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About Ingrid Bonde Åkerlind

Episode Highlights

Links and resources

• Oxx– A hands-on growth-stage venture capital firm that partners with Europe’s top B2B SaaS founders, bringing deep data-driven expertise to scale businesses with the “Oxx factor
• BlaBlaCar – A C2C (consumer-to-consumer) marketplace for city-to-city ride-sharing where Ingrid led pricing initiatives.

Interview Transcript

Shubha K. Chakravarthy: Hello Ingrid. We are so happy to have you on Invisible Ink today. Thank you for being here.

Ingrid Bonde Akerlind: Thank you so much for inviting me.

Journey into Pricing

Shubha K. Chakravarthy: So you are an expert in one of my favorite topics which is pricing. So just to get us started, can you tell us a little bit about your work and what drew you to this area?

Ingrid Bonde Akerlind: Yeah for sure. So, today I work as an investor in a venture capital fund. So I get the joy of actually going to talk about the topic of pricing with lots of different founders, of different startups — generally quite small ones, sometimes a little bit bigger but not enormous enterprises. That’s not truly what I talk with these days. But before I was an investor, I spent several years working as a VP Marketing and Growth, and before that as actually a Pricing Lead in a large scale-up. And so I had the chance to get to do it firsthand. And once you sort of fall in love with the topic, you don’t leave it, so to speak.

But the original story of, like, literally my manager came to me one day, and this was December 2015 or 2016, I don’t quite remember. It was like, “Oh, by the way, so we need to focus on pricing and here, go figure it out.” That was basically what we had to deal with. And so it started off as a project to really dive into something that I didn’t know much about but which I will add as well: there wasn’t a lot of literature about sort of pricing of digital products back then.

Especially not the business model I was working with then was actually a C2C marketplace. So you’re dealing with a digital marketplace. Pricing literature that existed — the theories had very much been developed for supply and demand and elasticities for physical goods. So you could actually by yourself from first principles, figure out a lot of the basics and sort of test and experiment. That’s sort of the ethos of how a lot of tech companies are built which is one reason it sort of also was a really interesting thing to dive into.

Unique Insights on C2C Pricing

Shubha K. Chakravarthy: Awesome. And if you care to share, was there one big aha in terms of C2C pricing that came up through your work that you didn’t find in the literature?

Ingrid Bonde Akerlind: Yeah so, I was working at a company called BlaBlaCar. They’re the world’s leader in city-to-city ride sharing. Today, they’ve expanded to multiple product lines but at the time, that was the main revenue driver for the business.

And so drivers are posting seats online and passengers will purchase those empty seats. The platform doesn’t dictate the price; the platform suggests the price, and the driver picks the price. One phenomenon that we saw, which actually I think I haven’t seen as much in other places, is that there was this sort of like, price inertia that even if we were to start recommending a different price, which we’re doing, drivers would keep sometimes posting the previous price because they remembered it.

And so, I think it was a really interesting notion. I haven’t actually seen it explicitly in other places. People remember the original price, and they have that sort of anchor and then you have to let a certain amount of time pass until they forget about it. But then eventually, sort of the new reality becomes the dominant one. It doesn’t happen overnight. But it was very explicit in this marketplace in such a way that I don’t think is necessarily in other places.

But you can probably imagine that actually, your customers for sure, they do know the price of the competitors, they do know your prices but they actually might remember the prices of, sort of, a year ago. If prices for our food that we pay for in our grocery stores rise. Honestly, it is more just like, we’re like, oh, this is expensive because I remember what I used to pay for this particular good.

Psychology in Pricing

Shubha K. Chakravarthy: Touché. Very relevant to this point you know, for those of us living here. One other thing that you brought up, is this issue of psychology, right? I don’t want to say consumer psychology. I’ll say customer psychology. To what extent is psychology a driver? And if you had to split up a hundred points between analytics and psychology, how would you split those up in terms of impact on pricing?

Ingrid Bonde Akerlind: I do think that actually depends on what stage a company you’re at. Actually, I’ll put the framing into these ways. I think actually psychology is just as much a part of B2B pricing as it is to B2C pricing. In some ways, I don’t think consumers are far more just driven by psychology than rationality than a B2B buyer.

There’s a ton of psychology in that as well. But if you are a very late-stage company, then you can hire somebody in pricing who actually applies it as a science because you are large enough that actually optimizing a small margin is worth it. If you’re an early-stage company, the value you’re going to get from optimizing is very low compared to the value you’re going to get from sort of strategic shifts in a new product line, figuring out a new way to drive growth. So you aren’t trying to sort of optimize as much as you are trying to forge out new directions in which the psychological piece becomes more important because you’re trying to think of what will work in the market, not what is the ideal price point.

Shubha K. Chakravarthy: I like that. Yeah, that makes a lot of sense. And just one last question because this is so fascinating. You talked about how psychology is important in B2B pricing, right? And a lot of our listeners are founders of B2B companies, particularly in deep tech. Can you talk about maybe one or two specific factors that you think have an outsize influence on B2B pricing from a psychology perspective?

Ingrid Bonde Akerlind: Yeah. I guess the notion is that there’s not necessarily like, what is expensive or not depends on what you compare it to. So one thing, for example, is that sometimes I ask people—and this is actually something that’s related very much to positioning—is, if you’re developing a new product category which, to your point, many of the listeners here are deep tech founders, it’s a brand new product category. Like, nobody knows, like, there’s not a set price.

But there is something else they’re probably comparing this against and sort of like a type of a budget item or type of this thing. So, sometimes in those conversations with the founders, I might ask, “Okay, so is this, like, being purchased” Like, I used to work in retail tech, so it was like, “This is a retail experience.”

Okay, great. Well what else do you spend on for retail experience? Is this a lot or a little compared to that? And that’s actually going to matter like more to the customer necessarily than the cost that you have to produce said thing. So if you call something one thing, it might sound expensive. If you call thing another thing, it might sound cheap.

Shubha K. Chakravarthy: Framing and anchoring in other words

Ingrid Bonde Akerlind: Yeah, it’s sort of like how you frame something will actually shift what you think that it might be.

Challenges in XaaS Pricing Models

Shubha K. Chakravarthy: Love it. So now I want to dive into your area of expertise, which is SaaS or what I like to call more broadly, XaaS.  I see a lot of these businesses not just in software obviously, even in like clean tech, health tech moving into XaaS business models. What are some of the big challenges they face relative to maybe traditional pricing methods?

Ingrid Bonde Akerlind: Yeah, so any sort of “X as a service” (XaaS) model, you do very much is you’re actually having a customer sign up on day one but you’re actually assuming that they’re going to stay with your business for a very long time to come, especially if you have a hardware component to whatever you’re selling.

It’s probably a pretty long time commitment because not only are you a new thing, you’re actually maybe implementing into sort of a physical environment where it actually will stay for a while. And so, unlike when you’re doing a one-off transaction, what’s a bit challenging is you can’t count the profitability of that one-time transaction.

You’re trying to count on profitability as it stretches over time. So your unit economic calculation becomes a lot more complicated. It’s not just like, I paid this much in order to have somebody buy that much, which is simplistic. You have to assume how long will they use it for. And to your point, if you are including a piece of hardware, at what point will that degrade?

Well, if you’re an early-stage startup, you have no idea how often you’re going to need to replace the spare parts of that hardware product at all, or that IoT device. And so, that’s, I think, probably one of the things that becomes more challenging when you’re thinking about price as really an input to profitability, which at the end of the day, price is one of the most important inputs into profitability. Now, I’m using the word unit economic profitability but for the companies that I work with, that’s sort of like where many of them are unprofitable because they’re growth companies, but that’s really what they’re trying to look for.

Strategies for Early-Stage Pricing

Shubha K. Chakravarthy: Got it. And do you have any kind of, I don’t want to say simple, but off the top of your head guidelines or principles in terms of where they even start?

You know, you made a really good point. They have no data, right? How do I know anything about these things? So what are some landmarks or some starting points, anything that can help them get grounded or situated within the right zone of pricing, so to speak.

Ingrid Bonde Akerlind: Well, there’s not just one perfect price. Right? In a sense, if you think of sort of the ultimate business output and of your business, building your product and you’re building a commercial team to sell that product. And actually price is kind of what connects the two together.

Shubha K. Chakravarthy: Right.

Ingrid Bonde Akerlind: At the end of the day, it is almost like a third limb of the whole thing. It’s just the one that nobody happens to own it, and nobody happens to have it as a full-time job because it doesn’t warrant having somebody as a full-time job because the other two things take a lot more sort of resources. But if you’re relatively early, I think one thing that’s quite important is trying to keep it very tight to the product.

So what you’re often doing early stage is that you’re off and your product managers or or you’re super early stage, the founders themselves— you’re doing prospective interviews with users. You’re talking to people who might use your product. And you’re using that to determine which features to build, to figure out how to get to product-market fit.

Well, ask people what they want to pay at the same time. Don’t leave that to be a separate part of the conversation that you sit around a team like, oh no, how should we charge for this? I don’t know.

Best people who are going to probably at least give you some indicators are going to be the people you might be selling to. There might be a fear to bring up that as part of the conversation, right? But if you don’t bring it up, you can never get an answer. And you’re going to need to tell people a price eventually. So why not start earlier?

One caveat that I think is really important is if you’re an enterprise then obviously your user may not be your buyer. And so then it’s important to also do what I would term as buyer research calls. You need to talk to potential buyers to understand how they would think about it.

And when I say when they would think about it, we can get into more. This is research now. It’s not only about “Hi, do you want to pay $2,000 or $1,000 for this?” Because that already presumes they know how they want to pay for it and you don’t know that yet. Maybe they think in this type of unit. Maybe they would change their mind a lot if they had to go above a certain threshold at which point they need to go ask their CEO for permission.

There’s so many hidden factors that actually you want to have a pretty open discussion about: how do you think about this? How would you think about the value that you’re going to get from this product? At the end of the day, what you’re trying to get— you could backtrack from ROI is going to be this. We think that ROI will happen in this way, therefore this is probably the way they’ll find value. Therefore, this is maybe how we’ll price it.

Shubha K. Chakravarthy: Awesome. I love it. And I know we’re going to dive into that, so I’ll hold that thought. But I loved how you laid out at least a high level starting point to say, don’t jump off the deep end but have an approach that’s driven off of an ROI basis keeping in mind all the other psychological factors.

So coming to that, you made a really interesting point. You said pricing is usually the orphan, right? In the startup, nobody owns it. It’s kind of assumed. So what are the biggest mistakes you see founders making on this area of price? Because to me, if you just look at pure numbers, it’s the biggest driver of profitability, right?

Like within constraints, what I would imagine that this should be top of mind, but I’m sure it’s not the case for founders because it’s a scary, big topic. What are you seeing in terms of on the ground mistakes?

Ingrid Bonde Akerlind: I think luckily, it actually is becoming at least sort of in the pure software and SaaS world that I live in. I think it actually was becoming slightly more top of mind but that’s actually more because years ago, everyone just did simple seat-based usage, licensing, blah, blah, blah. Now, with consumption-based pricing with AI, we’re talking about outcome-based pricing.

So, like, suddenly the smorgasbord of menus has increasing. So actually, people know that, oh, I have to think about this. Which leads you to how discussions are around it, right? I think the rep that nobody thinks about it is probably not as true as it might have been 5–10 years ago. But where people usually go wrong—I mean, the most classic mistake is that people don’t price high enough. Or they do price the initial sort of five, ten customers, but then they forget that actually, oh wait, I’m not selling an MVP anymore.

Actually, I’ve now spent two more years in my development resources making this product better. Clearly, it’s going to deliver higher value. I need to remember to shift what pricing and charging and how I’m pricing as that happens. So, those are the two most common mistakes.

Shubha K. Chakravarthy: So pricing low, I can certainly understand, right? You’re going out. You’re feeling pretty tentative. We don’t know anything. What can a founder do to kind of overcome that barrier that I don’t want to price it so high that I don’t get a single customer yet you want to capture value, right? What are you seeing in being effective with that?

Ingrid Bonde Akerlind: So, I’m going to be quite reductive to say, if you only have one potential customer, you might not have picked a market that’s big enough anyway. And so you might as well be willing to lose one potential customer by giving them a price and shocking them, so that they’ll never talk to you again—because at least then you’ve learned what’s too high. You shouldn’t only be having one prospective customer conversation ever, right? You should be having multiple. And so I think part of this is about figuring out. If you have multiple, fine. For your first five, cite five different price points.

If one is way too high, you’ve only lost one. If one is way too low, you’ll still kick yourself. But at least it’s only one of five. In the very first days, don’t think you already have to have like a perfect list, everything figured out. Like, you can test things and see what works. If you feel a bit like, oh, but we’re talking to this like important enterprise, like they expect us to have a proper price list—you can still print a document that has like your price list. You’re just going to change the numbers next time.

Please don’t do this like after you’ve already amassed like 10-20 customers. At some point, you need like structure and streamlining. But the journey to product-market fit is figuring out things that are go like what are the ways the puzzle pieces click together? And so in product, we’re allowed to have a sort of mindset of, well, let’s experiment. Well, we can do that in pricing too. And those are the crucial conversations where you can actually test out what is that pricing point that’s going to work for people.

So like, first 10 customers—test. Don’t try to perfect. Don’t be afraid because if you lose one because you cited a price too high, that is far better than citing a price that’s way too low for like five.

Understanding the XaaS Model

Shubha K. Chakravarthy: Well taken. So I want to shift gears slightly on this whole question of this SaaS or what I like to call XaaS. And at least as I think about it, I think there, it really has started to become an omnibus term that refers to multiple things, right?

On the one hand, there’s a product delivery model, right? Salesforce started the whole thing instead of, you know, shrink-wrapping a CD. So there’s a product delivery model. There’s a payment method, which is, hey, I take X dollars and I split it up into 12 equal payments. And voila, you have a SaaS model. And it’s also a pricing method, right?

So what are the interdependencies? Which is the chicken, which is the egg? Which comes first? And how should a founder who’s starting out with a new product think about pricing in terms—or this XaaS model—in terms of these three different dimensions? Any thoughts on that?

Ingrid Bonde Akerlind: Yeah, so I often split that framework into the sort of two parts of the delivery model and the broader commercial model. If we can put the payment and the pricing methods together. The delivery model, in some ways, now, a multi-tenant SaaS is kind of here to stay.

Sometimes we have on-prem. That is the world of software where it started, right? It kind of doesn’t matter, right? What you’re really doing is you’re saying, “Hey, I, the vendor, own a thing, and you, customer, will get to use said thing.” That’s our exchange of value. So the delivery model itself actually can—that’s the proof of the XaaS model. As you say, it can work across different industries.

That’s fine. We actually don’t need to focus on it as much. One area where you do, where some of the sort of classic SaaS things don’t apply as well, is if you don’t have an ability to measure your customer’s usage remotely. You sort of do miss a little bit of potential pricing research. So you have a little more complications there if you can’t see that as well.

So, but that’s sort of like a very small thing. But on the other hand, we have the commercial model and in some ways there we can even further say that, actually, you have the what really is the magic of the SaaS model from a financial standpoint—the idea that you actually are getting paid upfront and you have a pretty like, certain amount of money that you’re going to get over time. Right? But then it could be monthly, it could be annual. All of that doesn’t really matter. And it could be based on how much usage you’ve made.

It could be based on how many seats you have. It could be based on how many units of hardware you bought. Like, all of that can be very different. The key to having it financially look and feel the same is that you’re saying like and this is usually not generalizing “Ah, I am guaranteed to get a certain amount of money upfront that lasts for a certain amount of time, then covers the usage of whatever I’m delivering.” As long as that’s there, you can play around with whether it’s usage-based, or it’s consumption-based, or it’s outcome-based, or it’s license-based.

Are you doing overage? Is it like there’s a ton of different commercial terms after that? But it’s the core ethos of actually, I’m getting paid in advance. I’m therefore creating deferred revenue, and on I go through my life. That’s really what defines it as an XaaS model.

Shubha K. Chakravarthy: So just to make sure I’m understanding what you’re saying right—what I think I heard you say is: this whole X-as-a-Service model, from a payment perspective, commercial perspective, has two dimensions.

The first is, in my mind the more primary dimension: profitability which is the financial aspect of it. Make sure that you’re making money off of this and you’re not losing money, and therefore at the highest level, whatever it is that you’re using, ensure that you’re covering costs and you’re making some X amount of profit. Okay. Got that.

Then you talked about the commercial side and said, okay, now let’s figure out how to split the pie or dress it up in different garb, right? And make it in a way that makes sense to the customer, which is the commercial terms of the pricing. Am I correct?

Ingrid Bonde Akerlind: Yeah. And so the commercial terms might look very different from industry to industry, a company to company — that’s fine. The reason that financial investors have liked this model over the past 10 years is that customer lock-in effect.

If somebody comes, says, “I want to buy from you, I’m paying you upfront,” and you can forecast that out to the future. So as long as the model works like that, it’s fine. But, for example, if you were to do a model where every single customer is paying you as they go, on a per-transaction basis, that’s not delivering you the financial level of sort of predictability.

That really is why this model is something that you see founders in other fields gravitate towards. So, if you’re interested in gravitating towards that method, even though perhaps the rest of your industry hasn’t done that yet, or it’s sort of newer for your industry, the part you need to make sure that is sort of consistent in order to deliver — probably the reason you wanted to go in this direction itself — which is that maybe your investor told you that it would be a good idea.

Shubha K. Chakravarthy: It sounds like step one is to make sure that you’re covering the profitability base and then for, you know, go from there. Right? Am I understanding that correctly from a founder perspective?

Ingrid Bonde Akerlind: I think one thing to determine is all companies are not set up to be service companies, right? So before we even assume that we’re in that world, we should check, are there some basic sort of principles that your product meets? Because who is you probably should be going there in the first direction.

Shubha K. Chakravarthy: Yes. I love it. Yeah.

Ingrid Bonde Akerlind: So the very most important one is, is will the value that you’re providing the customer through whatever means- is it hardware, is it software, is it services? Will it be continuously demanded? That is, will people want to use product, service, thing on a recurring basis? Because if they don’t, then it’s kind of hard to make a business model that assumes that they’re getting continuous value, right?

So that is the number one thing to double-check first. I mean, think about it. If you file taxes annually, do you want to pay somebody every single month to do 11 months a year they do nothing and then one month a year they do something? That would make no sense, right?

So, tax filings—no. Maybe some like the bookkeeping service to keep track of all of the monthly closings with an annual tax filing makes sense. But there’s a continuous exchange between customer and provider in that case, and I think that’s what you need to figure out. Is that possible to do with your product, service, thing?

Software has naturally, historically, always fallen into that bucket in almost all cases because we check in on our major programs on a sort of very continual basis. The area, actually, that software sometimes has a challenge becoming a SaaS model is when actually the value is in the data you start storing in the software, because suddenly it’s sort of like data stored. It’s not necessarily the data being used or read or analyzed. And so that can be an area that even in software sometimes isn’t obvious but clearly  there’s a value in not losing track of the data and being able to access this when you want to.

So, it’s not like usage needs to be every single day or every single week at the exact same frequency—it needs to happen often enough that there’s a value in having something continual in place. If that’s the case, you can make a business model that charges for continual usage because the value is perceived in that way. If the customer doesn’t perceive value in that way, then, like, just don’t force them into that direction.

Shubha K. Chakravarthy: Are there examples of companies that fell into the XaaS pricing model that you think shouldn’t have? Like can you give us examples.

Ingrid Bonde Akerlind: It’s hard to think of a specific example as such. Some of the cases that I have as an investor, sort of diligenced in the past and looked at but I decided to not invest in, would include companies where somebody purchased a piece of software, this is the most common case, in order to solve a project-based need. Perhaps they needed to build a now I’m making it is a little bit of making it an example.

Obviously not speaking about a specific company, but they perhaps had a lot of data, and they needed to create an algorithm to forecast future demand for a certain product they were going to roll out. Once they have collected that data and sort of built that model, they might not need that software anymore because it was a one-off, one-time thing, so to speak. That’s sometimes things that will be charged in software because you have access to our great model-making software but actually, it’s being purchased for a one-off thing, not for the long term.

For example, what actually sometimes can still work is if the things will happen over and over. So actually, software that supports construction sites. A construction site, you kind of don’t want it to go on for five or ten years, because if so you kind of have a problem. Or it might just mean that you’re working on public transit projects, because they do go on forever, right? But most of us, when we build a house or we renovate something  whether it’s commercial, residential it should probably only take six to twelve months.

The software you would use to keep track of what’s happening on the project site — it seems like that shouldn’t work, right? Because after six months, then they won’t need it anymore. So actually, they just need a project software. What can work though of course, is if you’re selling it not to the person who’s commissioning the project — you or I would only need that once — you’re selling it to people who will continue to; they’re the people who will use it every single month, every single week, that can work. Or take it, and maybe it’s an enterprise — well, they will buy it for this project but then they’re still gonna shift their licenses to the next project.

So you have a semblance of somewhat being recurring anyway but that hopefully gives an example, sort of very hands-on, of like, is a project this continual? It’s something that becomes — it’s a core business activity that continues on and on and on.

Value Metrics in Pricing

Shubha K. Chakravarthy: That’s a great example. And that brings us to this issue of value, right? Like what is value and how often is that value extracted by the customer? So we hear a lot about the value metric in terms of pricing. So what’s your view of the value metric? How should it play into the startups pricing method and what actionable advice or pointers would you give on that?

Ingrid Bonde Akerlind: I’d say that if you feel like your pricing is off, what might be the case is that, like pricing levels—if it’s too high, too low—that’s one thing. But sometimes, if you sense that your pricing is off, it actually might be the value metric that sort of feels off.

And usually, the way you would tell that is when you are like, “Damn, that customer is getting a really good deal. They use it so much and yet I get so little money from them”. I’m really annoyed about that. Or conversely it’s like, “ooh, they pay a lot for this. We’re a little concerned that they might leave us next year and not be a customer anymore.” If you’re saying that to yourself, that probably means that your model isn’t actually charging for the value that people perceive or how much they’re actually getting from it.

So those are sort of like the telltale signals of what you might say are on the coffee machine that leads you to have that conclusion. And so then, the question you really do want to ask yourself is, wait, is there a different metric by which I should measure value? Right?

So classically in software, it’s been seats. So it’s really been employees. How many employees need access to this software? Obviously just one potential metric. There’s, like, the number of metrics. Could have a metric based on how much data is being transferred, how much data is being refined. That’s usually very common in infrastructure worldwide—processing power, for example.

But to come back to our sort of construction world, maybe it’s square meters that you’re serving somehow, or number of buildings, or, if it’s logistics, number of miles delivered. Like, the point is, it can be anything you can measure in a different way that somehow relates to value that is easy for the customer to understand—for the potential customer to understand. As long as it’s easy for them to understand, it really can be very different.

And what, obviously to complicate it further, many companies don’t have a single metric, right? So they might have a combination of, oh, well, there’s a fee for using our platform in general or being our customer, and then there’s a sort of sliding scale depending on how much you use of a certain thing.

But also, by the way if you want our add on of our fancy premium feature than that, like. Pricing models can be complex. They shouldn’t be overly complex because then you’re just adding complexity for complexity’s sake but you can test around with them and sort of that is what the value metrics might shift. How they might shift?

Shubha K. Chakravarthy: So, is it fair to say, based on what you just talked about, what I’m hearing is: you laid out the bookends, right? Like, when is it too much? When is it too little? But also, I heard something around—especially for B2B—what can you tie it to in terms of their bottom line, right?

Is it a revenue-driving kind of value? Is it a cost-reducing kind of value? And then use that and connect it with a metric that you can measure to be able to price that and then come up with a value metric. Did I get that right?

Ingrid Bonde Akerlind: Yeah, I mean, at the end of the day, pretty much all software in the world eventually boils down to: it’s either going to make you more money or save you more money. That’s kind of the name of the game; that is literally how companies work. So, for sure, it is absolutely true that the sort of value metric does get tied, then, to ROI in some way, right? Like, if you use X more  and X, in this case, is the value metric. Therefore you will save more money or make more money. That is absolutely the correct way to think about that.

Shubha K. Chakravarthy: Got it. So then that sounds like a the right starting point when you’re thinking about the value to your customers, say, okay, how can that now lead us to a good, you know, value metric and then therefore the right.

Continuous Value Delivery

Ingrid Bonde Akerlind: And one thing, and here’s an example of a company I’ve worked with is different value metrics might be more continuous than others. And remember, the key here is to have continuous, like, delivery of value. And so that’s one area to think about because in some ways it’ll also shift your product roadmap. And that’s okay because if we want to go into this sort of X as-a-service model, we want to have, we want to shift ourselves into something that’s delivering to needs value.

So, recruiting software. We could charge based on the number of candidates we’re hiring for but we’re not going to hire the same number of candidates every single month of the year, right? And so, if we only do that, we’re actually going to have pretty fluctuating demand. And we might see customers arrive and customers leave because actually they’re not going to need that all the time.

And this is where many recruitment staffs instead will say, okay, well, we’ll charge based on the number of employees you have total. Or we’ll charge based on the number of, how large your recruitment team is, like how many recruiting managers that you have. And so, that’s a specific example of product you build might be the same. Actually, depending on which of the value metrics you pick.

And there I gave three examples. You’re going to see a difference in retention, for example. There’s the value of how much each customer should pay. But there’s also a tie into how does this help the customer think of in terms of continuity of sort of value delivered, where for what it’s worth, right? If you then end up charging based on the number of recruiting managers as compared to the number of sort of candidates or like sort of positions filled, you might end up building out more features to make it more useful for a person using it, right?

So how can you personalize your space more? Something that sort of makes sense for per-user basis, and your product roadmap ends up being pushed in that direction.

Importance of Pricing Research

Shubha K. Chakravarthy: So all of this is kind of pointing to the importance of really understanding your customer and really knowing  how are they using it in their context and what does value mean to them. Right?

Which brings us to the question of research, and you mentioned research earlier as being really important. So what do you mean by pricing research and what’s the important, like what are the things that the founder needs to keep in mind when doing pricing research?

Ingrid Bonde Akerlind: I mean, you said it yourself. It’s really to understand value. At the end of the day, it’s to understand: how does the customer perceive value? What do they find valuable? What do they find less valuable? Therefore, how willing would they be to accept a different pricing model? And specifically, at the end of the day, you’re trying to get to what is their willingness to pay.

So WTP is pricing people would abbreviate that for a certain product. That’s the goal of your research: to sort of find, figure out the better answer. What will frustrate you if you’re a founder is that, if you’re an early-stage company. Yes, you can do research, but it’s not necessarily going to get you to a better answer, because you don’t have as many customers, as many data points as giant companies.

So that’s where early-stage pricing is probably more art than sort of, stage companies where they can have pricing specialists who have a lot of theoretical models. That’s what we’re talking about. Elasticity of demand, yada, yada, yada. It is probably too, we’re not there yet, right? If we’re a growth-stage company, that’s not what we need to focus on yet. That doesn’t mean we shouldn’t be doing pricing research; it’s just the pricing research is usually then more qualitative than quantitative.

Shubha K. Chakravarthy: So can you just walk us through like what should the founder focus on in doing qualitative research and especially in terms of B2B? Because they’re not, they’re hunting elephants, they’re not hunting an army of ants, right? So there just isn’t that quantity for them to be doing and they have to use everyone that they have carefully.

Ingrid Bonde Akerlind: So we already gone into this a little bit where I actually suggested that the research is actually testing models in sort of prospective customer conversations too. That is a type of research in and of itself, right? Just to sort of super generalize, I think now this is assumed that you do have some customers you like, especially when the expectation is they’re going to be long-tenure customers. They’ve been advocates, design partners even. They are actually probably one of your primary sources for good input here, because they want you to succeed.

There’s somebody on the inside who has decided they’re going to champion your company. They believe in you; they want you to succeed. So actually, just like ideally have a discussion with them if you are considering changing your pricing model to understand. So we were thinking about this. Do you and you don’t do you want this? It’s like, how do you think the rest of the industry would see that?

Or have you seen another product that works like that? Have it as part of your general discussion and frame it as  obviously, the framing of those conversations is usually: how can we deliver even better value to you? What could we be doing better? I mean, that’s where sort of  asked me for earlier, what are some of the biggest mistakes?

Customer Feedback and Pricing

Ingrid Bonde Akerlind: The clearest red flag that you’re actually, like, pricing too low is, your customer might literally tell you, how are you so cheap? Like, how can you deliver this in this way? Why would they tell you that? You think, wait, that’s being stupid. They should just like the price. Well, they don’t want you to go under as a startup either, right? That would be bad for their business. So, in some ways, while people will always want to get the better of themselves in a negotiation, they also don’t necessarily want to pay 10 times less than they need to for something because in that case, you might not survive as long as a company. So, really, like, using your design partners not just to design a product, but also to support you in designing a pricing model is actually very, very helpful as well really in that pre like when you really don’t have like 20, 50, a hundred customers. You’re very early stage still.

Shubha K. Chakravarthy: And on that point, do you have any concerns that customers might—you know, I hear your point about the “don’t charge 10% of what you should be charging,” but within a certain zone, right? I don’t have an interest. My incentive is to not tell you what I really will be willing to pay, because then I’m going to lose my negotiating power with you. So why would I tell you the truth, and how can the founder overcome that?

Ingrid Bonde Akerlind: But that’s where I think that one needs to distinguish pricing research about pricing models and pricing research about pricing points. Pricing models—we’re trying to figure out what’s the value metric that makes sense here? How should we think about this? Would it be helpful for you to have, like, is a 30-day or 90-day payment term really going to make a huge difference to you as a company? Or there’s like other questions that are actually pretty important to the overall profitability of your business that people will be more willing to be open about than maybe, like, the ultimate price point itself.

And at the same time, in an enterprise negotiation there is more to negotiate than the price point itself as well, for sure. And so, like, design partners for the first—I agree with you to some point, you can’t just say, “Hey, what do you want to pay me?” and expect people to be a hundred percent honest on that. Not necessarily the suggestion. That’s rather where my earlier suggestion—like, try high, see what the reaction is, and then you sort of go from there. You learn what the price point is through the negotiation itself.

Shubha K. Chakravarthy: So it sounded more like you were understanding the pricing structure first and how to get that right and the architecture. Of the, like the different elements of price and then you leave the actual price point to later, where presumably you’ve got a much better sense of value and so on and so forth next point is.

Ingrid Bonde Akerlind: Some rules of thumb, right? Like, the sort of back way into that too is that you have a calculation of what you think the ROI is going to be for your product, then your price is going to be a fraction of that ROI that you’d deliver. It’s probably going to be like, you’re not going to get the same as their ROI obviously.

Then what would be the point of pursuing your product? You’re not going to get even 50% of it but you shouldn’t be charging less than 1% of their ROI. That would be ridiculous. So, up to 20%. That’s usually like the rule of thumb that people talk about. So you can use that as sort of, like, a sanity check for where you might think that you would might want to land.

Shubha K. Chakravarthy: I love that because it’s almost like you’re charging a commission to them for generating that return, right? That field.

Ingrid Bonde Akerlind: At the end of the day that that’s kind of what it is, right? The more certain, the more happy they should be to pay a bit more. But reality sometimes, like that’s where budget caps and other stuff obviously can come between, but theoretically that makes sense, right?

Competitor Analysis

Shubha K. Chakravarthy: Great. And then the last thing I want to ask about in terms of pricing research is obviously you’re living in a world of competitors, maybe direct competitors maybe other, you know, alternative substitutes they’re using. Where does that come into the picture? How important is it for an early stage? Should they even be thinking about this in so how should they be thinking about it?

Ingrid Bonde Akerlind: I think you should always be aware of what your competitors are doing. That’s part of basic business sense. You need to know what your competitors are doing because it’s important to understand how your industry’s moving. But that does not necessarily mean you’re going to price exactly like them. What’s more interesting is trying to understand how much your customers are comparing you directly to a competitor.

If there’s a lot of direct comparison going on in your industry, it usually means it’s a more established category. And so products are starting to converge, and they start to look a lot more like each other. And so each individual vendor has a lot less pricing power. That’s a harder environment to be in, in some ways, than one where actually competitors are still quite differentiated in the sort of types of customers that they serve.

And so the best advice here is you keep track of your competitors. That doesn’t mean you need to price exactly like them. In fact, you kind of want to do the opposite, where you want to try to figure out how to differentiate your product from the rest. And you can differentiate this based on either product features. Perhaps you do have a really sustainable competitive advantage that’s very different. But you might also differentiate based on customer segment. You kind of serve these types of customers and sort of positioning and messaging. And then you’re trying to do that so that customers aren’t choosing the better Apple versus like apples to apples—it’s actually apples to oranges.

So for some customer segments, you will be a worse choice and that should be okay because you want to be the best for some people. That’s really what you’re trying to go for. So that’s why you need to know what your competitors are doing and how they’re pricing so that you can figure out how to be different and sort of take over and to be the very best choice for somebody.

Shubha K. Chakravarthy: Got it. And the last question on.

Ingrid Bonde Akerlind: That’s a little like wishy-washy but hopefully helpful.

Shubha K. Chakravarthy: No, it is because it reminds me of and I read this business case about how Pratt and Whitney changed the pricing method completely for aircraft engines—the power hour or whatever it was that they called it—versus just selling engines and maintenance contracts separately for aircraft engines.

So your point’s well taken. The last thing that I have for you on that is, a lot of these companies are creating new products that potentially don’t exist. So is there anything unique or special that you haven’t already talked about, in terms of pricing resources, that you think they should keep in mind?

Ingrid Bonde Akerlind: No, I think in this case, right? You don’t have other competitors to compare to. So often the biggest challenge here is you’re like, I have no idea where to start. Because at least if you have competitors you like, when we’re talking like 10x more expensive, 10x less expensive—well, if you have competitors, you’re probably not going to land that far off them.

So you kind of still have like, here is my ballpark. I need to figure out like which corner I want to be in. But I know the perimeter. You are brand new, you don’t know the perimeter and that can be like really scary.

So, at the beginning of the conversation, I mentioned that one of the questions I like to ask founders sometimes is sort of: what type of products or what similar things might a prospective customer position you as? Do they think of you as—in this case, this is my previous company—retail experience technology. Great. Well, then I need to understand what are the other types of retail experience technology that people pay for, that might be super different. But still, like, that’s kind of how they would think of positioning.

So for context, the company I was working for, we sold a 3D foot scanner and accompanying software to retail stores in order to allow prospective shoppers, to measure their feet and get their recommendations for the best fit footwear in that store. So, computer vision, very techy product that had a hardware-as-a-service model. Indeed, yeah. There weren’t a lot of competitors. It’s a very specific thing, but many companies thought of this as, “This is innovative retail technology.”

What we’re doing, at the end of the day, is we’re trying to differentiate our brand as this sort of retailer from other brands by offering our shoppers a better reason to come visit our store. So what you’re trying to compare it to then is, like, products that don’t do like literally the specific features are nothing to do the same. But what is other retail experience technology? What else is out there, and how much therefore are people paying for those things?

So that’s kind of how you would then try to figure out what’s the willingness to pay for, like, those types of things. And it was very specific, I said retail experience technology—theoretically, if it’s like literally what we’re doing is 3D scanning people’s feet. I could just sell you a measuring stick that would cost me $1. I’m going to charge you a lot more than $1 for my product.

So it’s really important I position it in such a way that you think of it as a sort of high-tech, new experience that’s going to draw people to your store. And those are the other types of products I want to compare it to.

So, it’s a little game. I would say the best advice there, if I can give, is to think of: can you think about the positioning of your product in terms of maybe there’s a specific product category but what’s the broader product category you’re thinking of? And how much budget do people give to it? Where does that budget come from? Which department is it for? Those are sorts of maybe, like, at least anchor points to start thinking of is this a high-value or low-value product?

Implementing Price Changes

Shubha K. Chakravarthy: That makes sense. And then I know we’re kind of, kind of coming up on time. The last thing I wanna talk about is – all of this is excellent, but at the end of the day, somebody has to implement a price. Right? So I just want to get your thoughts on what does implementation mean? In your mind, what is the most critical part of price implementation from an early stage startup’s perspective?

Ingrid Bonde Akerlind: Yeah. So one important thing we can distinguish here: it depends on how early stage you are. If you are still less than 10 people, then you might not need to document everything like you’re so early in sales, you’re still getting your first customers. If you have a sales and marketing team already in place, like not skipping ahead of the training, the price list—that portion is actually really important to not skip that.

So we can distinguish between those two. But yes, you sort of don’t need to write the amount of documentation you would in a large enterprise company if you’re like five people still. So, getting that out of the way first, now we’re assuming you’ve made a decision already. Okay. So, communicating that to the rest of your team is a great place to start, right? So you’re going to communicate it, explain why you’re doing it, how it’s going to work, because you’re going to need your team to be able to defend it to others, to prospects, right? So that’s a pretty important step one.

You will then want to update your documentation, prepare your website if you list on your website, or prepare your pricing lists. With pricing lists, usually if you have an enterprise sales team, comes also allowed discount lists, et cetera. So there’s a lot of things that follow on there, right?

Then generally the questions come to—there’s two types of questions that companies would often have to decide on, which is that first, do you treat new and old customers in the same way or differently? And then, do you do it all at once or gradually? That’s really your basic choices, right?

Depending on how large you are and how quickly you’re growing, like maybe you can grandfather in the old customers and you kind of just—it really doesn’t matter because most of your future revenue is ahead of you, not behind you from your existing customers. So that’s one thing that would make that decision quite easily and don’t focus on ’em.

Generally speaking, still it is far easier to change pricing for customers that aren’t like prospects than customers, because you don’t need to communicate that there’s a change. Nobody knows that there’s a change because they haven’t talked to you about pricing before. So for them, it’s the only reality that they know. So that’s usually the lowest risk place to start. You start rolling it out across new sales conversations. You see what happens, basically.

Then you would go back later to your existing customer base. Most straightforward way to do this is that you do it on renewals. So you’re doing it on renewal cycles, which should mean that after a year you have moved through your customer base essentially, at which point you might be ready to do another change anyway. So, you might do that. Or, if you do have customers obviously in sort of a monthly billing schedule, then you’ll cycle through that a bit more rapidly as well.

But those are sort of the two major dimensions that you have to make a choice on, and the most typical way is: you start first and you implement in the new sales team, and then you over time do it on your existing customer base. And at that point, you’ll do it usually when accounts come up for renewal, because it’s a natural place to have the discussion anyway.

Shubha K. Chakravarthy: So talking of having the discussion, it’s never easy to communicate that the prices are going up, going to go up, especially early on, customers have been loyal with you. What are some good ways and bad ways to do that in terms of communicating price changes?

Ingrid Bonde Akerlind: Yeah. I mean, first of all don’t pretend it’s not happening, I think is sort of one thing. Like, it is sort of one of those conversations like, eh, I don’t really want to have this and kind of procrastinating because it is like not fun. I get the feeling, right? But as with most things in life, honestly, like transparent, being upfront, saying what’s happening, pretty clear. Making too many excuses for it. This is where it almost—I think different companies have different approaches. I was at a pricing lunch recently where some of the participants were shocked to hear that one of the companies was like, “Oh yeah, we just raised them. We don’t even communicate about it.” “Oh yeah, nothing really happens.”

So in some ways we were like, oh, really? That doesn’t sound very nice. They have a lot of—this is an SMB sale—so they had, like, hundreds, thousands of customers. So it’s almost more like consumer-like in that sense. After digging, it seemed like the actual purchaser, like, wasn’t the user. It was like there were a lot of reasons that perhaps this would work well in that case. But I’m just saying, like, there are extremes. So there’s not like one perfect way to do it. And different companies have different approaches.

But yeah, generally, communicating in advance that it’s happening, explaining why, if there is a why, for example, if it is increasing, then pointing out, here are the feature value-adds that we’ve added over the past year. That can be a pretty simple way of saying, voila, value has increased. But also not overthinking it too much.

Depending on the number of customers you have, obviously offering a call. The more important the customer, the more you should do it in a sort of relationship-based way, as you would with most other things anyway, right? The more important the customer, the more you’re going to be doing it with them in a regular call that you already have, a call that you set up, or a personal communication, right?

Shubha K. Chakravarthy: And are there specific principles, especially when it comes to increasing prices, right? Have you from your experience seen it work better when it’s framed in terms of value that, hey, we’re charging more because we’re now offering more? Like what are some other possible acceptable ways to justify your, you have to explain it in some way, right?

Ingrid Bonde Akerlind: But I think there’s an assumption there that you have to, like, by using the word justify, we are assuming that we need to be in the defensive about it. Right?

Shubha K. Chakravarthy: Good point.

Ingrid Bonde Akerlind: And so I think in some ways, I think that the mindset is not one of being defensive about it. It’s being matter of fact about it. I think it’s actually where I would start from. So the example I gave there is that you would explain, here’s the features that have sort of  this is what we have delivered to you.

If you can’t explain what you’ve delivered, then it’s harder. If your product truly hasn’t changed because it was completely mis-priced before, well then actually maybe you’re going to be okay having some churn on those customers that will be churning because they’re not your best-fit customers anyway. And that’s okay too.

So it’s really, it’s just about thinking through logically, but not feeling defensive about it because there’s a reason you’re doing that. Where I might avoid from those is to use arguments that—too many arguments going in the direction of, “Well, our costs have increased, so therefore” like, we have a really big team now. Like, the customer doesn’t care about that part, that’s on your side. Your customer cares about what have you delivered for them. So that’s probably where I would—I wouldn’t try to feel like I need to justify it by having a team or having this. 

Shubha K. Chakravarthy: Good points. So which brings us to the question of how often do you need to be looking at your price, right? So how often should a firm be or a startup be looking at their prices? How often should that be coming up for review? Are there any good practices around that?

Ingrid Bonde Akerlind: So, in some ways, I don’t think that pricing should be completely separated into a separate silo or stream, right? Depending on how you operate as a company, you probably already have like annual planning cycles. You probably already have like quarterly roadmaps in the product team. We usually check our messaging and positioning once a year.

Like, there might be existing rhythms or cadences that you can attach yourself to, which sometimes make more sense than having a “let’s sit down and review our pricing all at once, every XXX amount of time.”

So, in some ways, like one company that I work with, they review their ICPs, their ideal customer profile, once every six months. They just want to check: like, has the competitive landscape changed? Has our product feature set changed sufficiently? Are we seeing a bunch of different people in the sales funnel process? Let’s check in. We don’t have to make a change. We can.

What I would advocate for is that more often you just check in: does it still make sense? If it doesn’t make sense, then you make a change. If it does, it works. That’s what you need to put in place.

If you haven’t changed for a really long time, what can happen more naturally, right, is that somebody brings up, “this starts to feel like a problem,” right? In which case, if that’s the niggling sense, then you fold it into sort of an existing stream. So you know that, “okay, well, let’s go look at this.”

But as with most things, it’s always easier, right, if you get into the muscle of changing something like every so often. So, an alternative way to do it is to say, “okay, well, we have multiple geographies or, say, multiple product lines, so let’s check in on one of those things every three months.”

Shubha K. Chakravarthy: Great point.

Final Thoughts and Advice

Shubha K. Chakravarthy: So you’ve covered a lot on a very tough and sometimes scary personal subject for many founders.

Ingrid Bonde Akerlind: Let me just say it’s scarier for founders than me. I’m just sitting here saying what you could do. They’re actually sitting with a customer base. So I really do want to shout out that that is the harder position to be in. So I hope that some of this was very helpful for those listening.

Shubha K. Chakravarthy: I am sure it’ll be, thank you. So, kind of stepping back, maybe they have some elements in place not all the elements in place. What are like the top three actionable pieces of advice you’d give somebody in an early stage that don’t yet have a sales team trying to get to product market fit?

Ingrid Bonde Akerlind: Yeah. To sum it up, it is a pre-product market fit company. We’re still doing founder sales. So the top three things there are, therefore: A. Don’t be afraid of using your design partners to also discuss pricing models. That’s totally okay and in fact, that’s a good conversation to have because you’re anyway discussing your product roadmap probably with them, right?

Second, don’t be afraid to test different levels when you go into pricing negotiations. Like, until you’ve gotten one where, like, the person on the other side of the table’s like, “Sounds like a lot,” you probably haven’t tested the limit. That doesn’t mean you need to set all of your prices at the limit, but it’s helpful to know what it is.

And the third to be that it doesn’t need to be perfect on day one, right? If you check in on it every 3, 6, 9, 12 months, it’s going to change over time. And in the pre-product market fit phase, your first 10 customers — the whole point is to learn from them. It’s not to be perfect, so just testing different things is fine too.

Shubha K. Chakravarthy: Awesome. We’ve covered a lot. Is there anything that you wish I’d asked but I didn’t?

Ingrid Bonde Akerlind: No, I think we’ve actually gone through like pretty much everything here.

Shubha K. Chakravarthy: It is awesome. So from my perspective, this has been an amazing conversation. I know it’ll be super value added to many. So I want to thank you for your time and for all the insights that you gave us. Thank you so much. It’s been a pleasure talking to you.

Ingrid Bonde Akerlind: Thank you for having me. It was really fun as well.