic pricing and sustainable profitability.
The Agenda Covers:
Systems Thinking vs. Process
Understand the immense value of systems thinking compared to traditional process-oriented approaches to pricing. This segment will transform how you view and implement pricing strategies within your business.
Collaborative Pricing Decisions
Learn the secrets of making pricing decisions that are both collaborative and aligned with your business goals. This is your chance to ensure your pricing strategies are well-rounded and effective.
Customer Segmented Pricing and ROI
Discover the significant benefits of tailoring your strategic pricing to different customer segments. We will highlight the importance of Return on Investment (ROI) and how it impacts your pricing decisions.
Value of Better Pricing/Case Study
Gain valuable insights from a real-world case study on how improved pricing strategies can drive business success. This example will provide practical applications you can adopt in your own organization.
Solution ROI
Evaluate the return on investment for software-enabled solutions and understand their contribution to your bottom line. This analysis will help you make informed decisions about your product offerings.
Lifecycle Profitability
Assess the long-term profitability of your products and services throughout their lifecycle. This will ensure you maintain sustainable profitability over time.
Identifying and Managing KPIs
Identify the key value/price performance indicators (KPIs) that matter most to your business and learn how to manage them effectively for sustained growth.
This webinar is a unique opportunity to enhance your strategic pricing toolkit and drive meaningful change in your organization. Don't miss out on the chance to learn from industry experts and gain practical insights that can propel your business forward.
Check out these links for more information about Kevin McCabe, Applied Frameworks, and the Profit Stream Canvas.
Webinar Transcript
Note: Transcript created with the help of Otter.ai. Please ignore grammar and/or spelling errors.
SUMMARY KEYWORDS
pricing, customers, pricing model, price, canvas, talk, solution, roi, product, decisions, book, software,
company, profitability, thinking, packaging, system, kevin, put, business
SPEAKERS
Laura Caldie, Kevin McCabe
Laura Caldie 01:23
So you and I have a chance, a lot of chance to talk over the last couple weeks, since you've recently
joined applied frameworks, but I thought you could share a little bit of your story and your history about
how you got here, and then we'll move on to some some of the content I know you want to talk about.
Kevin McCabe 03:35
Sure. So Hi everyone. I'm in Kevin McCabe, I'm in the Boston area. I grew up in Canada and have lived
around the world, Canada, France, England and the states. Have actually gone to school in most of
those countries at different times. I met Luke Hohmann just as he was coming close to publishing the
profit streams book, and I did that via meeting a friend of his while we were walking our dogs together
in the park. So my dog, baby is a pretty important connection here, and we spent a year and a half
talking to each other. I did some editing of the book itself. And really we came to a place very similar
thinking, but I came at it from the pricing world, and he came at this from the from the product and agile
world. And then my, one of the things I love to do is skiing. So I am a big time skier.
Laura Caldie 04:46
Yeah, you and I talked about that. It's like, that concept of, like, the bucket list stuff, and I'm, I'm the way
my skiing ended up on my bucket list was way different than the way your skiing ended up on yours.
Kevin McCabe 04:59
Well, I had a ski house in Lake Tahoe for a while, but that was not what I consider the best skiing
around. I really ski more off piece stuff. So I started skiing at Whistler and Telluride Alta Saint Anton in
Austria. And then I've got one more left on my bucket list, which is Taos, New Mexico. But the best off
these skiing I've ever done is actually up in Kicking Horse in British Columbia, where there are no group
trails. You just go up to the top of the mountain and try and find your way down.
Laura Caldie 05:29
Transcribed by https://otter.ai
Yeah, and I'm the Let's go up. And green is good. And if I'm really feeling, you know, awesome, I'll try a
blue slope. But anything more than that, the only thing we agree on there is a non icy run is great, but I
kind of like the groomed stuff, and you just like to shoot off into the powder, which blows my mind.
That's way too scary for me. Yeah, so, so you've got this kind of, you know, interesting background and
things, but somehow you ended up here. And so that's what I'm hoping you can talk a little bit more
about.
Kevin McCabe 06:03
Yeah, so it's I've been in pricing for 20 years. I learned from one of the, what I would call the top guru in
pricing, Tom Nagel. When he first wrote his this book, and he comes out of the academia world, he was
a PhD for the University of Chicago, specialized in pricing by talking to a guy named Dan Nimer. And
Dan Nimer is a really important person in the world of pricing, because what grew out of Dan Nimer
was Tom Nagels consulting firm called strategic pricing group, and also Simon and Kucher came out of
out of that same connection with Don niner, and so did McKinsey and those three groups there in the
late 90s, they individually published books and created consulting practices around pricing, which are
the foundations of almost everything that you think of in terms of pricing analytics these days or what
you're familiar with. And then Tom, in particular, was very much the leading voice in value based
pricing. But what they did, they all established a base, and that was actually incorporated in the profit
streams book as well. There's a strong foundation of Tom's thinking and Simon Kucher thinking, or at
least Simon the founder's new thinking, and McKinsey's in the basics area and practices around how
pricing was built up, but it's a much more mature marketplace, and it was back then, because at the
time, there were no pricing within when I joined, just by chance, in 2002 there were really no pricing
departments other than people were administering price books or price lists. But there weren't actually
pricing functions and data science that are in there. And it was very early days in software pricing,
which means a lot of people were struggling with trying to use cost plus pricing in the software world,
and what you end up seeing is extraordinary amounts of discounting, as
Laura Caldie 08:27
I remember, yeah, I mean, I think this book I've, you know, obviously I love it because it's, you know,
published by my colleagues and two good friends of mine. But what I what I also love about it is that it's
kind of a manual on how to think through that complicated system. So it has a lot of diagrams and a lot
of kind of worksheets. And, you know, it's it takes an awful lot of research that goes back as far as you
know, your early career, and puts it together in a way that software leaders can use, which I think is
pretty unique. I
Kevin McCabe 09:00
think it makes it much more accessible to people who are who are not steeped in pricing analytics also
makes it less I think it's really important that it's not pricing is not as complicated as people like to make
it out to be. You shouldn't be afraid of it. And I think the systems thinking and the design thinking and
profits, software profit streams just makes all that more accessible. Well,
Laura Caldie 09:26
the bitly link that I put on there is for a pretty substantial download PDF version. So if you want to take a
taste of the book before, kind of getting your own, because it is a pretty thick, you know, it's it's not a
small book, but the PDF gives you, I think, a lot of insight into what's included in there. I think it's about
100 pages of a PDF. So anyone who wants to download that, that's that link will take you there. Okay,
so you have, you know, 20 plus years in the industry, I know an awful lot of manufacturing, and then a
software got integrated into things that became part of what you did, and you mentioned it just briefly,
but I think it's this kind of systems approach that really hooked you. So yeah, if you want to talk a little
bit about that,
Kevin McCabe 10:07
well this, this came up early in my career. I left strategic pricing group and went to a company called
onjo, which was part of Thomson Reuters, which was an early version of a SaaS pricing model for the
infrastructure of the stock markets, and I got brought in there to be the pricing lead. And I was stuck in
finance, but I was spent my time working with the product team, and working with the sales team, and I
was kind of going back and forth dealing with these things around ownership, but what and who had the
right to make certain pricing decisions internally. But in fact, what came out of that is actually this
systems thinking, which is what I was piecing together as a pricing strategist instead, as opposed to an
analyst, was saying, Well, if the product person makes a change in the features here, then it should. It's
going to show up in the in the pricing, and also the communication the salespeople. But those things
were often disconnected. And so as your solution matures and there and more features and
opportunities are identified, the system the model needs to keep up date, and very frequently, when
you got many people making independent pricing decisions, it unintentionally creates limitations to the
pricing person at the end of the what kind, what options they have to optimize the pricing model and
profitability and that that tackles both revenue and margin. The more options I have as a pricing person
in creating models, the more market I can address. It's not just about profitability.
Laura Caldie 12:04
Yeah, I think one of the things that also sticks with me when you and I were talking about this, is the
relationship between what the business is looking for, which is obviously a kind of predictable level of
growth and profitability, and how that may be either accelerated or hindered by choices that the
architects and architecture, right, the design of the software, and also the kind of legal and compliance
side of things, right? So, and this, you know, comes from the personal story of mine that we realized
back when Luke Coleman and I worked together at contenieo, that the way our evolving customer base
wanted to purchase. Our platform was different than the way we were packaging and pricing it, and so,
you know, being of course, I think everything should be easy, so it's kind of having that conversation
about how we wanted to switch the model meant that we had actually quite a bit of back end work to
do, because the architecture didn't support what appeared to be obvious in terms of what our
customers were wanting. So that relationship between licensing and compliance and architecture and
then all the other parts of the business it was, it was definitely really important to have the whole team
talking about it.
Kevin McCabe 13:14
Yeah, and often what happens there is a pricing group at work, if they were working independently,
may just decide with the sales team to discount or something regarded as opposed as a quick fix, as
opposed to going back and looking at the what really, what is the root cause of the the issue, the issue
with customers, or the product usage, or that we've got to do our thinking here. This is the other raises
another piece, which is early on, that a lot of the internal stuff is in terms of that might involve pricing is
very much around. Could be around finance type calculations. We're looking at projected forecasts and
gross margins and profitability and reporting that out those are often mixed up with how you do make
pricing decisions and finance decisions have a very different goal than
Kevin McCabe 14:16
when the type of thinking that goes into how to price correctly.
Laura Caldie 14:23
Yeah. I mean, I think that's kind of some of the pieces we wanted to get into. So before we kind of dive
into a couple of the things we've already touched upon, I just want to remind everybody that we'll share
the deck, we'll share the recording, and I'll make sure that everyone gets the links to some of the assets
that we're talking about. But in the meantime, if you have questions that are kind of coming up, please
feel free to put them in the Q, a I'll weave them into the conversation if I can, and if not, we we intend to
answer all of them in the follow up email where we're sharing the link and the recording and things like
that. So no question is a waste of time, even if we don't get to talk about in depth and with that. But let's
keep going. So I think part of you know, the other piece of how we describe, or how Luke and Jason
describe the system that is profit streams, is creating that kind of single canvas view. And so maybe
you can talk a little bit about the value of looking at the system like this, and how you think this is best
used.
Kevin McCabe 15:23
So I love this framework. I find it really easy to follow and capture a lot of a lot of elements that I use as
a pricing strategist and the conversations I've had with different functions, and then being able to share
it. I mean, often the internal communication is actually really one of the harder things to do, to tell, to
convey all the complexity of what we're what goes into an effective pricing. Well, let's say an effective
business, right? So this, you know, whether it's your solution or your old or your entire business, you
know that's that group of circles is really kind of reflective of me, of a lot of independent pricing
decisions that going in, going on inside the company, that are that, in fact, are connected and influence
other people's decisions. Right? A lot of you look at the canvas, I think of each box as being the some
level of deep work that's going on in there, but when you piece it together, you start understanding the
kind of trade offs that come from those connections. So use, like you mentioned before, there's a
systems limitation that stops that stops us from making packaging decisions that would optimize our
pricing model. So we have to go, you know, somewhere along there, there's, if you think about this
ahead of time, in the canvas that allows people to have transparency how each piece fits the together
and how they fit within the overall framework for driving a sustainable, which is like revenue, top line
revenue, and profitable, which is bottom line margin,
Laura Caldie 17:09
yeah. And I think the other Yeah, the other piece that really kind of resonated with me in looking at this
is how I think this really underscores the idea that it's not something that you do once there's so many
elements of this that appear in a solution roadmap that this right so it having some cadence of
connecting the relationship between pricing and profitability and all the other things that product leaders
are doing to shepherd the growth of a product. I think this really helps underscore that.
So that's a that's actually really good point. You'll see this will come up a little bit later. But a lot of
companies and internal even at the C suite, I experienced this for the CEO last year, they use the term
they want to set it and forget it on pricing right? What happens as a result, as everybody tries to make
their goals while working around a static pricing model, and you end up with a lot of discounting, a lot of
complexity as a result of that. And it, in fact, I personally believe that AI is moving all this even faster.
You're going to be making pricing decisions more frequently. It's not just dynamic pricing. It's actually
pricing decisions and pricing models that are going to change rapidly, and the whole the world is set it
and forget. It is really kind of an old industrial mentality based around, you know, manufacturing, I think
there's a lot of resistance in companies because, you know, in fact, most people don't know much
about pricing, so it's a difficult conversation. This can get very late to a lot of or expose a lot of conflict
in the company,
Laura Caldie 19:02
yeah, yeah. I think we'll get into some of that as we go forward. But yeah, I don't disagree with anything
you just said. So that's awesome.
Kevin McCabe 19:08
I think the canvas is trying to adjust all of those things in a very it adds a lot of transparency. It kind of
gets across the the hurdles of who owns what. It actually just allows people to understand that the it's
not just about raising a lowering prices. It's actually looking across these influences and connections in
the system
Laura Caldie 19:33
exactly, all right. Well, let's go on to the next one. So, you know, it's just, it's a canvas that has a lot of
elements to it, but there is some kind of design decisions or choices around there. So maybe you can
chat a little bit about those.
Kevin McCabe 19:47
Yeah, I thought we'd go a little deeper into this middle section, because that's the part that I'm as most
of the pricing decisions in it, if you look at this, they've got economics, the whole economic
sustainability area, the customer ROI would call the CVA. That really goes all the way back down to
Tom nagels. Models around value based pricing, right? What we often will hear companies talk about
that they do value based pricing, but there's a real difference between or this. There's a lot of
complexity around the term. What we mean by value in a company in the middle section is the core of
the price model itself, which is, you know, can we create profitable, right pricing strategy and structure,
right? So what's the Price metric you're going to you're going to use? How is that compared to
competitive alternatives to your your solution? And then the last part is that translates into the the ROI
for the solution itself, right? So we got recruiting value for customers. We're coming up with a pricing
structure that where the cost to the customer is lower than the value that they're delivering. The ROI
that creates the ROI, and then the solution piece, or is that a profitable business for us as well? I think
connecting all those pieces is really a critical I thought this seems to be very complex, but I just think it's
in this model. It's actually very obvious that those three pieces should be put together once you have
established this base canvas, then you can start thinking about or this economic sustainability. Then
you could can think about it as How sustainable is that model over the life cycle, right? And what
triggers were forced to change within make changes, either to the there might be changes the
customer, ROI, trigger, there might be that might forcing me just to the actual pricing strategy or
structure itself. And then there's other things like ROI. And often come here, five years we've all we've
seen a lot of ROI still itself because of inflation, right? All of a sudden, inflation showed up, and we're
having a scrambling to figure out what those, what those? I know a lot of companies are scrambling to
figure out how to respond to that. And you know, a Canvas makes you, allows you to think about all of
those things, factors in one place. Yeah, I
Laura Caldie 22:41
totally agree. All right, so you mentioned, you know, you talked about customer.
Kevin McCabe 22:47
Want to go back and say, well, often when, when I talk to companies, as they think about price, what
they're thinking about is that the dollar per seat over time, and that is the price level and that, and that
might be the trend exchange that you have with your customers. But it's not as simple as that. In fact,
you know, a lot of companies will use will, should? They'll spend a lot of time focusing on, should that
be $49 per seat, or $59 per seat, or $99 per seat, and they spent a lot of time on that. But in fact, what
you surely should be spending much more time on is, should it be per seat? Is that the is that the value
metric that aligns with your customers and that allows you to establish a position in the market with your
pricing model, and you're sending signals to the customers in competition about where you want to land
in position yourself in the marketplace. Pricing is a very strong signal to market.
Laura Caldie 23:57
So one of the things that we were talking about as we were preparing for this is the concept of ROI,
both from the customer's perspective, but then also from the solution itself. And so maybe you could
talk a little bit about that relationship between the pieces of the canvas that help you think about, well,
what is the ROI? What are the different kinds of ROI, and then how might that impact the rest of the
system and maybe the price that you ultimately get
Kevin McCabe 24:23
to. Yes, this goes all the way back to Tom Nagel stuff, where we talked a lot about, you think about a
product manager gets up in front of the sales team. I always try to think about that, what's that
exchange with the customer going to look like in the communication and Pricing and Value you're
creating for them? So a product manager gets up and talks to the sales team, and they talk about the
features and the benefits in their product. What's missing is, what is that worth to the customer? Right?
Quantitatively, what's the ROI How can you increase their revenues, decrease their costs, help with
capital expenditures. Those are quantitative elements. The other piece of the more qualitative, how do
customers make buying decisions for products like this? There might be some qualitative elements,
beyond weight, beyond maybe brand is a good example. Maybe customer service is part of that. Maybe
reputation is is part of that pieces actually influences their their buying decisions. That level of detail is
what salespeople are really looking for, looking for so they can have a conversation with the customer
beyond just price, and often, if you got to think price is rarely the number one attribute in terms of
importance in the buying decision, rarely is price the number one thing. There are price buyers out
there who only buy on price, but they're actually a very small part of the marketplace?
Laura Caldie 26:02
Yeah, I would say that those are maybe more of the type decisions where there aren't any differences
between the different items, or if there are, they're so imperceptibly small that it's not even worth
spending time on. As you know, my whole career has been in sales, so I hear what you're saying,
right? I mean, when, when I'm faced with just showing a list of features and benefits, every other
competitive solution has the same thing, right? So if you're just comparing that without thinking about
some of the intangible value, you know, it always is a race to the bottom. And when you start talking
about things that are not so much feature oriented, but things like security, the services, the experience,
the pedigree of the builder of the thing, right? I just had a great conversation yesterday with somebody
who has a PhD in AI technology. So even though he's got a newer solution that's coming on on the
market, you know, his background in having worked with AI for such a long time, has a lot of intangible
value to his customer base. And so, you know, I would encourage somebody like him to talk about
things like that, not just obvious cost savings, right? There's all these other intangible things. So
Kevin McCabe 27:16
this is an important thing. The CBA itself can be used for prioritizing features, right product
development. It can be used for communicate, giving it to the sales team, for communicating with their
customers. And it you know that this, this level of analysis, influences what you will. That price level that
I mentioned before, I had a client who they're already at this stage gate for when they when they
brought me in to talk about their pricing, and they had a product team wanted to charge more than the
sales team, and sales team was saying, you know, we're going to charge a million dollars. We went in
there after just one weekend of filling in card like this, and they ended up launching that product 30%
higher and sold out. There's been limited, limited distribution because the capacity constraints. They
were able to sell out immediately. That same company, you know, four years earlier, had brought out
an innovation, and they and the sales team dominated, and they went in with what they call penetration
pricing. They sold out in three months. They raised prices the following year, sold out three months.
Raised prices for four years in a row. They raised prices until they started. They ultimately had reached
that equilibrium of demand and capacity, but the CEO's response was, Well, that was three years
where we gave up rice and the sales team spent three years doing a price increase, which is way more
painful than actually just starting high and using tools like this.
Laura Caldie 29:02
Yeah. So for those of you who are going to get the book or download the book, this is a whole section.
And so the card that we're showing here is just a page out of a bunch of them talking about how this
could be leveraged for that. Yeah. What's
Kevin McCabe 29:16
coming across to me, Laura, is how much as you go through each one of these, you start, I mean, for
me at least, oh, I go talk to sales about this, I can go talk to product about this. I can talk to the
customer about this. Is that level of collaboration that is that is really missing when we talk about just
the pricing function as a unit.
Laura Caldie 29:37
Yeah. I mean, I guess another one is time, right over time. That's something that is another dimension
of having these conversations. So, so yeah, let's talk about the solution. Roi, a little bit.
Kevin McCabe 29:49
So this, this one I pricing malls evolved, and this goes back to my comment earlier, I think, which is, you
know, this, set it and forget it. I literally heard the CEO talk about this, you know, he didn't want to just
last year, he didn't want a project done and talk about price again for five years. And I got bad news for
you, but especially in that person's marketplace, the price setting in that space is going to be driven by
AI in the next six months to a year for sure, and because almost everything that all the prices that are
published in that person's market are online. So there's some real negative risks that come with the AI
space, but doing analytics, looking for patterns frequently, fast, rapid, speeding all that up is actually
one of the big advantages of AI, because ultimately, pricing, optimal pricing, comes back to recognizing
patterns and making tactical adjustments and decisions that actually allow you to address the
marketplace as quickly as possible. Often, what I hear, though, is we companies will go through the
process and they'll and they won't update the pricing. They'll update the product, because there's a
roadmap, and eventually there's this disconnect that creates between the bad, the perceived value of
the product by the customer and the pricing model, because the product has moved on with the pricing
models remain static, except for maybe going up and down a little bit, yeah,
Laura Caldie 31:27
what, you know, Kevin, what's interesting about that is, like, on first blush, it may seem like, Well, that
just means that you don't have to discount as much because you have more features in the product,
right? It's better. And, you know, I had talked to a client maybe about a year ago, and the exact
opposite happened. You know, that product had so much in it and the customers in different segments,
and at that point they hadn't segmented their customers. You know, each each type of customer only
wanted 30 or 40% of the features on there, right? So the sales team ended up having to discount by
half just to get the deal done, whereas when they they segmented, yeah, and packaged differently,
Kevin McCabe 32:07
yeah, yeah. That's where you need you can vary the price, but you need to vary the packaging as well,
and that allows you to go back to the positioning. Now, I've got a new position in the marketplace,
because, I mean, I'm asking customers to make a trade off, and I'm not asking them, as a salesperson
to pay for things I know they're not going to use, right? You know, that's, that's, that's a tough place that
doesn't pass what I call the red face test, will be in front of a customer that you can, you can talk about
your packaging and pricing without your Pasteur in red. Yeah,
Laura Caldie 32:40
yeah, yeah, embarrassment, yeah. It's pretty hard to get someone excited about a feature that has zero
impact on their business. So yes, I agree with that one.
Kevin McCabe 32:50
I just heard a story two weeks ago about a former client of mine who, after we had finished and they
were in the test and measurement space. But they made a they have a lot of tools and components and
things, but they also had software to go with. They made a licensing exchange on their software, which
was, they were going to stop selling perpetual licenses and directly only a lot of SATs with no and they
just announced this and said they're going to make this change. We'll talk about a crisis. Almost. I
heard it was up to 50% of their customers decided not to shift.
Laura Caldie 33:35
Yeah, I think that was the starting on Monday. You can't buy perpetual licenses anymore, right?
Kevin McCabe 33:41
Yeah, the company ended up being sold. As a result. It got them into a, I there might be other reasons,
but there, I got them into a financial position where they needed to, they needed to sell quickly, and not
from a cash crisis, just from a value of the business perspective. But really the ultimately is they could
have, like they could have managed that over time and and saw customers reacted to the change, and
who took it up and who didn't? What kind of incentives could they have placed to get people to move to
the to the SaaS model faster, or whatever? But clearly they didn't do that, and the perception of value
was of the software was way off from the customer's percent perspective, than what the internal team
thought, yeah, well, that's that's a pretty extreme example, I myself did the same thing with a product
when I was at onjo. And we migrated over time and changed the pricing model from an old, old pricing
model because it hadn't kept up with the product. The product was very was all based on a per
message basis, and we went to a more of a structured pricing model, and the community grew. And
over two years, the revenue was up by 40% just because we caught the pricing model up to the
roadmap that was going on. Yeah,
Laura Caldie 35:18
all right, so right in the middle of that Canvas. You know, we have both a section called profit engine,
but it's this concept of a profit engine as well. So do you want to talk a little bit about that? Yeah,
Kevin McCabe 35:30
I think this is, this connects a little bit of what we've been talking about on the left hand side is the
traditional, almost like the in what we've inherited from a cost plus, you know, price and quantity or
volume, and you have a demand curve that goes up and down. What's missing from that is, you know,
has a from a pricing and value value perspective, with packaging and pricing, can I influence those
things? In fact, is that, is it actually just one price and one quantity, like one one package there for one
quantity? Or is there actually three or four different segments underneath that curve, really? And some
will pay a little bit higher, but a smaller segment, and some will pay a little bit lower, but there'll be a
broad segment, right? What you see on the so that's what ultimately, though, I think a lot of people
think it's gonna look like the left, and that's, I don't know if you do want this, but it's, let's list price and
discounting, right? That's kind of that thing. What's on the right is what we actually see. It looks more
like this. And those, those color, different colors of different segments, but you can see that it's it just
looks like a when you put the prices and discounts and margins that you that you're actually seeing in
your transactions against revenue as opposed to volume, what you're going to see almost every single
time it's something like this. And now I've got, when I look at revenue and pricing together, I'm looking
at top line and bottom line and and seeing what kind of PowerPoint as opposed against the volume,
because volume is balls of discount structure, and it looks pretty much, it's really kind of the wrong and
again, volume is a finance analysis. Pricing analysis is this one. And I'm looking and trying to find
pockets or areas where I can prove optimize my pricing model. And it looks where there's a software
company, a manufacturing company, a small company or large. It doesn't really matter. I see the same
pattern almost every single time anything that's below the middle part of this of this curve is actually
mispriced, and there's a huge pricing opportunity. What's happening is yours. You will see, without the
sales team and the pricing and product working together, that you're going to see, you're going to see
customers, small customers, paying this same price, the price that you're putting in your pocket at the
end of the day as some of your biggest customers? Yeah, so let's go to the profit engine. Right? How
are you when you put that, all that stuff into the marketplace, and you see the analysis I'm seeing it
from on the flip side. I don't want to see this. I really don't want to see the scatter plot of what's going on
and how my, my my packaging and pricing is actually being quantified inside the transactions.
Laura Caldie 38:54
All right. So we have a couple of different ways of thinking about the profit engine. And I think
oftentimes when you and I talk about this, or when we start bringing up with customers, they're thinking
about just the price, almost the set it and forget it thing, right? I had an interesting conversation
yesterday, which was like, Okay, well, what are your competitors charging? And that was, you know,
gave the ball or what you should be charging. And it's, you know, it's maybe instinctual to ask that
question and then kind of start, but there's so many different ways of starting to think about how to
quantify value. And it's, you know, like you mentioned before, it's a, it's an ongoing reflective thing that
should appear on a product roadmap, you know, reflecting on this. So if you could talk a little bit about
some of the pricing, that
Kevin McCabe 39:37
person's asking the right question, they what is called, what they call the reference, or the anchor price,
and very that's what they've got in their head, because they don't, they don't know the value of your
solution or or what so we this is where I said, we can influence prices, right? Or willingness to pay,
because we can say, well, that's, that's a good reference, but our product is worth more than that, your
business, and that's the CBA card, right? And and then you start having a more of a discussion. And
this, it doesn't sometimes you do this with just marketing, and sometimes you have to do with a
salesperson, or you do it through yours, but you need to. It's all about those signals and
communicating. Oh, that's a good reference point. I know you're talking about our solution doesn't do
that we're and where those where our customer gets that anchor. We have no idea, right? It's just some
this is something that they've seen or referred to or done some research on, and it they're trying to
understand your solution relative to that. So we best to be prepared and ahead of time with the CBA, so
you can say, Oh yeah, let me see how. Let me make sure I'm taught you're thinking about my product
correctly. The cost plus pricing piece of this is a is what I call a dilemma. It's just something we've
inherited from the industrial manufacturing, linear process. And as a good reason why we should do
systems thinking instead of linear thinking on pricing, because it's a case for the unit cost based on
volume, which is really and you, you'll see this today in the auto industry, used a lot when they when
they turn their suppliers, it is they're chasing that unit cost. It's based on volume. Well, you've got, it's a
dilemma, because your, your price goes up and down based on the volume, and your, your costs go up and down based on the volume. So now you're trying to solve for something where you've got volume
on both sides of the equation. You can't problem. It keeps changing, right? Stellantis has been in the
news recently, and their suppliers are taking them to court over this very fact, because the volumes are
not there for their cars. It's a finance calculation, and it's not very used, very useful to helping not make
better pricing decisions. The the customer driven pricing is about that a lot of that's almost, almost
always interpreted as a link to pay or price elasticity. But in case of your customer, is the reference
price, you know, I can tell me why I should, why that's the wrong reference for your product. Give me
an idea of how to understand your your packaging and solution,
Laura Caldie 42:35
right? Yeah. And I think that the marketing and positioning job is, you know you have to be ready to be
reactive, but proactively setting the value expectations to avoid reference pricing against a competitor
that you don't see as a competitor right to kind of get ahead of that as part of that too. Really
Kevin McCabe 42:54
important when you've got something that's a high value feature or innovation. It's really very important,
even if you ultimately negotiate a lower price, at some point, you want to establish that position and
reference in your customers mindset, because it'll, it'll come back on future where they may decide to,
you know, make decisions to their SaaS contract or something like that. Yeah, the derivative of this
middle on the customer driven pricing is what y'all here. Is the market price, right? It's competitive
prices or or it's the customer maybe saying, Well, this is the market price. Almost goes back to the
same thing. It's kind of a derivative of the reference. It's actually maybe just a negotiation practical. So
it's a game, and when you get into responding on a market price perspective, you got to understand a
lot of time, it's a game that you're playing, and you have to also have to think how your competitors will
react if you lower your prices, right? So in the case of your the UK example, if we've matched the
reference price that same, now I've established a position that, oh, this to the customer's mindset, that
this is just like what you were talking the reference you had. Go back to the references, they can you
lower your price, and then we go there right? You want to go up into the up into the right, instead of the
other way around,
Laura Caldie 44:28
yeah? And then, you know, this could be a webinar all on its own. In fact, Luke Hohmann was interviewed
Silicon Valley podcast group. I'll have to share that link as well. But you know this perspective of the
freemium model, market penetration strategies, where you go maybe so low that it's free. I know he has
strong opinions about how avoid that at all costs. I'm sure you kind of connected on that one as well.
But that could be a whole other topic about well, if you're after market penetration, and you have this
perspective of freemium, is it really the way to go? Well, then left with that's a whole nother topic. But I
don't know if
Kevin McCabe 45:07
there's whole thing around sustainable management, right? Profitability management over time. I think I
actually agree with him. We he and I talked about this quite a bit of just our blood boiling, where we see
this type of out. I'd rather start high and discount to get the volume sale, as opposed to giving free and
then trying to figure out later on how to raise prices. I gave you that example just about 20 months ago.
You should send out that I haven't heard the podcast. If you could, you should send it out to everybody.
I
Laura Caldie 45:44
will, yeah, yeah, it is. It's available on our website, but I can make it easy. I'll put a link to that in the
follow up email that we send out.
Kevin McCabe 45:51
So ultimately, it gets back to, I actually think this is really important, because what he's getting in there
is that might be a short term solution, but I what I'm as a strategist in pricing. What I'm looking for is
patterns, and so the more structure I can put into my pricing and which gets translated into
transactions, the less noise there is in the data that I can sub. Which is that image I saw you saw
earlier, the scatter plot. How do I resolve all these things? The less noise there is, the more patterns will
be obvious, right? And and that's where the analytics and optimization comes from. And ultimately, for
pricing, those patterns reflect buying behavior. And that's a really important insight that we can get
there. That's it's really that you can manage that over time and optimize it.
Laura Caldie 46:48
Yeah, I think you know the take out the noise so you can see the data that matters, right? It's that the
data that you may need before you even launch your solution, right? Like it hasn't even gone to
marketfully yet, but you're still thinking about, what's the business model? What are the pricing model
choices and packaging that I want to do that the kind of data that you may get early, and that could vary
quite a bit from when you're maybe at the tail end of a software solution, and you know, it's going to go
off into the sunset relatively soon, at the moment, is still generating money. But what's the data that you
use there, right? So I think, as a product leader responsible for profitability, that right there starts to
show what kind of systems thinking is required and how much collaboration would have to happen
between all the parties that are kind of making it possible to change and adapt, be adaptive over time,
with pricing, with a solution, and
Kevin McCabe 47:49
the data analytics capabilities have grown so rapidly in the last 10 years, I've been following moving
company. I've been moving companies to digitize their the key data elements for or pricing analysis for
six years now, because once they clear out that noise there, and there is, even if there is noise, the kid,
the data capabilities now are such they can get rid of some of that stuff and still find insights. Really
amazing. What can be done these days? Yeah, in the price. Yeah.
Laura Caldie 48:27
All right. So what's next? Well, while we talk just briefly about this, if anyone has any questions, stick
them into chat or to the Q and A either one, I can see them both. But you know, one of the things is
okay. So we talked about how data can help make decisions around here. Well, there's a whole
process that's described in the book right about, and you mentioned it briefly, but there are triggers that
cause product leaders to recognize that it's time to make some adjustments all so those are described
in the book. Basically how you go about this whole process of implementing a pricing change is
described there. Now we're a consulting company with some really amazing, very experienced people,
and so some of our customers say, You know what? I get it and I love it, and I don't have any time. Can
you come and help? Right? So that's it's a combo of, it's all in the book, and it's not always easy as
your team to do it quick enough. And that's kind of where we can come in.
Kevin McCabe 49:23
Yeah, I also think we, we also want to raise the pricing IQ across the enterprise, so or the business,
and I think, and we do that as well. It's not just, you know, it's, it's consulting, but the book is, becomes
a reference. And for me, that says, Okay, now you've got, you've got something to turn to, tools and
ultimately, the canvas, which is where going back to the beginning is something that you can share
across different organization, and people can do their individual work and stuff, but they've got this
model where they can figure they can work through The complexities and connection points, and I think
that just raises the overall pricing IQ within the organization, and lowers the noise Yeah,
Laura Caldie 50:13
around, yeah. You know, it's interesting. You and I had talked about this earlier, about, you know, even
for us, we have the same kind of conversations about our target market and all of those kinds of things.
But you know, the problem that we're solving for our really large clients isn't knowledge in the
leadership level like that. They understand this. They have the same kind of background that you do,
right? But they have 400-600-2000 product people in the organization that haven't gone through the
same career trajectory yet, and so, you know, until they can clone themselves, they're looking at this
kind of system as a way of saying, Okay, now we have a shared toolkit, a shared language. And like
you said, we're raising the IQ across the whole organization, which is making their job easier. Whereas,
you know, for working with a $5 million early stage startup looking for the first round of big funding.
Their engineering led founders may struggle with this, because that isn't their background, right?
They're technologists, and so there's different reasons why parts of this book are really helpful, and the
workshops and the consulting and the campus itself, I
Kevin McCabe 51:20
think, this like for the startup, having a canvas like this that you can show to investors is actually
another audience. Those type of things to show how they how you you're addressing, even if you you're
not charging premium prices and you're, you're you're using price levels to get in more customers, to
drive cash flow right into your business. But being able to show a canvas actually is a goes to the
valuation of the business itself, because we're looking at, you know, it's a roadmap, and how are you
going to respond if this happens or that happens, it goes to the valuation of the business, and
ultimately, long term profitability, because at some point someone's going to get involved, where the top
line revenue is not is less important than the bottom line profitability that you're going to drive for them.
So it's a journey going through different investors. There are, there are public companies today that to
attract investors, they actually have to report their pricing performance as part of their startups are
never going to be in that place. But that's how important. If you're a company that's publicly traded and
you're you're paying dividends, almost always, you're going to get questions about your pricing
performance,
Laura Caldie 52:49
yeah, and that, that kind of gets back to the profitability IQ that product managers, product owners,
people in that product space are going to be starting earlier in their career. It may not owning the
responsibility, but will definitely have the opportunity to impact it.
Kevin McCabe 53:08
I think I heard there's a trend to actually product managers having more commercial responsibility for
their portfolio, right? Yeah,
Laura Caldie 53:16
especially as I mean, part of what we're helping companies do is scale the kind of principles of what's
traditionally, you know, development teams, and I think, where a lot of our customers are seeing real
opportunities in that portfolio level. So if part of that portfolio decision making, around how a portfolio
investment decisions are made, includes things like, Do we have a solid structure and plan and shared
language around sustainable profitability for these solutions that just aids in the portfolio management
function. Yeah?
Kevin McCabe 53:51
So you're you're prioritizing, prioritizing features development. You're also avoiding cannibalization, I
would think,
Laura Caldie 54:01
yeah, yeah, right. And it's, it helps decision. Instead of spreading it super thin across a bunch of
solutions, it may be time to retire one and to increase investment. And one that clearly is is delivering
more profitability than others, right? Yeah, all right. So I'm happy to still take some questions, but we
would love to talk to you. And so I think, Kevin, you're, I'm speaking for you now, but I'm sure you
agree. You'd be totally happy to have some conversations with people just kind of get a, you know, a
meet and greet kind of thing, but your brain is awesome to pick, just given kind of your experience
across all these industries. So I would
Kevin McCabe 54:45
recommend with a friend of Luke's a couple of weeks ago where we just got on the phone and talked
through their pricing project. And I love doing that type of stuff, so people want to connect to me
through LinkedIn or through apply frameworks, and either way, I love these conversations, so I'm happy
Laura Caldie 55:07
to do it. Yes, I love them too. I've been doing a lot with you over the last week. Excuse me, so any any
other things that you want to kind of add before we wrap up for the day.
Kevin McCabe 55:22
Mel, I think just, you know, interaction would be great. Reach out whenever you can ask questions. I
hopefully I can break through some of the pricing noise, or I can help you reach across the different
parts of the organization to to think about pricing a little differently. And I'm going to be doing articles
and blogs and so, you know, retail stuff, and actually partnering with one, with the Tom Nagel just this
week, in order to make that connection we had in that slide from the old book to the new book. And
why? How we how we can think of solution, profitability, management, and not just individual things like
pricing by itself, is how is really what that article is going to so it's called the role of the strategist, and I
think it's going to be interesting.
Laura Caldie 56:18
Yeah, I think then the challenge that I would have, or the hope that I have for people who either listen to
the recording or today is, you know what? What is the challenge that you're trying to face and answer in
your own organization and and pose that question to Kevin in an email, or, you know, set up some time
to talk about it, because I think those that's where we want to support leaders and folks working on
software enabled solutions, as you're challenged with increasing credibility and making it sustainable,
where are the roadblocks or hiccups or brick walls that you're running into that you know you're going to
have to lead the organization through? I'm sure, Kevin, you'd love to know what those are from people.
So
Kevin McCabe 56:58
I actually, I reached out to someone just today and asked that question like, you know, I don't think
anybody's really surveyed. What kind of internal roadblocks people face in terms of and and
Kevin McCabe 57:17
some of it might be cultural. Some of it might be learning. Who knows it might be something as simple
as that. It doesn't mean for a big project, right?
Laura Caldie 57:29
All right. Well, Kevin, thank you so much for putting this together and having this conversation. And I'm
sure that more will come out of this. I think what we want to do next is find some topics to drill maybe a
little bit deeper in. But if anyone has suggestions about things, they really hope that Kevin will cover
next. We are all ears. All right, thanks, Mark. All right. Thank you, Kevin. Thanks everyone for being
here.
Kevin McCabe 57:51
Bye. Everyone
