I heard a story recently about a teenager who drove his father’s new Lamborghini and quickly wrecked it into a row of trees on the side of the road. Thankfully, the only injury was to the family’s bank account.
So much for the effort made by dozens of skilled engineers and craftsmen to design and build that vehicle…the hours spent calibrating its engine, hand-stitching its seats and super-polishing its paint. The car’s potential evaporated as soon as—literally—the rubber hit the road.
Software companies that implement new pricing models can face a similar risk. After dedicating enormous resources to strategizing, researching, analyzing, constructing and testing their new pricing models, potential can quickly unravel if the company’s sales structure is not completely and properly aligned. Like giving the inexperienced teenager the keys to the new Lambo, letting the unprepared sales team loose on a new pricing model can wreak havoc on a huge investment.
Four sales elements that impact the success of software pricing strategies
The most successful pricing improvement initiatives fully consider the many sales elements that must align with the pricing model. From salespeople and processes to sales policies and culture, they know that—to achieve and sustain their goals—everything must be in sync.
Let’s look at the key sales elements that impact the success of a new pricing initiative:
1. Sales Culture
In the software world, particularly in SaaS companies, it is common to see a sales culture that prioritizes volume above all else. Such emphasis to add as many customers as possible can lead to excessive discounting, one-off licensing or packaging structures and other actions that conflict with the guidelines of an effectively structured pricing platform. Likewise, a “get as much as you can” mentality can promote overcharging some customers and undercharging others, leading to wild inconsistencies.
2. Sales Compensation
In large part, sales managers and staff behave according to how they are incentivized. A compensation structure based predominantly on customer volume or total revenue, for example, sets additional discounting and overcharging traps that make it difficult for the company to achieve sustainable impact from its new pricing model. While software companies are often reluctant to address or adjust incentives with their sales team, they must do so for a pricing initiative to succeed.
3. Sales Training
The sales team must be intimately familiar with the pricing model—how and why it performs across the range of situations they will encounter. They should understand the data that drives the strategy and be able to communicate its value effectively to customers. Recently, one of our client companies participated in a competitive RFP process. After the buyer narrowed the field to the final three providers, they asked each to explain and defend their pricing model. Our client won because they were the only one who could do so, as the others struggled to explain how pricing was established and how the model would accommodate the customer’s future growth and needs.
4. Sales Commitment
Even with significant training and communication, pushback from the sales team can crop up with the first tough negotiation. A rep who believes a big deal is in jeopardy because the new pricing doesn’t allow enough discount or flexibility may try to convince the company to stray from the model. And when that rep is a superstar producer, it’s tempting to make an exception.
But even one-off exceptions can fray the edges. A solid pricing platform anticipates such scenarios and puts discounting guardrails in place. For the pricing model to succeed, leadership must commit to adhering to it.
Make a plan to align the sales side of your organization and nail your pricing model
For many software companies, pricing is the most powerful dial under their control that they can adjust to impact revenue, profitability and valuation. But adjusting it properly isn’t easy, quick or inexpensive. So, if you’re getting ready to roll up your sleeves and start the process—or intend to bring in experts to help you with the heavy lifting—make sure there is a plan to fully align the sales side of your organization.
Otherwise, you might as well leave the Lamborghini in the showroom.