The biggest price mistake I ever made (and lessons learned)
Everybody makes price mistakes-- to err is human, even in sales. I connected with four SaaS sales leaders and asked them to share their biggest blunders plus their takeaways so you can avoid repeating the same price errors. Here’s what they had to say.
It’s the one question we often dance around and is undoubtedly plaguing every level of your organization: what’s your price?
Price can be a sensitive and uncomfortable issue. How much should you charge? How do you best communicate your offer? Present it incorrectly, and you risk turning buyers away.
Or when coaching your team, when should the pricing discussion occur with buyers? Do they hold off and potentially waste time with someone who simply cannot afford your product? Or the other danger is raising it too soon, before your product’s value has been established.
And then there’s the issue of discounts….
There’s much to consider in how we price our products and communicate our offer to buyers. And let’s be honest, we’ve all made price errors in our attempts to seal the deal.
I once made a significant price blunder I thought would cost me my job. I was a young magazine advertising sales manager who overlooked a basic production detail and offered a nearly half-priced insert to the (all too happy) client. When my (not so happy) boss asked me what happened, my despondent explanation sounded something like, “I screwed up….”
Unfortunately, my price error isn’t unique— it happens to the best of us— entrepreneurs, sales leaders, and sales reps. From establishing your pricing strategy to discounting to presenting your offer appropriately, all the details need to be in sync— or in other words; you need to “get your bucks in a row.” (sorry, that was bad) And when they’re not— price mistakes happen, and lessons are learned the hard way.
In that spirit, I connected with four SaaS sales leaders and asked them to share their biggest blunders plus their tips and takeaways so you can avoid the same price errors. Here’s what they had to say.
Do your research before setting your price
“I’ve made a lot of pricing mistakes. The most painful have come from incomplete research when setting the price. I think it’s a common trap to look at competitors, ask a few customers what they’d pay, and then launch,” said Adam Schoenfeld, 3x SaaS Founder and Creator of PeerSignal.org.
Indeed, Adam, looking at what the competition is doing can be a dangerous proposition. The men’s 200-meter butterfly race at the 2016 Rio Olympics is a perfect life illustration. South African Chad le Clos was the favored swimmer yet lost to American Michael Phelps by seven-tenths of a second after turning his head to look at Phelps in the final 50 meters of the race.
The lesson here: keep your eyes focused ahead. If you’re only doing the comparison game, you’ll always lose.
A big piece of forward-thinking and appropriately pricing your product is understanding your product’s unique value and monetizing your innovation. “I recently found Madhavan Ramanujam’s work,” said Adam. “He outlines a series of questions that help you go deeper. I’m following his [pricing] framework next time!”
According to Ramanujam’s framework, he provides nine rules to help avoid price errors and failures:
- Have the “willingness to pay” talk with customers early in the product development process
- Don’t force a one-size-fits-all pricing solution— build customer segments
- Product configurations and bundling is more science than art
- Choose the right pricing revenue model— how you charge is often more important than how much you charge
- Develop your pricing strategy to maximize gains in the short and long term
- Build your business case using customer willingness-to-pay data, and establish links between price, value, volume, and cost.
- Communicate the value of your offering clearly and compellingly
- Understand your customers’ irrational sides— buyers are human!
- Maintain your pricing integrity and control discounting tightly
We take an in-depth look at pricing strategies, buyer psychology, and presentation tips in Qwilr’s newly published “Pricing Playbook: winning strategies to pitch your price right.” Access your free copy now.
The underlying theme in both Ramanujam’s pricing foundation and Adam’s comments is to deeply understand your value, an area our next SaaS leader addresses, too.
Establish your value before discounting
“The biggest price mistake I’ve ever made was lowering our price in a competitive situation and showing our cards early on before discussing our product’s value. In one particular deal, we knew the competition we were up against and the pricing and the discounts they were offering, so we dropped our pricing super low to compete. Unfortunately, we didn’t end up winning the deal. We focused only on a low price because our competition was there vs. establishing the unique value that we provided,” Michelle shared.
But the sting of the lost deal doesn’t end there— price errors can later haunt you.
“This type of price mistake can really hurt you,” Michelle advises, “especially when the buyer comes back. The buyer now expects a super low price because you previously discounted purely to get the deal in.”
Going forward, Michelle coaches her team to get buyer agreement on three things:
- Our product helps them
- Our product solves a pain
- They see the value in our tool
In addition, she notes, “we want to ensure our discounting thresholds are kept very low.” Words of wisdom from a savvy sales leader, speaking from prior experience.
Clearly communicate your offer and discuss buyer expectations
“I’ve made a few price mistakes in my sales career,” Kyle said. “One that comes to mind was when I was a new sales manager working on strategic accounts at Oracle— this division represents the biggest accounts in the world who spend with Oracle.” (No pressure, Kyle.)
He continued, “This price error sticks with me because not only are the numbers big, but I was young in my career. I was helping someone else with this deal, and the client had an existing price hold (discount) of 56%. The list price was $680,000, so it was roughly a $300,000 deal after applying their discount. But the client wanted to hold off and wait until next quarter— words no salesperson wants to hear. I was trying to motivate him to move forward now so we could make our quota for the quarter, so I offered him an additional 10% off.”
But that proved to be Kyle’s big price mistake.
“In my mind,” Kyle said, “10% off $300,000 is $30,000. But the buyer interpreted my offer very differently, expecting his 56% price hold to now be a 66% discount, dropping the deal down to about $230,000.”
How could this miscommunication happen? Most sales leaders agree to negotiate live, never via email. (One of the six deadly sins of sales communications, in fact.) But even verbal communications can be misconstrued.
“This all happened over a phone call,” Kyle reflected, “and sometimes, despite your best efforts to explain your offer, the buyer will hear what he wants to hear. When we got off the phone and I brought the offer back to him, it wasn’t what he expected, and he was not happy.”
In short, Kyle had a major dilemma on his hands— a $40,000 price discrepancy, an upset client, and a predicament he wasn’t quite sure how to navigate. But he knew he had to fix it.
“I had to go back to the client, apologize, and explain what I meant— but this customer was very unhappy with me. However, we eventually did get the deal done, and I learned a lot from this experience,” Kyle said.
What were Kyle’s takeaways?
“Miscommunications are costly for both the buyer and seller. A lot of work has to be done to get the deal re-approved, not to mention the buyer loses trust. What I’ve learned is always be very clear with your customer, have next steps in place, and confirm everyone has the same understanding of the offer on the table before ending the call,” Kyle advised.
He wrapped up with words of sales encouragement, too. “Everyone makes price mistakes— some more significant than others. Learn from them, never do them again, and move on,” says Kyle.
And speaking of moving on, our final example illustrates the importance of evaluating your pricing, moving away from models that aren’t working, and making updates to keep your options simple and transparent.
Don’t overcomplicate your price
Overcomplicating your offer is an easy trap to fall into. If you have a complex product offering, it’s tempting to display a wide array of options on your pricing page. But overcomplicating your pricing adds friction to the buying process— and can even scare buyers off entirely.
“Back in 2014, we had five pricing plans,” Jaakko said. “In 2018, we simplified our model and switched over to our current two-tier pricing strategy: Lite, which is free, and Premium, which starts at $79 per month.”
And the result?
“Our conversion rate jumped from 1.13% to 1.83%. Keeping things simple and transparent was important to us as a company, and our customers seem to appreciate knowing exactly what they’ll pay,” he noted.
Kudos to Leadfeeder on their conversion success!
To keep your offer fresh, pricing expert Patrick Campbell of Profitwell recommends changing something about your pricing strategy every three months. Your updates might not necessarily be increasing your price or changing the number, but rather how you package your product or present your price— “It’s all about communicating your value differential,” Patrick says. Changes— large or small— can result in big dividends, just as Leadfeeder experienced. And if you’d like to hear more from Patrick Campbell and learn from his extensive research and pricing expertise, we invite you to read our Pricing Playbook, available free.
To err is human
Nobody likes to make price mistakes, and what’s even worse is owning up to them. But the reality is price errors happen— we’re all human, after all. So whatever you do, don’t give up, and don’t shy away from the pricing discussion or optimizing your offer. Remember, pricing success is a journey— a collection of mistakes you’ve learned from instead of repeated.
Additional resources for your pricing success:
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