Business of Tech: Daily 10-Minute IT Services Insights Unlocking Value: Effective Pricing Governance and Models for SaaS and MSPs with Dan Balcauski
Pricing is a critical lever for managed service providers (MSPs), SaaS providers, and tech companies, yet many organizations treat it as a one-time event rather than an ongoing process. Dan Balcauski, founder and chief pricing officer at Product Tranquility, emphasizes the importance of viewing pricing as a living system that requires continuous iteration and governance. He argues that pricing should be closely tied to the value a company provides, especially in a competitive landscape where both value and market conditions are constantly changing. Balcauski distinguishes between price metrics and pricing models, explaining that many executives mistakenly focus solely on the price itself rather than the broader context of how pricing is structured. He uses the example of McDonald's to illustrate how price metrics can vary based on customer needs and operational viability. By understanding the nuances of pricing metrics and models, companies can better align their pricing strategies with the value they deliver to different customer segments. The conversation also delves into the emerging trends of usage-based and outcome-based pricing. While usage-based pricing is gaining traction, Balcauski cautions that it can lead to confusion due to its broad interpretation. He suggests that outcome-based pricing, while appealing, is challenging to implement effectively because of the difficulty in establishing clear attribution for outcomes. Instead, he proposes a focus on output-based pricing, which measures intermediate outputs that can be more easily quantified. To ensure effective pricing governance, Balcauski advocates for clear ownership and processes within organizations. He stresses the need for companies to define their pricing goals and understand the relationship between customer segments, value, and competition. By embedding pricing governance into their operations, businesses can create a structured approach to pricing that adapts to changing market conditions and customer needs, ultimately leading to better financial outcomes.
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