Since 2009 Value and Pricing Partners has been a Partner of TSIA and participated in their semi-annual events. At this year’s event we had the opportunity to talk to managers from about 30 companies about the pricing challenges or opportunities they were facing. To facilitate the conversation, we use our “Pricing 9 Block” framework. These are the 9 areas of pricing opportunity companies talk to us about and we help them exploit.
Of these 9 areas, these are the top 3 from our discussions.
- Reduce Discounting and Strengthen Price Governance – This is a perennial favorite. As product revenues and margins are under pressure, companies are looking for ways to improve their situation. Pricing Governance is the fastest way to drive higher revenues and margins through pricing. Our experience is that many companies can generate a 3% increase in revenues in the first year. Since the typical tech company earns about 15% on revenues, each 1% price capture improvement is as much as a 7% boost in profitability. That means in one year, companies can add as much as 21% to their bottom line.
Over 2-3 years, as improved policies, controls and practices settle in, and the company learns from their actions, we have seen better pricing governance add as much as 10% to revenues, and that is free cash that can be used to invest in new offerings.
- Optimize ROI from New Offerings – Also a perennial favorite, at this year’s conference several discussions revolved around new information driven services. Companies reported success at capturing operating and adoption information from customers and were in process of developing new service offerings built around this information. The questions they raised are
- How do we understand the value of our new offerings?
- How do we price these offerings for value?
- How do we structure these offerings to accommodate different types of customers?
These are exactly the right questions to ask. I was in a conversation just yesterday with a VP of Services. He said his people seemed to just make stuff up and were not doing the necessary work to really address these questions. That is a problem because pricing strategy for new offerings is one of the most powerful ways to drive higher profitability over time. One of our clients generates 1/3 of overall profitability from one new offering launched 3 years ago.
How important is it to do the pricing strategy work for new offerings? Our experience with over 30 clients using our PriceSight™ research approach has shown that managers routinely under-price new offerings by 100% or more. Think about it. What would your financial picture look like if you could double your revenue projections for new offers?
- Change/Simplify the Pricing Model – Of course, with the prominence of their new book, The Technology as a Service Playbook, pricing of as-a-service offerings was a hot topic. In their book, TSIA adapted our Services Pricing Strategy Matrix as a guide to pricing across the services portfolio, from Managed Services, to Support, to SaaS.
A key idea is that shifting to as-a-service is more than a changing in pricing model. The value prop changes, the business model changes, the service mix changes and a more sophisticated approach to pricing is required. More, experience suggests value added services are essential for making XaaS offerings profitable.
To learn more about Price Governance, Pricing Strategy for New Offerings or to take a deep deep dive into the Matrix, pick up our book – Profitable Technology Services Pricing – on Amazon.
Profitable Technology Services Pricing
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