3 Books That Will Make You Better at Pricing
In nearly all professions, we learn best by doing but always benefit from studying the principles learned from those who have done what we do for far longer and/or rigorously researched best practices.
The pricing profession is no different. Here are 3 books that made me better at pricing:
The Strategy and Tactics of Pricing, by Thomas Nagle and Georg Müller
Strategy and Tactics is the classic textbook covering the wide array of data, considerations, structures, and ethics involved in setting pricing strategy and implementing the tactics to achieve those strategic objectives. What I learned:
Link your pricing tightly to your drivers of profitability.
How you communicate your pricing to customers has a substantial impact on how they perceive the value of your offering, and thus what they're willing to pay.
Different customer segments often require different pricing strategies.
Accurately modeling your cost against your price is critically important and often overlooked or oversimplified at smaller organizations.
Respond to price competition first through emphasizing differentiation, enhanced value, speed of operational delivery, etc. before broadly cutting price. Focus on broad pricing feedback from a range of customers, not one-off anecdotes from a customer using price as an excuse why they didn't select you.
The book goes into many other interesting areas (structures of pricing teams, ethics, etc.) Highly recommend!
Value-Based Fees, by Alan Weiss
Alan's book focuses on solo and boutique consultants and is foundational to my own consulting practice. However I also find it extremely useful in advising clients on how to maximize pricing for smaller to medium sized projects. What I learned from the standpoint of how organizations can price more effectively:
Fixed fees are a superior contracting method for both buyer and seller. Fixed fees incentivize efficiency, speed, and getting the job done right the first time. Fixed fees lock in the customer's cost relative to their expected benefit, helping to solidify the expected ROI upfront. Fixed fee contracts are far simpler to administer for back end functions (A/R, A/P, timesheets, etc.)
Providing options in your scope, pricing, and payment terms moves the customer conversation away from bargaining on a single price point to an exploration of what combination of results, fees, and payment terms are most attractive to the customer.
Contracting smaller projects on how many hours it will take often results in underpricing those types of projects, over-administering their conduct, and setting poor precedent for future similar projects. If the customer requests you to rapidly evaluate a key process in 30 days and that evaluation drives substantial value to their business, don't charge $8,523, invoiced at the end of the month, because your project manager has done it a million times and it will be easy. Charge $30,000, payable on signature. Charge more on other similar projects as you get better and faster at delivering.
If you're contracted to be available as needed for general advisory or support needs, charge flat monthly or quarterly fees, not by the hour. The customer is paying for access to your expertise and availability, not the 30 minutes you spent talking to them at 3pm last Tuesday.
Any consulting or service business of any kind will benefit tremendously from this and really any of Alan's books.
I consider this book a diamond in the rough of Amazon e-Books. I found its principles just as applicable to services providers as SaaS startups. What I learned:
Similar to the "options" note above for Value-Based Fees, "Good-Better-Best" packaging provides the customer a range of options to choose from to maximize their perceived value, instead of putting the customer in a position of saying Yes or No to the binary choice you've put in front of them.
Pricing needs to evolve throughout the year, not once per year.
Expansions and renewals are extraordinarily important. The incremental revenues are often delivered at your highest margins; long-term satisfied customers are your best referral sources; your people develop relationships with their people. The list goes on!
Think hard on how each significant pricing unit is structured and charged- one-time, duration based, usage based, etc.
For units that get sold in large quantities (CROs- think Data Review, Monitoring Visits), how does cost scale across quantities, and how do you account for that scaling in your pricing (if at all)?
Many more books have been written on pricing, but these are 3 I find myself coming back to time and again to ground me in sound principles and creative thinking. Enjoy!