Creating a pricing committee

Patrick Campbell Mar 9 2022

It happened again.

A VP of Sales of one of our pricing customers yelled at someone on our team. I could easily write him off as some brash sales bro (and don’t worry, we addressed his behavior). Yet, I’ve seen this time and time again and your business suffers from the same problem.

So why is he acting this way?

It’s the same reason I see VPs of Product scared to ask about willingness to pay or CCOs scared to raise prices.

The reason? Pricing is emotional and causes politics to flourish, even in the best cultures.



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Every single team influences pricing—from sales and marketing to product and finance. All this influence comes with lots of opinions. All those opinions lead to a lot of fear of getting blamed if something goes wrong.

In the face of that fear most of us either throw tantrums like a toddler or do absolutely nothing. In fact, this fear is the reason companies only optimize their pricing once every three years.

That analysis paralysis costs you a significant amount of revenue.

Here’s a breakdown of the growth in revenue per customer (ARPU, ARPA, ACV, etc) based on how often a company changes something about their monetization. Notice those companies optimizing pricing quarterly are seeing revenue per customer double every two years.

Higher ARPU Graph

 

What do they have that you don’t?

It’s not some secret data; it’s not more intelligence; and it’s not a higher level of maturity.

It’s a pricing committee.

Yup—they have some bureaucracy inside their business, a modicum of process that allows them to cut through the noise and emotions. I know it sounds cumbersome, but I promise you it allows them to move much quicker and make a lot more revenue.

Let’s walk through the function, makeup, and tempo of a pricing committee, so you can implement one and get similar gains.

 

 

 

Start with why: Pricing committees and their aims

I’ve done this long enough to know some of you are reacting with, “Patrick raising your prices every three months is insane.” Thankfully, that’s not what I’m referring to when I speak about pricing changes. An optimization in your monetization is anything that influences the value of your product. These could be anything from internationalizing your pricing to re-adjusting your value metric.

To widen your brain a bit, here’s a non-exhaustive list of pricing changes you could be optimizing quarterly. Note that some of these take a lot more effort than others and some of these (like raising your prices) will occur once per year.

List of Pricing Changes

Pricing committees give you a central team to manage the data, people, and infrastructure around changes to your pricing. They allow you to move with confidence at a high tempo.

At their foundation, pricing committees have three main aims:

 

  1. Pricing version control

    Since monetization has a lot of moving parts, your business needs a central repository for pricing history and knowledge. Adjustments you make will have unintended consequences. Some optimizations will take enormous effort to steer the ship. Other changes won’t work at $10M ARR, but will work at $50M ARR.

    All of these changes need to be tracked and documented. You also need enough people on the committee to prevent all the knowledge from disappearing when one person leaves.



  2. Structure feedback from all stakeholders; Minimize politics

    One of the worst mistakes you can make in pricing is having one part of the organization doing all the research and coming up with a decision. You’ll then present that decision to sales and marketing who have to implement the changes and, more often than not, hit a brick wall of feedback that delays implementation sometimes indefinitely.

    Pricing committees give clear lanes for all stakeholders to express their feedback. Depending on the gravity of the change, hearing this feedback allows the leaders of the pricing committee to address it with data or adjustments.



  3. Streamlined implementation management and tracking progress

    Deadlines and process are your friend when it comes to pricing changes. A good number of people will be needed for implementation, so centralizing the committee allows that enablement to happen quickly. You’ll also be able to make adjustments as bugs come up.

Remember, the ultimate goal of your pricing committee is to increase revenue per customer over time utilizing monetization. As you make changes numbers you anticipated going up will go up, but also numbers you didn’t anticipate moving will go down. Pricing committees allow you to move quickly to make adjustments while also minimizing the fallout of unintended consequences—all in the nature of pushing net revenue in the right direction.

 

Who’s on the pricing committee and who’s in charge?

In short, whoever has outsized influence on implementing or outsized feedback on a pricing change needs to be in the room regardless of seniority or organization. Putting the pricing committee together with this thesis can get tricky, because a large organization can have many individuals who fit this description.

We’ve found that following the Amazon concept of “two pizza teams” to be best. Basically the core pricing committee shouldn’t have more people than could be fed by two pizzas, which is a max of ten people. Keep in mind, this constraint doesn’t mean other individuals won’t be given a chance to provide feedback. We’ve just found anything over this number defeats most of the purposes of the pricing committee, greatly diminishing the ability to walk through the complexities and nuances of a pricing decision.

Your mileage will vary, but here’s a breakdown of who’s typically in the core pricing committee. Make note of the distinction between the core committee and the pricing influencer group made up of the next degree from the committee. These individuals will be those you’ll solicit asynchronous feedback from as changes come to light. Also, keep in mind that if you’re earlier stage, you may only have two people in the room total. You should still have a committee, but changes will be easier to make.

Pricing Committee Makeup Graph

 

A main pricing coordinator is a must

Obviously, these are very expensive meetings, but this committee should be a braintrust providing feedback and synthesizing knowledge, rather than doing the day-to-day pricing research.

That research, the coordination of the committee, and keeping the trains moving needs to be managed by a pricing coordinator. In most organizations the coordinator is a product, product marketing, or marketing manager who takes on pricing as 20% of their time (at least). As your organization grows (and definitely by $100M ARR), you should have a full-time person dedicated to pricing.

We typically don’t recommend this person come from finance or corp dev, mainly because product, product marketing, and marketing should be much closer to the customer. Most pricing research is just a type of customer research, so these organizations tend to already have that function as opposed to most finance organizations being more focused on excel engineering.

Your pricing coordinator also needs the ability to speak truth to power. You’re going to have some sort of exec, intentionally or unintentionally, try to bully the pricing process. Finding someone who’s good at soft power, handling intense personalities, and garnering feedback from more introverted personalities is crucial here. If you don’t have this person, then with mentorship, it’s incredible executive training for a high potential team member.

 

One person in charge who’s involved throughout the process

Even though you have a good crop of folks involved on the pricing committee and pricing influencers group, you need one final decision maker. I know it sounds pedantic, but I’ve seen relatively well designed pricing committees fail because no one was deputized as being the person to make the final call at the deadline.

Your decision maker needs to be fully involved in the pricing committee though. One of the biggest mistakes we see is companies make this person simply a final approver, where they don’t attend or engage with the pricing committee. Most context and understanding of the research then gets lost and you end up facing the same thing you did without a committee: the final approver tanking a change because of their uninformed gut.

We see this often with larger organizations where the CEO still wants final approval. If this is the case, then they need to be involved and engaged from the beginning. As we’ll find out, it’s not that many meetings, but it does take mental bandwidth. If they can’t provide the time, then they need to delegate decision making to someone who is involved.

Normally if the CEO isn’t making the final call, whoever leads marketing or product makes the decisions. The assumption here is they’re the closest team to the customer, already conducting research independent of pricing. Sales or finance historically shouldn’t be the final decision makers, because sales is typically too shy to push for pricing changes within their incentives and finance doesn’t take enough time to validate the input into their models.

Your organization will vary. I’ve seen a good handful of organizations where sales or finance leading works. Yet, the important piece here is that you have someone with enough authority and trust. Pricing changes always have tradeoffs. Depending on the confidence of the organization if one of these tradeoffs is dramatic and unforeseen, the rest of the organization can run from any future pricing optimizations out of fear. Someone with authority and trust can provide enough cover to make adjustments and stay the course.

 

Ok, what do these people do? What’s the tempo of the committee?

Your pricing committee’s involvement will depend on the gravity of the change you’re looking to make. We’ll break down a couple of levels of changes, but normally committee members are involved with two to five meetings per quarter, influencers submit asynchronous feedback once per quarter, and the coordinator spends 20%-100% of their time on pricing.

 

Larger changes - one medium to large pricing change per quarter

The core tempo you should be focused on is implementing one medium to large change per quarter. Let’s imagine a company is looking to do so, we typically see companies running the following process:

 

  • Week 1: Committee meets and confirms the pricing project for the quarter, sharing initial thoughts on the direction of the change (e.g., “I think in looking at our pricing metric, we should change it to seats instead of contacts."). The coordinator takes in all this feedback.

  • Week 1-6: The coordinator goes off and utilizing the feedback designs a research sprint to collect and analyze data to determine a course of action (e.g., collects 1200 responses to a pricing survey about the new pricing metric).

  • Week 7: The coordinator presents the findings and provides a recommendation to the committee. The committee almost always debates the recommendation and provides a bunch of questions, which the coordinator then needs to go chase down.

  • Week 8: The committee meets again with the coordinator walking through their objections and answers to all of their questions. Sometimes this process repeats a couple of times depending on the gravity of the change. The coordinator then sends out the proposed change and research to the influencer group, fielding feedback.

  • Week 9: The coordinator brings all the feedback and final recommendation with implementation plan for feedback and approval. A decision is made and the coordinator goes to work on implementing.

  • Weeks 9-12: The coordinator implements the changes.

  • Week 13: The coordinator reports to the committee any initial findings and adjustments, as well as a timeline for when to review the veracity of the pricing change.

Timeline

These are the major milestones and processes, but keep in mind that the coordinator will likely have a number of ad hoc discussions with different stakeholders. These could range from getting ahead on implementation through a discussion with engineering to working with an important stakeholder on their objections.

If you’re new to a pricing committee and changing up your pricing in general, I recommend using this timeline with something easier to implement. Optimizations like internationalizing your pricing are much easier than changes to your core pricing metric. The former is strictly changing up the price you’re charging in different locations while the latter is a fundamental, high impact shift. We’ve found that the easier the initial projects, the more momentum you get and momentum begets more momentum.

 

Smaller changes - ad hoc and likely a couple per quarter

As you dig into pricing more and more you’ll discover smaller changes that end up having a big impact. These changes normally don’t need the full weight of the pricing committee, but you should still follow a process to ensure the committee still has context. Examples of these types of changes include optimizations like redesigning the pricing page, experimenting with a new offer, deciding on if you should publish your pricing or not, etc. Typically a good rule here is anything that is less data driven and more values driven, or something that is low risk enough to move quickly on.

Here, the process is similar to the larger changes, but just compressed:

 

  • Week 1: Pricing coordinator sends out a one pager on the proposed change. Depending on the gravity of the change the committee may meet for a session and provide feedback.

  • Week 1-2: The main decision maker approves the launch.

  • Week 2-3: The coordinator works on implementation, reporting asynchronously on the launch and any initial results.

Most of these changes are easy enough to track. Yet, the most important aspect that a lot of companies forget here is to make sure the communication is flowing transparently throughout the committee on these. A lot of these small changes end up being optimizations you’ll want to try the opposite of in two to three years as the company evolves. Ensuring the different versions of pricing are tracked and the knowledge saved, allows the organization to move quickly.

 

Tempo and momentum are the name of the game

When it comes to pricing, the larger the organization, the worse momentum tends to be when making optimizations. The opposite should be true since you know so much more about your customer than the first day of the business. But a lot of stakeholders and opinions create analysis paralysis or place pricing on the back burner.

Fortunately, some basic process management that you’ve likely already implemented in countless areas around the organization work with pricing, as well.

Just focus on the fundamentals of basic project management and make sure everyone who can influence or provide feedback on a pricing change is involved. Hopefully, you realized this isn’t rocket science. It just takes effort.

 


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By Patrick Campbell

Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.

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