How to have "the talk" with your customers
How to have "the talk" with your customers
Increase ACV by finally asking customers about willingness-to-pay
Welcome back to the 10th edition of The Gist by Growth Unhinged where I give you one specific action item to grow faster.
In this edition: are you having “the talk” with your customers? (The pricing talk, that is.)
If not, keep reading. I’ll unpack how to increase average contract value (ACV) by sharpening how you price your products based on real-life customer conversations. Let’s dive in before we get cold feet.
The Gist
Ask your customers about willingness-to-pay in order to spot hidden opportunities to optimize pricing and increase ACV. Just don’t *literally* ask them “how much are you willing to pay?” — they’ll low-ball you.
Why you should care
As startups scale from seed to IPO, they find significant growth potential from increasing average ACV among both new and existing customers. I’ve surveyed 1,000+ SaaS startups about how they price their products and found that ACV jumps by more than 100% during the journey from $1M to $100M+ in ARR.
These ACV increases come in the form of price increases, product expansion, selling new packages or add-ons, and charging based on a pricing metric that naturally scales as adoption grows. All require understanding what customers are willing to pay for and how much they’re willing to spend.
🌱 Seed –> Expansion stage (aka post-PMF): +60% ACV
Learnings:
B2B buyers aren't as price sensitive as startups or consumers.
As you get stronger product-market fit, you better understand your ideal customer and who's willing to pay for your product. These folks are willing to pay more for what you're building.
New cohorts of customers don't notice price increases. To them, that's just how your pricing works.
🚀 Expansion –> Growth stage (aka Series C/D/E): +40% ACV
Learnings:
There's probably still room to capture more of the value you create for customers.
You're getting more & more proof points about the ROI you deliver for customers, and you're better at getting in front of execs/decision makers in the sales process.
ACV increases come more from usage & smart packaging (feature-based pricing) and less from pure price increases.
🧑🚀 Growth –> Exit/IPO (aka approaching $100M ARR): +20% ACV
Learnings:
Make sure to consider monetization/willingness to pay when planning your roadmap. Are you building things customers are simply *asking for* vs. want to *buy*?
There will be a regular debate about whether to bundle or unbundle your products. The goal is to make it easy for customers to buy and to present solutions to their needs — not to overwhelm folks with too many choices.
Pricing and packaging will get more complicated across segments, countries, products, add-ons, etc. Start to think about a dedicated pricing FTE as you're approaching $50 million ARR.
Tell me more
None of this ACV growth is pre-ordained. Effectively pulling it off without encountering churn or customer backlash requires having clear insight into how much value people see in your product relative to alternatives, how much they are willing to pay and what you could build that people would actually pay more to access.
This insight isn’t new, of course. Product managers, PMMs, founders and others are told to always make time to interview users in order to understand things like their needs and jobs-to-be-done. Customer-focused folks might interview 100 users or more in a given year.
Almost nobody asks about the most important topic: are users willing to pay?
You can and should be having these conversations. And they're not as difficult as you might think. But you need to have the *right* questions to ask in order to get valuable insights. Here are 25 pricing-related questions to have on hand for your next interview.
A few tips before we jump in:
Don’t position these as “pricing” conversations externally. It’s better to frame them as more general feedback conversations.
Talk to people with influence over spend. In a PLG context, your user and buyer might be the same person. In an enterprise environment, your user may have no control over budgets or pricing conversations. Plan accordingly.
Avoid leading questions or answering your own questions. It’s best to keep questions neutral and open-ended, and to be OK with the occasional awkward pause in the conversation.
Value proposition
1. How many users in your team/org do you think could benefit from our product?
2. Why haven't you rolled out the product to everyone who could benefit?
3. Did you consider any other software/tools besides our product?
4. If so, why did you choose us relative to the other options?
5. What were the top 3 most important buying criteria you considered?
6. (If they didn't mention price) What role did pricing play in the evaluation?
7. How did our product's pricing compare to what you expected?
Perceived ROI
8. How would you rate the value-for-money of our product on a scale from 1 (poor) to 5 (excellent)?
9. Could you explain why? How would you describe the ROI to your CFO?
10. How disappointed would you be if you could no longer use our product?
Purchasing process
11. How does the purchasing process work for new software tools like ours?
12. How is it budgeted for?
Packaging and features
13. Could you walk through how the product fits into the rest of your stack?
14. Are there any tools you would consider consolidating if you had access to those features in our product?
15. If you could build your ideal package from scratch, what features would you include? (Show a list for users to choose from)
16. Now imagine that you had to pay more for each feature you included. Which of these features would you consider taking out of your package?
17. If this new product was priced fairly, how interested would you be in purchasing it on a scale from 1 (very unlikely) to 5 (extremely likely)?
18. What would give you pause or stop you from buying it?
Price sensitivity
19. Think back to your ideal package. At what price would you consider it to be a bargain - a great value for the money?
20. At what price would you consider it to be getting expensive?
21. At what price would you consider it to be too expensive so that you'd no longer consider it?
22. Why did you answer that way?
Contract lengths
23. Would you prefer a monthly, annual, or multi-year contract for a product like this? Why?
Product stickiness
24. How likely are you to recommend renewing the product next year?
25. Hypothetically speaking, if the price were to increase by 10%, would your answer change?
Other things to click on
🔥 The latest in SaaS:
Zapier revisits their approach to usage-based pricing, opening up limits on # of zaps (access to value) and providing more flexibility around pay-as-you-go for additional usage 🍿
OpenAI finally introduces a self-serve team plans at a not-so-innovative $25/user/month price point (min 2 users). This could finally be their bridge from individual user —> business adoption, which I wrote about last year.
📖 What I’m reading:
makes bold predictions about the future of VC, Airtable “acquires” and kills Airplane (via ), looks at the job of a market category.😍 What else I’m digging: This recipe for muhammara (so easy yet so tasty), Good One: a podcast about jokes, the return of RPDR (I’m team Dawn).
Absolutely genius. I’m definitely going to incorporate these questions
Great summary - I'll add some of these to my customer interviews going forward 🙂
Thanks!