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How The Traditional PE Pricing Playbook Can Alienate Customers
The typical private equity pricing playbook goes something like this:
- A private equity firm acquires a software company.
- The firm’s stakeholders determine that the software is underpriced.
- They decide the best way forward is to instill a price increase during the hold period (which typically lasts several years) in an effort to increase recurring revenue as soon as possible.
- A churn analysis is conducted.
- The firm’s stakeholders estimate how much they can raise the price without losing more customers than they can afford.
The last thing the private equity firm and software company want as the outcome is the alienation and destabilization of their customer base. Some customers might switch vendors, especially in mature markets with many alternatives. Other customers might remain on board, despite their reservations about the price increase, because their workflows are strongly intertwined with that particular piece of software.
But when customers feel trapped, they begin earnestly working to decouple. Some succeed in a matter of weeks. Others, months or years later. When these customers do eventually leave, their departures creep into churn data. The executives don’t always recognize that those departures tie back to the original price increase.
The problem with the private equity pricing playbook is not necessarily the price increase in and of itself—it’s how leaders approach execution of the pricing increase. The missing ingredient? Offer additional value along with the price increase to lessen the sting.
Quick Forbes Article Summary
In this month’s Forbes column, we cover:
- The traditional private equity price increase post acquisition and the corresponding series of events.
- Why it is critical to offer additional value along with a price increase.
- How the transition to SaaS deployment complicated pricing and why it’s important to treat maintenance value correctly.
- How to approach a price increase more strategically and execute more successfully.
You can read our full article on Forbes: The Private Equity Playbook Often Misses the Pricing Mark with Software Acquisitions
