How do you set the pricing for your product or service?
Do you simply throw a number out there?
Maybe you look at several competitors, then you guess.
You're hoping you've hit the nail on the head.
What you don't realize is that a ten or even a three percent error can be a huge dent in your revenue.
You'd think that a business feature like pricing that's crucial in every decision the customer makes would be one that founders test frequently.
But most don't.
The reason is they don't know how to test their pricing, then implement it.
As a result, one of the most important variables for acquisition, retention, and referrals gets completely ignored. That was until Patrick Campbell founded Price Intelligently. Today, it's known as ProfitWell.
In this post, we're diving into how Patrick created a SaaS company doing 10 mil ARR by putting pricing strategy at the forefront of company growth.
Patrick left Google not knowing much about startup life. In his words, "I was a punk-ass kid with a lot to learn." When he started, he was the only one working full-time that meant eighteen hours a day.
Even though he didn't know much about startup life, it proved to be an advantage.
Patrick notes, "I was more naive than anything of the raising money world because I came from Google. Giant tech companies don't know a lot about startups. We see companies spend a lot of money after they raise, then fail miserably because they're spending in the wrong direction. They're not being ironically slow enough to methodically think through the product-market fit."
To bootstrap the company, he cashed out his 401K.
This gave them six months of runway.
"The biggest thing was finding product-market fit. To make it happen, we did the non-scalable things that turned into scalable traction channels."
The challenge came when he realized that discovering product-market fit wasn't the hard part.
"I thought the hardest thing will be product marketing and customers. It's naive because the most important thing is building your team because those are the people who do everything."
The reason he explains is "it's difficult to transfer skills to another human being no matter how talented they are. We're thinking oh, this will be easy. We can just hire this person who's young, untested, and doesn't know what they're doing. In reality, it was much harder for them."
Similar to many bootstrapped entrepreneurs, Patrick invested in content marketing.
"We started doing content marketing because we had a free HubSpot account. We just started publishing content. You're talking about writing for hours and putting together a post that 30 people will read."
He explains how important it is to see content through. That you're building an audience over time. It's not easy, but well worth it.
"It paid off a lot in the long run because when it comes to SaaS pricing, enough people have heard of us now that we get a ton of referrals. If people check out our blog, they'll notice we've always had high-quality posts."
Patrick explains that it's not just the small startups that don't testing pricing. It's billion-dollar companies.
"We were helping a company that's about to IPO with their pricing and we discovered they were calculating their MRR incorrectly. It's not GAAP accounting, but it's still an important number."
He states the impact is not just in pennies, but seriously moving the needle.
"We also worked with TaxJar, a company that helps you figure out your taxes. We did a lot of different studies for them, then doubled their growth because we found out that they could charge double."
Early on in the company, Patrick made a crucial decision that'd cement Price Intelligently as a market leader. It'd make their product stand out amongst all their competitors.
"We did our homework on our customers and found out that accuracy was critical. If you log into a financial dashboard, you want it to be 100% accurate, right? Because you're going to make decisions on your finances. So we spent the first year not building many features, but focusing on accuracy. That's what helps us win because the other guys aren't as accurate. Plus, we're vocal about it."
Patrick saw the bigger picture; in other words, opportunity cost.
"If your pricing is 5 or 10% off - that might be a full-time hire. If not many full-time hires that you're missing out on because you don't have your cash flow right. Getting 100% accuracy is extremely hard, so if we could get closer than our competitors then we'd have an advantage."
When talking to Patrick, he explained that their best customers our SaaS companies. If they were to work with an e-commerce company with many verticals and SKUs, then you'd need to - possibly - quadruple the efforts in testing pricing. The reason is you're no longer dealing with one product, but several or even hundreds.
For that reason, their target company is doing 1 to 10 million ARR in SaaS. They also have another persona averaging around $65 million ARR. When looking to implement a pricing strategy, Patrick notes that the earlier, the better.
"Pricing strategy starts at day zero. The reason for that is your price is the exchange rate on the value that you're providing. In the early days, you need to figure out what is that early exchange rate on the value."
This is the ideal scenario: A founder tests their pricing out early; as a result, they get an influx of new revenue. Not only that but as Patrick says, "It helps with the identification of who you're going after in the top of your funnel, how you're going to convert them to the bottom of the funnel, then how you'll retain them."
However, Patrick explains that starting with price testing is not a common case:
"Most people have never done any pricing work. All of a sudden we come in, give them the confidence to double their prices, and then nothing happens except double growth, which is always great."
To convince their prospects, Patrick relies on data.
"I can come in and say 'here's all of this data from 17 different angles that say this price is right. Now knowing you're underpriced, here's the best way to communicate this change.' People come around to that because they already qualitatively know there's a problem, then we close the quantitative gap."
Patrick knows that marketing is changing fast.
He notes, "the average amount of touches that you're getting per week from traditional content marketing is going down substantially every year. The life of an ebook which is the primary middle-of-the-funnel offer for an inbound marketing company is now less than two months. Mainly because everyone's getting ebooks and newsletters."
To combat this, Patrick is going all in on audience building. "We've launched two shows and we'll launch three more shows in the next quarter to build more audiences."
That's a huge investment for a SaaS company.
"Most of our content that we published now is video first. We went all-in as of January 1st this year and it's produced a lot of dividends which were pumped about. There's not a lot of B2B SaaS companies doing it."
He's right - how many B2B SaaS companies do you know producing consistent video content?
I can barely think of one.
One of the ways he's distributing this video content is by including it in his blog posts as gated content.
Once you opt-in, you get access to their show where they talk about SaaS pricing and much more.
Behind the scenes, there's a reason Patrick is going all in on video -
"We want to be the Bloomberg of SaaS. Bloomberg is a huge software and hardware company before it's a media company, but the media company feeds the entire brand."
One of the key takeaways from the conversation is that founders and marketers don't invest in pricing strategies. It's the easiest way to leave money on the table.
If you can charge 2X more for your product or service without losing customers, imagine how much more profit you could invest back into your business.
There's no better time than today to do it.
Because what if the customer you thought you should sell to isn't the right one?
And your real customer is still waiting for your product?
Don't let that happen.