Minoa: A Manifesto

Introduction

Pricing is simple, at least in theory.

The optimal price is a perfect reflection of the value of what is being sold. An exchange rate of the goods or services that a business provides. A critical invention that facilitates trade and allows people to exchange goods using a universal store of value.

One could end here.

Think that prices for products are naturally going to tend to the optimum, like by force of nature or evolution. Or one could investigate further. Keep asking how companies decide how to price their products. Question if ten hours - the average amount of time that SaaS companies dedicate to pricing every year - is really enough (1).

At Minoa, we think it isn’t. We think most B2B SaaS startups get pricing wrong. And we think getting pricing right is going to decide which B2B SaaS companies emerge as category-leaders in this decade.

So let’s talk about pricing for B2B SaaS companies.

KEY INSIGHTS

Here's what you need to know about the current state of B2B SaaS pricing and value selling.

• Pricing is broken. We see companies struggle with outdated and inflexible pricing models that result in customer churn, under-monetization, and lengthy approval processes. Customers increasingly demand flexibility and custom deals that lead to additional complexity, leaving sales teams ill-equipped to handle the deal.
• Existing tools don’t get the job done. We believe that B2B SaaS subscriptions are evolving rapidly but that the sales tech stack hasn’t caught up with this new era. Workflows are disjoint, time is misdirected towards activities that don’t create value. Dedicated B2B SaaS pricing software tools are missing entirely.
• Everyone can optimize prices. We refuse to accept that price optimization requires a team of consultants and data from tens of thousands of customers. Instead, we suggest that every maturing SaaS business benefits from a rigorous examination of its pricing strategy to drive revenues and improve customer relationships – and we are on a path to provide the necessary tools and insights.
• Introducing Minoa. Our vision is to build the next-generation toolbox for B2B SaaS pricing and value management so they are no longer a guessing game. We think that quoting should be fun, that individual value cases are necessary and most effective if crafted in collaboration with the prospect, and that pricing leaders deserve better insights to inform the company’s monetization strategy. Get in touch to become part of our early community – we love talking about these ideas.

Better pricing benefits everyone

Massive problems often have many heralds. This became clear for us in dozens of conversations with sales, product, and finance leaders in B2B SaaS companies in the last months where we asked them about their pricing strategies. Not a single company had completely figured it out.

Pricing was described as voodoo magic, founder gut feeling, stakeholder chaos, neglected and dispersed spreadsheet models. It was either too static (driving customer churn early in the sales funnel and resulting in under-monetization of product features) or too flexible (resulting in freestyle discounting, lengthy approval processes and massive overhead). It was said to be hard to analyze and even harder to change.

Different teams reported different symptoms of the pricing crisis, but they all voiced a lack of accountability and ownership for monetization and pricing initiatives.

• Finance leaders shared their concern about missing transparency into discounting decisions and actual revenue on a per-feature basis. Despite being held accountable for key financial metrics, they often didn’t feel empowered to provide specific price guidance and guarantee that these targets would be hit before a new customer was onboarded.
• Product teams complained about the time drain clarifying how features and use cases should be marketed to prospects and could later be bundled up in custom deals, coordinating activities in cases where a feature was discontinued/grandfathered, or defining monetization strategies and price points for new features.
• Sales teams shared with us that they dreaded working with their CPQ – it was slow and inflexible, required unnecessary admin work and often had them stuck in lengthy approval processes that killed deal velocity. Despite many teams adopting value-selling approaches, there was very little tactical support for building value cases with prospects, producing accurate ROI forecasts, and committing the identified opportunities and value metrics into the organizational memory for after-sales teams.
• Customer Success teams struggle to lead value initiatives and lack leverage in upselling and renewal discussions. This would be different if value cases had been documented in the Sales process and key value drivers were systematically tracked. But without value management, customer expectations remained implicit, initiatives vague, and churn risk unpredictable.

Massive problems are also gateways to very rewarding opportunities. Data suggest that more frequent pricing exercises correlate with increased revenue (1). Better still, leaders across different organizations connected improved pricing and value management to meaningful business outcomes that extend beyond top-line growth. Early value quantification was linked to faster sales cycles, dynamic price lists and specific discounting guidance to higher contract values, transparency in the quoting process to improved revenue recognition, flexible billing method to improved customer relationships.

A Berlin-based document processing scaleup estimated that a pricing exercise would result in a 10-15% revenue uplift and help hit its Series A milestones. A head of customer success at a data platform company realized that collaboratively creating business cases in the sales cycle would allow them to routinely use action plans to help the customer realize the defined value and reduce the churn risk.

Our pricing is already working, why change it?

Pushback to pricing initiatives usually takes one of two forms of reasoning. The first argue ‘We don’t need to …’ and frames pricing as a priority second in tier to customer acquisition or retention activities. For most B2B SaaS companies, the reverse will be true: a study by McKinsey and ProfitWell found that if you improve acquisition, retention and pricing by the same relative amount, pricing is the number one lever in terms of output (2).

Indeed, we would go further and suggest that companies that are close to product-market fit or have already found it need to pay significantly more attention to optimize monetization and find product-price-market fit through experimentation and iteration.

The second pushback argues that ‘we cannot …’ and continues to list reasons for which a pricing initiative is doomed to fail. For many companies, the challenge begins with not knowing where to start and how to build a pricing engine. Others assert that only rigorous statistical analysis provides relevant insights and that the lack of deal data in a high-value, low-volume enterprise sales motion makes any attempt at pricing optimization unfruitful.

We disagree. The key is to uncover valuable signals that are commonly lost in noisy sales cycles and capture missing data to inform your next pricing review. That’s why we are building Minoa.

But let’s take a step back and understand why we believe that Sales teams need a new SaaS tool.

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The rise of commercial debt

Customer acquisition costs for B2B SaaS companies have increased 68% in the last few years (3). This leaves businesses pressured to find ways to meet their revenue goals. To make matters worse, Net Retention Rates often depended on the company's ability to hire additional personnel and now face significant headwinds given the headcount reduction at many SaaS businesses.

At the same time, stakeholders on the customer-side as well as within the organization push for more flexibility: they demand pay-as-you-go models, suggest usage-based billing modes, ask for ramp deals or custom product bundles. This culminates in bespoke deals that are highly dynamic and quickly turn into black holes sucking up time and nerves from your sales and customer success teams if they cannot access appropriate tools to deal with this increased complexity.

A challenge that we commonly witness in these companies is the buildup of ‘commercial debt’ - a latent need to deal with outdated customer contracts, grandfathered product bundles, long forgotten pricing lists and discounting structures that wreak havoc on your systems.

Just like technical debt can impair engineering efforts, commercial debt can bring a sales engine to a standstill if ignored for too long. At that point, existing customers are significantly under-monetized and migration to new pricing plans becomes a project of several weeks. But while engineers can rely on a flood of tools to monitor and reduce technical debt, sales teams currently find themselves barehanded.

The tooling is broken

Today’s sales tech stack resembles the frog in boiling water that didn’t realize how the water temperature gradually increased. B2B SaaS subscriptions have evolved dramatically as buyers learned how to purchase software and increasingly demand complex deal structures with flexible billing terms, dynamic prices, and sophisticated product configurations.

The result is clunky CPQ systems, frustrating workflows, and enough spreadsheets to wallpaper your office walls twice. Ask a sales rep how long it takes them to quote an additional seat for an existing customer in their existing CPQ solution and you’ll learn that this is a lunch break filling affair. Or suggest to a VP Finance that they analyze revenue on a per-feature basis to improve discounting guidance only to find that the billing system doesn’t integrate with the company’s quoting tool or that the required information is stored away in a PDF contract.

Sales teams also encounter more friction on the buyer side. Chief financial officers no longer stand on the sideline when it comes to procurement decisions. Instead they become key decision makers, responsible for 60% of procurement decisions (4), This requires software companies to develop a comprehensive value proposition that puts the offer into perspective to the customer’s financial opportunity.

A toolbox for B2B SaaS pricing and packaging

We think B2B SaaS companies deserve better tooling for pricing and packaging. As both are complex, interconnect with the broader company strategy, and touch multiple customer-facing stakeholder groups, a solution must cater to the needs of sales as well as product and finance teams. It further needs to map to the entire process from the first value conversation with a prospect to the closing of a tailored deal and the realization of the value with the customer.

We’re on a path to build this next-generation platform for pricing and value management. To make pricing simple - not just in theory.

If you are in a position to lead the next pricing exercise or to refine the value-selling approach at your company, please do not hesitate to reach out. We know first-hand how difficult B2B SaaS pricing and value management is - let us tackle it together.

REFERENCES

• (1) Profitwell | Pricing benchmarks
• (2) Paddle | Monetization matters for SaaS growth
• (3) Profitwell | 2019 Subscription Customer Acquisition Cost Study
• (4) Forrester | 2021 Buyer Insights: CFO — Buying Scenarios, Roles, And Engagement Levels

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