If you are selling anything (a product or a service) you need to price it. Too many companies price their products based on the competition or "market standards".
The reality is there is a detailed process you need to follow when defining the price of your service or product. If you get it wrong, you may price yourself out of the game, or potentially leave money on the table.
Marcos Rivera has been involved in the pricing of products and services for many years, and in the past 4 years, he has been helping other companies do it right.
In this fascinating interview, he shares the process that he uses with his clients in order to help them define the most effective pricing for their product or service.
It is a detailed and simple process that you can use in your business as well.
Hi, It's Isar the host of the Business Growth Accelerator Podcast
I am passionate about growing businesses and helping CEOs, business leaders, and entrepreneurs become more successful. I am also passionate about relationship building, community creation for businesses, and value creation through content.
I would love it if you connect with me on LinkedIn. Drop me a DM, and LMK you listened to the podcast, what you think and what topics you would like me to cover 🙏
If you are selling anything (a product or a service) you need to price it. Too many companies price their products based on the competition or "market standards".
The reality is there is a detailed process you need to follow when defining the price of your service or product. If you get it wrong, you may price yourself out of the game, or potentially leave money on the table.
Marcos Rivera has been involved in the pricing of products and services for many years, and in the past 4 years, he has been helping other companies do it right.
In this fascinating interview, he shares the process that he uses with his clients in order to help them define the most effective pricing for their product or service.
It is a detailed and simple process that you can use in your business as well.
Hi, It's Isar the host of the Business Growth Accelerator Podcast
I am passionate about growing businesses and helping CEOs, business leaders, and entrepreneurs become more successful. I am also passionate about relationship building, community creation for businesses, and value creation through content.
I would love it if you connect with me on LinkedIn. Drop me a DM, and LMK you listened to the podcast, what you think and what topics you would like me to cover 🙏
in the marketplace, there's a, a little known secret around ratios and percentages. I'll share it with you here right now. So there's a, a 2% rule that talks about, hey, if you're more than 2% of an expense, you get a lot more attention on, on any type of profitability sheet or any type of income statement. What people are doing is they're using these ratios to judge if you're expensive or cheap before they even understand if you're expensive or cheap.
Hello and welcome to the Business Growth Accelerator. This is Isar Meitis, your host, and the amazing person you're listening to is Marcos Rivera. Marcos is an expert on pricing. Yes. It's one of those things that we have to do when we sell stuff, right? We gotta define the price for it, and too many companies, Wing it. They try different things and they figure it out, and the reality is there's a scientific process on how to do it right that can help you maximize the profit of your business, which is what you're trying to do if you're in business. So it's a very critical aspect of business. And if you wanna do this right, Don't miss a second of this really great episode with Marcos. He's an amazing expert and he's really good at explaining how to do this right. So grab a pen, grab a piece of paper, open your computer, laptop, tablet, wherever you take notes and just get ready because this will help you change your business.
Isar Meitis:Hello and welcome to the Business Growth Accelerator. This is Isar Meitis, your host, and I have a critical subject for you today. It's a very touchy subject, and yet very, very important, and it's the subject of pricing. Pricing, your software, your product, your service, whatever the case may be, is a very important part of the business. Because if you get it wrong, even if you have an amazing service or an amazing product, you may either price yourself out of the market or leave a lot of money on the table. Either way, it may literally run you out of business. So having the right pricing for what you do is a very, very important part of the business. And yet, It's not a trivial thing, and too many companies and too many business owners get it wrong because they feel it's an art. When the reality is following a scientific method to pricing in the long run always wins. Hence why I'm so excited for our guest and our topic today. So my guest today, Marcus Rivera. That's what he does. His company developed a scientific approach to pricing. They coach companies through their systems and processes on how to follow that scientific process in order to get to the optimal pricing that they can. Marcus is the CEO of pricing io. He's also an author of an amazing book on that topic called Street Pricing, and he has been in the pricing game way before that, so he is been doing this in multiple roles, in different hats for different kind of businesses for a very long time. As I mentioned, it's a critical aspect of every business, and since I'm truly excited and humbled to have Marcus as the guest today. Marcus, welcome to the Business Growth
Marcus Rivera:Accelerator Isar. Thank you for having me on, man. I'm super happy to talk to you today.
Isar Meitis:Phenomenal. I, I'll start with a question about from your journey, when in your career did you figure out that pricing is A) a big deal and B) not trivial to figure out?
Marcus Rivera:Man, I'll have to tell you, there were really two aha moments for me in my career. And they're probably not what you expect, right? So the first one was really going back and going deep and early in my career as a product manager where I was building software product. I had to really understand the value on building in order to sell it, right? And the, the big question came up as, as we're getting towards release, or, I'm super excited this, this software is, you know, gonna streamline work below, save people tons of time. And, we're two weeks away from launch. And someone asked me, the sales guy actually asked me, so how much is. And everyone in the room, dead silence. You can hear a pin drop. Nobody knew anything. Right? And so I was very junior at the time and I said, oh, we should just, you know, we should just charge, you know, whatever we were charging for the software that we're replacing. This was a replacement software. Yeah. And my colleague said to me, well, Marcos, this. We are, we've built, you know, this new feature and that new feature and like, it's so different than the old product. Yeah. It's kind of solving the same problem, but in a whole different way. And I said, ah, gee, you know what? You're right. So I said, guys, I will have an answer for you. Give me just a couple days. So I sat down on my desk and I took a piece of paper and I was trying to realize like, okay, how do I actually price this thing? Hmm. How do I measure value? Hmm. How do I capture that value? Hm. I don't know. Right. And so it was after that that we decided, I just got into the room with sales. I called the customer, later that morning and we started put together, you know, what, based on a competitor, what we priced last time, what the customer told me, what the sales rep told me. And we said, okay, let's start with this and move on. Right. And in, in that process, I. That a lot of folks don't really think about pricing towards the end, and it was me included, and so I didn't want that feeling again, I don't like standing in a room feeling completely at a loss for something I'm probably supposed to know. So I went back and I said, you know what? The next release of this software, which is in about six months, I said, I am going to have. The right pricing model to monetize this thing coming out of there. So that was my first kick in the teeth realization that pricing is hard and nobody looks at it. The second one is way later in my career when I actually became good at it and did it over and over again, I, did it so many times that other product leaders were asking me to price their products within our company. Right. It was a billion dollar company, so we had a lot of products in there. Yeah. And I joined Vista. And I did pricing and packaging for over 60 companies at scale and saw how much money we were taking off the table when we changed our pricing and packaging. And so the first one was realizing that this is really hard, and the second aha moment is, holy cow, you can make a lot of money if you do it right.
Isar Meitis:Two amazing examples. I love it. And I think the interesting thing about what you're saying, and it's, it's surprising when you think about it because you, the examples you gave are both from big companies, you know, like existing large, ongoing with a product, with customers, with like, you would think that pricing is a problem in the beginning, right? Or like, okay, I don't know what to charge. But the reality is it's an ever going problem. Why? Because you have new products and you have new services, and the clients change and the competition change. So it's an going question that is true in any single moment to any company on the planet. It's not just a problem for small starting businesses, it's not a problem for large companies. It's a problem for anybody who's selling anything because the environment is always changing. And if I mention questions in our onboarding call, you said something that I really liked. You said, how much do I charge for this is the wrong question. What are the right questions? Where do I need to start in order to even start thinking the right way in order to figure out how to price? What is it that I sell, whether it's a service or a product, or a combination of both.
Marcus Rivera:Well, that's fantastic. And yes, I, I say that because that was the question I always got walking in the door when trying to help somebody with price was, Hey, how much do we need to charge for this? What's, what's the number? Right? And it's, it's the wrong question because it is insanely difficult to answer that question without asking different questions leading up to it. And the reason why I say that is because, to put it simply, if you ask, a doctor, What's the prescrip, what's the prescription? Without him doing the proper diagnoses? Yeah. And understanding the problem. If you go to a lawyer and say, what's the, how do we win this case without un understanding the different elements, you're not gonna get to that answer. So that, that number is really the last thing you figure out. Not the first. The first thing just to give you like a quick three. That I always step through the first right question around pricing is, is is more of an introspective of how are we going to grow, right? Because if you're selling something service, product, you know, and I know I deal with tech mostly, but there's, like you said, it could apply to anyone selling anything. You are offering value to someone for exchange of the, of a piece of that value back, right? It's really the, the core of what's going on here and, and what you're trying to figure out is, okay, well as a business, Understanding my strengths, my position, and my trajectory. Where am I going? Am I, am I trying to conquer the world here? Am I trying to be the fastest, the cheapest, the best? Am I trying to move it international? Am I trying to sell more to my current customers? Am I trying to get new customers? What am I doing here? So it actually starts more with the business problem of how am I going to grow? And as an extension, where is that growth coming? Right. if you ever read, you know, execution by Larry Bosi or any of these like really like hardcore business books, it's always asking the same hard questions upfront. We're gonna grow 10% next year. We're gonna grow 10 million next year. Okay. But tell me exactly how is that going to happen? Where is it going to come from? That's the same question you ask yourself when it comes to pricing. Where's the growth coming from? Money, revenue is really, Volume times average price. If you want to break it down to its nucleus. Yeah, so what are you trying to influence volume, or are you trying to influence price and how you want to do that? That's number one. If you decide, Hey look, we want to go after, you know, bigger fish, or we wanna go after the smaller end of the market, whatever that is, get clear there first. Then that leads to the second question, which is now, well, who are the most important customers for you to win? You can't beat everything to. everyone So when you're clear on what you want, then you become clear on who you want to go after, right? Yeah. Those two things are super important to then get to the third question before pricing, which is, okay, what is the right experience? We want to give that audience, I say experience because it's not just about a, a feature of a product or, or a service or a widget. It's actually more people experience value in a much more holistic way. How do you figure it out? How do you find it? How do you get going with it? How do you train on it? How do you use it? How do you get support if it doesn't work? All these things matter, and that is the third question before figure it out. Okay. Now we can get to, how much do you want to charge for that experience to this audience in order to achieve these growth goals? It's going backwards. Yeah. This is brilliant. I, I wanna touch on one more thing, which is a. dissonance if you want in your story even so far, and we are just getting started, which is you told from your personal perspective, and I've seen that happen before. You're in a company that builds a new product, so millions of dollars are going into r and d and QA and development and an environment and testing and so on. Before you know how much you're gonna charge for it. So what's the roi? And it's so important to do what you just mentioned, meaning this is a part of the very beginning of the business strategy to figure out the pricing. Because if the pricing is not a part of the strategy, how do you know this thing you're doing is gonna make enough money to pay for your investment, not to mention for future profits. So absolutely brilliant so far. So let's say you sit. You answer all these questions so you understand where or how you're trying to grow. You understand who your customers is, you understand what they seek. You understand how you're gonna deliver that value, and now you try to figure out how to price it. What are the actual steps of now pricing a product or a service? Once you answer these questions, what is the process you take your clients through to do? Yeah, I'll keep this one very, short and sweet because it's actually not as complex as people might think. Right. it's just if you have to put in the right amount of diligence and understanding and be very careful about the trade-offs you wanna make. The big thing around pricing where people get confused and lost is they're not really sure which trade-offs to make or even how to make them, right? So this is the way we do this, right? If I would give you sort of the one level double click below the three questions I just said. Okay. and step through the process. The real way is looking like this, right? If in the beginning we decide which, let's pick a growth just to put a real example on it. Let's say you want to really go after a ton of market penetration, market share. You wanna go after the smaller segment of the market. You're sick of just hanging out in the middle. Great. Then that actually tells me a lot about what you want to do. That tells me that you want to reduce friction in your sales process as much as possible. That tells me you really want to get a leaner entry point into your product. You don't need to command such a high price point. Even if you're premium, it's okay. You can have a leaner entry point into introduce a wider audience into the product, which means what a lower experience that can get the job done, get to value for that audience in order to grab that market share. So see what's happening here as I'm connecting the dots all the way through. So, We choose your path. And then what we do is we do some, customer interviews. And by the way, guys, it's, you don't need to spend like$500,000 to go out and get some, you know, customer opinions or, hearsay. You can talk to them, you can talk to prospective customers, you can talk to customers who just won. You can talk to customers you just lost. You can talk to sales reps. You can talk to someone who used to be a customer and something else. There's lots of ways to get information. Gotta get a little scrappy at it. But the reason why you want to get that info is to really reality test what you're thinking, because the truth is you may really understand the solution to a problem that nobody cares about. So you wanna be very careful about that. Talk to those customers. Get a, I don't care, an Excel spreadsheet or Word doc, and just write down those notes on what value means to them. What do they really care about? What do they don't? Just keep it simple, right? Do not talk about price though, in that interview. It sounds weird, right? But when you ask someone about price isar, they just either gonna lie to you or they just honestly don't know what they. They don't. And so you move around and you talk about value. I always say, if you wanna lie, ask about price. But if you really want the truth, ask about value. Okay. There's
Isar Meitis:a, so I'm gonna pause you for just one second. There's a brilliant book called The Mom Test. I don't know if you read it. If you haven't, you're gonna absolutely love it. And it's exactly about this. It's about. What questions you need to ask and who you need to ask, and how you need to ask them in order to get real answers from your customers and potential customers and prospects in order to really understand their viewpoint, their needs, their gaps, versus, Hey, I have this amazing idea. I think it's gonna do A, B, C, and I'm gonna charge X. Do you wanna buy it? And ask your mom, and the answer is always gonna be, yes. That sounds awesome. Well, first of course, I'll pay you whatever. So it's, it's exactly that. If you want the right answers, you have to talk about their problems, their issues in their language, preferably in the most, and now, now I'm summarizing the book, right, but preferably in the most relaxed non. Way, an environment. If you can have a, a beer with somebody and ask them these questions, that's the best way to get the real answers on what they're really dealing with on the day-to-day of their
Marcus Rivera:business. Exactly right. Exactly. I'm gonna get that by the way, and read that book as well. the, the, the big piece about this though, ISAR, is now that I've decided I want to go after smaller customers, huge untapped market, I want, I could serve the well and now I know what customers I'm using, I'm after, which are gonna be smaller. Either more simpler use cases or more inexperienced or whatever they are. Now I know who they are, now I go talk to them, which I just wrapped up, with you a second ago. So now what, what do you do from there? Is now that you've been able to, understand what they want and don't want, this is where you get to the third question of the what. right? The why, the who and the what. Now we figure out, okay, for this group that really doesn't need all these fancy capabilities or these advanced things, or the special custom service, they're actually very happy getting these four or five core things. It really hits their value directly. And their experience on that, they don't need a lot of fluff. They don't need a lot of, additional handholding. They just. want To get to Valley very quickly. This is another secret that a lot of people don't know, is that when you decide to introduce something lighter weight or leaner to get more folks in the door, The trick is not to be as cheap as possible. The trick is to get them to value as quickly as possible with as little hiccups, as little obstacles as possible You wanna make sure they can get to value fast and get that aha moment fast. That is much more important than being rock bottom cheapest price. Yeah, you want to be fair, but the idea is to get to value fast and be fair creates that customer loyalty. Okay, so how do we figure that number out? Like how do you figure that out? The third piece. After you decide on the package Isar and you say, you know what, we're actually gonna give them this amount of value. How do you get to the number, the way you get to the number? I'm pausing for dramatic effect here, The way you get to the number is you actually build an envelope and decide where you sit in that envelope. Pricing is actually more of a spectrum than an actual number than you may think. And here's what I say, when I say, an envelope, I mean a nice, clearly defined range, and that range comes from different inputs. Another big mistake that will completely derail your pricing is to price off of one singular reference point number, you wanna have a a few. Two, three, the more the better. But the idea here is where do you get these from? Competitor offerings. So when you talk to those customers and those interviews, so what did you use before? Or what would you replace with this? Or why would you stop using this product? Now you're understanding the comparison points that humans are making. Cuz Human beings will always compare your product and price to the next thing they know in their brains. So you need to figure out what that is. Okay, that's one reference number. The other one you can simply build,
Isar Meitis:I'm gonna pause you for a second just to make it practice. Go for you, figure it out just by asking them. Meaning, is it a, like, what's the research mess? Because you, we talked about this in, in the onboarding call, and I really love that point that it's, you called it anchoring, right? They're anchored to some other price point, and that's the reference. You're either higher than that or lower than that, and your only way around this is either to figure out what that is in, show them that you bring more value now, okay? Now you can go beyond that anchor point or show them that you're cheap. And then that's also good, but you gotta know what that is. How do you find out?
Marcus Rivera:That's right. So the anchor point, is all, it's there. We just don't know what it is. And so the idea here is if they're already using something, you could directly ask'em. So how are you solving this problem today? How are you solving this problem? Today is a very powerful question in the interview process cuz now you're actually understanding. a little bit more of that investment to relieve the pain, not the pain itself. You know what the pain is. Yeah. But what are they doing to solve that? Because that's really why they would pay you. Right. If you can give them more benefit beyond, solving that, what they're doing today. But, but the second one here, if this is, if they don't, if this is something new or you're creating a new category or they don't have it, is beyond what they're, what they're doing to solve the problem today, but how would they solve the problem if your product didn't even. This is a very, it's a hypothetical here, so you have to make sure you guide them. But the ideas behind that is, well, would you build it? Would you, meaning, would you build it yourself in house? Yeah. Would you simply find a competitor and do that? or in the most dangerous one of all, would you just stay status quo and not change anything? Right, and the more people who say, I just wouldn't change anything versus I have to build it, versus no, I can't build it and, and no status quo is not an option. I need to find a competitor. Those three types of answers have different pricing power implications to it. Okay. I
Isar Meitis:so absolutely love this. This is brilliant. Again, not asking about the pricing because you'll get the wrong answer either because they don't know or they're gonna lie to you, versus asking. What the current solution is and what are the gaps and what are they willing, how painful is the current situation is, is basically what you're asking, right? Because the status quo is unacceptable. Okay. Will you develop it yourself? That means that there's a very serious pain because companies don't like to develop stuff that is not the core business for the right reasons. So I, I think this is an amazing way to frame this. So now that you know, what do you.
Marcus Rivera:Okay. So at that stage, now that you have those pieces, you have the anchor effect. You have to research what those other things cost. You can and directly ask'em, how much time are you spending on that, or how many resources are you spending on that to try to back into some level of cost. So now you have a little bit of the beginnings of an ROI calculator, right? And you can actually see. Okay for, for, this is where they view, they view the benefit of the product and how much of that can I extract. Then I talked about the competitive offerings and then also when you think about, you know, just overall. In, in the marketplace. There's a, a little known secret around ratios and percentages. I'll share it with you here right now. So there's a, a 2% rule that talks about, hey, if you're more than 2% of an expense, you get a lot more attention on, on any type of profitability sheet or any type of income statement. So what I mean by that is, is if you're spending a hundred thousand dollars on say, one piece of software, and if you're More than, you know, say 2000, you start to get some attention if you're more. than 20,000, you're 20% of the other spend. If you're 50,000, you're 50% of that spend. So what people are doing is they're using these ratios to judge if you're expensive or cheap before they even understand if you're expensive or cheap. So what I mean by that is if you have a, a mortgage, okay. and you look at your mortgage and you look at your car payment, there's always this ratio that banks like to use. Or you look at your income and you look at your mortgage. It's always this ratio. You try to stay within and it feels weird if your car payment is bigger than your mortgage payment, if that ratio is out of whack, then you're going to be, it's going to look like a very, Unnatural expense. So what I mean by that is, especially if you're selling technology, is that if they're spending a million dollars a year on their core, you know, ERP or solution that's running their business, They are not gonna spend a million dollars on a solution that is just like a, you know, video conferencing or whiteboarding or note taking or whatever it is. Yeah. Because when they look at the two in comparison, they think like, well, this is so much more important than that. Why would I ever pay the same amount? Right. Yeah. So those ratios are important to know. So the other questions around, so hey, you know, your overall as a, if you're a target customer, overall income, overall revenue, how many customers? So that way you can get. a sense Back into a ratio of spend, which gets you a third or, or even fourth, data point. So what I'm doing is I'm building these data points either from an roi, from a ratio, from looking at a competitor, and and sometimes you can even do a cost plus margin if you're really, missing some, some data. But in, in software, cost plus margin doesn't work as well, but you can do that. And now I have four or five data points that I can use to create an envelope and say the prices of those data points fall between, you know,$100 and$150 a month. You can say, okay, well I am going after lighter weight customers. They're getting a leaner solution with a, a less, less of an experience around it, and I want to really go in there and win a lot of business. Then you go on the lower end of that curve, you go down to closer to the 100 or even 99 for some psychology optics, right? Yeah. If you're like, no, you know what? I only want a subset of that group. I only want the ones that are smaller, but they're also fast growing and. I think a better fit for what we do. So I'm gonna go on the higher end of that and communicate this a little bit more premium. Yes, I'm gonna lose some deals. if I charged 99, however, I think this is a better fit and a higher growth potential customer for me. So I'm gonna go on the higher side of the envelope and that's how you do you position. So you figure out your. Who you want and the reason behind it. You get these data points from talking to the customers, doing your homework on the competitors, your costs, things like that. Create an envelope. You decide where you wanna play in that envelope to achieve the goal, and then you just keep iterating from there. That's it. Phenomenal. I just put myself out of business.
Isar Meitis:There you go. No No, no. You just bought yourself a few new customers. That's what you did. But I, I wanna ask you a very interesting follow up question cuz okay, now I have a, i, I will use a harsh word, but a hypothetical number, right? It's okay, I'm gonna charge$125 a month. That has implications on the broader business. Meaning if I'm an existing company and I have X people in customer service and I have X people in development and X people in QA and X people in customer success, and now there's this new thing, it's$125 after the best process that I could figure out. This has other implications of the business. That means that I may need more development people. But let's, let's take your example of going lower end. Maybe more development people, cuz I need the software to be more tailored to their limited needs and they don't have an implica, an implementation team. And then, but I probably also need less customer support people because now I'm gonna only provide first tier support and that's it. So how, how do you take that hypothetical number within an actual real business and go back to the other stakeholders in the company and say, Let's evaluate this and see if this is something we can even do.
Marcus Rivera:Yes. Yes. That's a fantastic question because a lot of companies miss this step, and it's important because I have a few cards to show.
Isar Meitis:That's why
Marcus Rivera:it's coming from experience, which is the greatest teacher, right? I, I, I, I do it a couple ways. The first one is, as you, as you decide where in the spectrum you wanna play, and you, again, always make sure that you're looking at, all right, are we competitive with the way we want to compete. Meaning I'm okay being at a higher price cuz dammit, I justify it with better value or, you know, better service, whatever that is. Or no, no, I'm not there yet. This is new. I'm gonna come in a little lower because they're, you know, they have five years on me and I need to catch up. That's fine too. So, strategically, you have to make sure that, that number fits with those different references. But the, the, the union economics or the math. Is something you cannot skip. And to start off with, the basic one is remember I said, Hey, we're sick of hanging on the middle. Let's go down market In this example, well listen, if you were to drop your price from your current price down to this 1 25, what volume would you need to at least break even? Okay, that's the simplest, like step one A right is, okay, fine, well if I charge this and we have this much, in volume, we can get that same amount of revenue and target revenue. And now you of course, I have to overlay that with, okay. How many leads can we generate? You go to your funnel and you can decide like, okay, can we actually get that many? And the funnel math has to tie out, right? How many come in, how many qualify, how many you can sell. But then it's not just on the sales side. Cause the sales process is one area that you want to lean down. You cannot afford to have a$200,000 quota carrying rep that is you know, high commission. on these smaller deals like that, math just doesn't work. Yeah. They're also not even gonna be able, motivated to even sell that kind stuff. They'll quit. Yes, they'll quit. Yeah. So, The way you go to market and sell has to match with that price point in order to make that, that math work in the software world, it's a minimum three to one. When I say three to one, I mean that the lifetime value of a customer has to be three times as much as the cost to acquire that customer. That's a, that's, it's an, it's a, a number we've used a lot. I actually prefer a much, higher number five to one, but three to one. If you don't have. You don't have a sustainable business model. Okay. Now moving from there on the other side, which is how do you get someone going and support them? That's the other piece. So, on the other side of it, at that price point, you can't really afford to have v i p white glove service and, and support and attention all the way through. It's too expensive. Yeah. And so you wanna make sure. That at that level you're giving. That's another reason why you want to keep it very lean and quick to value, is that you don't want a lot of things to go wrong. That requires a lot of support. You don't want a lot of complexity where the customer can get themselves into trouble. That requires a lot of support. You gotta keep'em in the box, isar, you gotta keep'em in the box, keep it simple. And so the sale is also very low touch. The support is very low touch, and the actual margin on that lower price point might even be higher than some of the others. Mathemat. So that's how you have to back test it in there is that break even analysis and the, the go to market cost to sell and inquire and the cost to serve and support and make sure all those tie out at the lifetime value. Remember, this customer, at least in the software subscription game, is with you, you know, for, for several years paying you money and, and potentially growing. So you have to factor all of those into the.
Isar Meitis:Again, absolutely brilliant. I, I, I wanna say a few different things because they tie into this very, very nicely. One is people have been listening to this podcast, heard me say this before, from a financial perspective, from a numbers perspective, a business is a very simple formula. There are really four numbers and that's it. One is cost of acquisition, or average cost of acquisition. The other is lifetime value, which is what you get on the other end of it. In the middle, you have operating expenses, right? So this is what it costs to run the business. So your three to one ratio is basically this. It's saying, okay, if I can ac if to acquire you, it costs me a thousand dollars and you're gonna pay me$3,000. I didn't make$2,000 because I have a company run in between those two numbers. hence, And the last number by the way, is not a number, is time because money has value over time. And if I can. If I can acquire these clients faster or slower with the same thousand dollars requisition, it makes a very big difference to the overall financial of the business. So again, the way you described it is phenomenal. I'm just driving a level deeper, and that's due to literally any business, whether you're selling, you know, lemon juice on a street corner in a stand, and your seven year old all the way to running Microsoft. These rules apply. The other thing that I really wanted to touch that. The next question that I want to ask you, cuz what you're basically saying is that decision is not a numbers decision, it's an business operational decision. When you sit with companies who needs to be at the table to make sure. That this decision is the right decision. Who are the stakeholders that have to be forget about? Nice to have. There's obviously other people that can help the process. Who are the people that have to be at the table for this to be a smooth new pricing slash product strategy for it to be successful?
Marcus Rivera:Man, I, you hit it on the head. Pricing problems aren't just pricing problems. They're really business problems at the end of the day. Yeah. Which is why I, I go with this, this framework of starting with those three questions and those three questions involve different folks at the table. Right. You clearly wanna make sure that sales always has a seat at that table. They're the ones that have to stand in front of a customer, look them in the eye. And sell that value and get that price right. So that's, that's number one. They don't need to own pricing. I actually, people confuse that when I say that sales is the most important stakeholder. They are the most important stakeholder, but they are not the owner of the pricing, so to speak. You wanna give them some distance so they can navigate, close some deals and, and do what they need to do. But, the second one is the one in charge of the product or service. So this is the person in charge of. Creating the value, right? What do we build on our roadmap in a, in a, in a software scenario? How do we, what do we add to our product or services? What new line of clothing do we deliver? What new, you know, widgets we put out there, whatever that is. You wanna make sure that the, that person who understands the customer the most likely, as well as the way the product's delivering, also where all the skeletons are in the closet, that person needs to be at the table, whoever he or she is. Right? Yeah. Then you also want to have, a and I'm gonna use an umbrella. I'm gonna use operations as an umbrella. Right. But this is the person who actually knows how stuff gets done. Yeah. How do you, get the attention attract? Convert, support all these things. Now, smaller companies that could be the same person wearing that hat. Bigger companies could have, you know, someone from marketing, someone from, you know, customer success, someone from customer support, someone from professional services. So depending on the size, you wanna make sure you have a good, cross functional set who are involved in the capture of a customer. The onboarding of a customer and the supporting of a customer all the way through. And that could be anywhere from three to six people. Lisa, I don't want an army. You don't need to have 45 people make a decision on price, right? But if you keep it to three to six, you'll actually have enough cross section to make better decisions, and you keep it lightweight to keep on moving forward. Think about, Jeff Bezos one pizza rule, right? If you can feed the team with one pizza, that's about the size you wanna be. So that's, that's my.
Isar Meitis:Phenomenal. I, I really, really like what you're saying. I think it's, it's solid advice and it's on both ends, right? On one hand, involve all the right people as early on in the process. On the other hand is don't have too many people because then it's impossible to make decisions or it just takes a very, very long time. Let's. Let's move on. Let's say now I have a price, so I figured it out. I have the buying of all the right people we think we can achieve, higher revenue with this new pricing and business model because that's the whole point. How do you roll it out? Like how do you tell your customers, your existing customers, which is sometimes a bigger problem, right? A new client, I'm like, okay, now instead of a thousand dollars, it's$1,200. They didn't know it was a thousand dollars. So if if the value is there, they will pay it. But if I'm used to paying a thousand dollars, now you're asking me$1,200, that's a 20% increase that I probably don't wanna swallow that easily. So what do you recommend to companies? To do in those situations, especially when you increase price, you know, when you lower price, it's probably easier.
Marcus Rivera:Always, always. But interestingly enough, when you're deciding should I go high or should I go low, it's In my mind, a lot of people think, well, gee, let's just go as cheap as possible, get as many customers and grow them later. Others go out there saying, well, let's go as high as possible and let's, make sure we get the right customer coming in and that we have enough money to do what we need to do, to win more of those. So there is no right or wrong answer. I will say that it is. is a lot easier to bring the price down than it is to bring it up for the same exact product, right? So it's it's easier to go down in at a price point of a hundred and, and then give them a discount for, say, sticking with you for a year and take the price to 90 than it is to go for a hundred and then turn it on, try to get one 20 for it. It's just a, a much harder, higher friction route to take. So when it comes to rolling out pricing, I'm gonna break it down to new customers and existing customers, cuz they're kind of. And, and the way they look at it, your new customers, like you said, sir, have no idea what the old price point was. It's all about value selling at the new value, the new price point, the new roi, the new benefits, whatever that is. So they're none wiser. So I always like to validate and test the new price point with. Either, a couple of high performing quota carrying sales reps. Once you get a rep or two and sort of into the pricing and supportive of it, the other reps will follow. Okay. They're all very competitive and they all look to one another, and so I like to test you with one or two, and this is the way I do it. There's something I like to call the back pocket test, and the back pocket test is take a deal that maybe has gone cold. It's, you know, and you're, it's maybe they haven't been responsive lately, low probability of winning, and then go there and introduce the new pricing to them. All right? What you're doing here is you're creating a safe environment or a lower risk environment to get a reaction from a real buying prospect. I'd say real buying prospect because people act differently when they respond to a survey than when they're ready to really let go of money. Right? So there are a few deals, say they were kind of low scoring or you know, non-responsive. Anyway, you'd be surprised of how many, clients have had that have done this and actually revived the deal, then pulled it out of the dead because the new model was, was either better, easier to understand more with what they were looking for, whatever that is. Right? So start. And then you go down and say, okay, now the deal's in the pipeline with those rep, those top reps I told you about. Let's keep on, let's introduce the pricing to them and, and get a, and get real feedback reactions from those prospects. Great. Now that you're comfortable there, step three is. Now let's do it for all new business. So you see what I did? I did a back pocket test with a low probability wins, then the whole pipeline, and then all new business. And I did that in a methodical three step way because if you wanna, you don't want to just go out there with a big bang with new pricing cuz you're putting yourself at risk. It could work, it could not. I like to step through it because there's nuances that maybe you're not catching. There's things in the pitch you don't understand. There's something that you want to make sure you adjust before, before fledge. That's for new business. For existing business, very different. And the reason why is because these customers are already paying you money, so, A, it's good cuz you already have a relationship. You have trust. They know and understand the value better than a new customer. Okay? But now they need to pay more money and the worst feeling in the world as a customer is to pay you more money for the same damn thing. That sucks. Right? And people forget, I'm a pricing guy, but I buy stuff too. I'm a customer too, right? I, I have both ends of it. And, and I, and I'm telling you right now, nobody wants to pay more money for the same stuff. They just don't. And so the first thing that, that, you need to do when you're selling the new price to the existing customers is re-anchor them on the value. You have to reframe it. You have to do it first before you introduce the new price. That's where companies get it wrong. They introduce a new price and then they say, oh, well, but you know, we're gonna do this and release that, and this and that. And they try to justify afterwards. Once you give them that number, it is already ingrained in their head. You have to reframe and start with, Hey, you know, I hope you enjoyed all of these 11 things we released last year. I hope you enjoyed these 15 improvements we made. I noticed that. You know, you have 122 people using the software or that you've uploaded, you know, 5,000 things last month. Right? Really happy. You're getting a lot of value. You know what you're, what you're doing is you're reminding them of the value. You're re-anchoring it, bring it back front of mind. You're reminding them that since you purchased this, look at all the improvements I've made. Okay? And now you're also telling them, oh, and we're super excited and in the next six months we're gonna do this, this, and this. Right? And now you're telling them the value's gonna continue to go. up You see what I'm doing here? It's good old fashioned sandwich. Yeah. Here's what we did. Here's what you're getting, how what you're using, here's what we're gonna do. And you do that first before you come and say, Hey, by the way, you know, in order to continue to stay true to our mission, to whatever make you the most efficient chef in the world, or make you the best lawyer in the world, is we're going to adjust our prices. You have to be confident and firm about it. No wishy washiness. Stand behind your value. And say this is, what the price changes will be. Now for some customers, is where we can get into a whole different podcast on its own, but you can offer different paths for different customers. You can give some discounts for loyalty. You can say, Hey, if you signed up early, I'll honor your current price for the next year. You can do all these different things to get what you want as a business. But for now, just just say you give them some options, and make sure that they're happy at the end of it.
Isar Meitis:Brilliant. It's really, really fantastic. I think we touched on a lot of very, very, very important and, and, and again, I don't wanna call it pricing, I think, I think it's business strategy points that you dove into different levels of depths. You obviously done this more than once. I'm This was a, an amazing conversation. If people wanna read your book, follow you, connect with you, work with you, what's, what's the best way to do
Marcus Rivera:that? Well, I, I did write a book about this because I thought it was important for entrepreneurs, not just tech entrepreneurs, but all entrepreneurs to understand that it doesn't have to be scary. It doesn't have to be a black box, and pricing does not have to be guesswork, right? You can ha you can follow a methodology and you can get better at it just like any other skill, right? So I wrote this book and I. You can get it on Amazon, you can get it Barnes and Nobles. I think Amazon is where most people get it. It's called street pricing. And, you just type in street pricing, you know, Marcos Rivera, and they'll come right up and you get the book. We'll have it all, all sorts of, Kindle versus soft, versus hard cover. But the key about this thing is. You don't want to read the whole thing right away, right? I actually put a cheat sheet in the beginning of the book that says, look, if you're wondering if you're too cheap, go here to this chapter. If you think your packages are wrong, go to this chapter. Right? I give'em a little bit of a cheat sheet in the beginning, cuz listen, people have these questions and they need, they need the answers. So I, so I would always start with the cheat sheet, and that starts getting you right to what you need to get some value fast. So you can get the book on Amazon to reach me. My firm is called Pricing io, pricing input output. We we're gonna work with tech companies and we do a lot of work to help them get from that, that guesswork that they're doing to a good framework to get pricing out the door and help them grow. That's what we love to do. And that's, pricing io.com.
Isar Meitis:Awesome. Marcus, this was fantastic. I'll add to things, one, I mentioned a book called, the Mom Test. Definitely worth reading with regards to how to interview customers and prospects in order to get freelancers. Another one that has to do a lot with the side aspect of this is, play bigger, which is about category design, which about the whole idea of being different is better than being, than, than, than fighting on price. So being different is better than being better because then you don't have to explain everything and the value is clear because you're different than everybody else. So it's another book that's worth reading as a background to all this conversation. And I just wanna thank you. This was a really, really fantastic conversation. A lot of really important stuff, and thank you for sharing.
Marcus Rivera:Thank you for having me. Love the conversation, and I hope someone took, at least a new idea away, in this talk. It was a lot of fun. Amen.
What a fantastic conversation with Marcus. He really understands this process. He obviously brings a lot of value and it's something that so many companies need to know how to do and yet don't really follow this process. A big part of this is really understanding the value you bring to your customers and understanding the real needs. And therefore, I would really like to recommend two really good episodes that can help you better understand your client needs and help them walk through the journey so they understand the value you bring to them. The first one is episode 154. It's called Let Your Clients Guide Your Business Strategy through Primary Client Research with sought after expert Ryan Paul Gibson. It's an amazing episode that will really open your eyes to A, the possibilities, and B, the way to get better clients insights that can guide your business strategy. The second one that connects these two dots together. So today's episode and the episode with Ryan is episode 144. It's called the Revenue Zone, a detailed blueprint on how to do marketing and sales the right way. With serial entrepreneur and author Tom Burton, he really takes the idea of customer research and connects it to the idea of how to take your customers through the journey until they're ready to buy from you. So these two episodes can really be great compliment for today's, and until next time, have an amazing week.