Tackling the Known Unknowns at InsightMedi — Pricing
There are so many things we don’t know how to do at InsightMedi. Far from uncommon, that is actually a regular position to be in for startups in general. Most small companies will have gaps of knowledge or expertise here and there. The ones I come across more often are either on the technical side of things — the business savvy founder with no developers — or right on the commercial side of things. Those who can code but have little-to-no clue about how to sell the product. InsightMedi had traditionally belonged to the second group.
For an entrepreneur, not knowing how to do something quickly becomes both, a familiar state and a unique opportunity to learn new skills. We’re full of those opportunities! Thankfully today we have all the resources we need in order to overcome these challenges and then some. It has never been easier to freely access vast amounts of information and knowledgeable people. Once you internalize this, it’s just up to you, your discipline, and your willingness to go through a usually rigorous process, to move from not knowing something to mastering a concept.
The idea of today’s post is to share how we created a pricing strategy for InsightMedi. My intention is not to tell you how to do it for your own product, but to describe the process that we have to go through so often at our company, especially when it comes to learning new things. Feel free to detect opportunities for improvement along the way and point them all out. This is an open invitation to learn together.
The beginning often looks the same
We have all been there, that moment when you realize there’s no escaping from “it”. To keep the business moving forward involves something way outside your — and your team’s — domain of knowledge. For a minute or two you contemplate what it must feel like to have the resources to bring someone onboard whose expertise lies within that thing you need, and then you come back down to reality. This thing needs to be done and you are the one who has to do it. Brilliant!
One of the last times we had to face this type of challenge was when we realized that it was time for InsightMedi to figure out how to price its product. We were moving away from a B2C model, where our apps were free to download and use for individual healthcare providers, to a B2B approach where institutions would pay a license to use our product within their hospitals, universities, or research groups. It was time to get to work.
I love creating plans just as much as I love executing them. To me, having a blank canvas ready to be filled with the solution of a problem is extremely stimulating. Ever since I read Elon Musk’s “Master Plan” for Tesla I became a fan of the idea. If he could create a high-level, long-term map of what he was going to do for one of his extremely complicated endeavors, I thought that anyone should be capable of doing something similar for their startup. I was definitely going to pursue that for InsightMedi.
My goal with this new plan was to figure out a price for our product. Soon after starting I realized that more than a price, what we wanted to do was to set up a pricing strategy. Learning was just getting started. What came afterwards was a complete immersion in one of those known unknowns that we had already identified.
Our approach to solving known unknowns at InsightMedi
Regardless of the problem we’re solving, the process will look something like this:
- Step 1: Research
- Step 2: Skim read
- Step 3: Select
- Step 4: Go deep (but don’t get lost)
- Step 5: Document
Depending on how much time we have to solve a problem and the type of problem we have in our hands, step one (1) can include phone calls and conversations with people we know that can provide early guidance. People who have either gone through a similar process or know how to solve complex problems in general. Most of the time though, it just means Googling for weeks and taking notes before moving forward with anything else.
Information overload, misleading publications, outdated content, and our own lack of knowledge about the topic are the real enemies while doing research. That’s why steps two (2) and three (3) are essential. Skimming and selecting the right type, as well as the right amount of content are the most important tasks of the process to me. Failing to do a good job here would have costly consequences in the long run.
Once I’m comfortable with the quantity and quality of the information I’ve gathered, I move to the fourth (4) step of the list. Here I make sure I allocate enough time of my day to study the content in order to learn basic concepts of the various topics, while I seek mainly to relate the general ideas I’m reading about to concrete examples of our situation.
“Going deep” often means revisiting previous steps several times. This is where it gets dangerous for me since it is very easy to trap yourself in the virtually infinite amount of information available. Knowing when to move from studying to actually devising a solution for your specific situation can be tricky. Sometimes you’ll feel you haven’t learned enough (which is going to be true always anyway) and some other times you’ll find comfort in not committing to anything concrete just yet. Fear of screwing it all up is real and it can certainly keep you from moving forward. Knowing exactly when to do what is always a challenge and I have no recipe for that.
Once a plan is starting to take shape in the form of notes and lines highlighted in a sea of PDF files (I tend to save web content to PDF when studying), it is time for me to create a draft that will eventually become the official document to be shared with everyone in the company. Formal documents and presentations are ever-changing entities that we revisit many times, updating them to reflect new knowledge that has been acquired, to correct previous mistakes, or to improve the way things were initially portrayed.
Following the recipe to pricing InsightMedi
Once I started working on the definition of our price, not yet realizing that it was a lot more than just that, one of the very first things I did was reaching out to friends I met back in my days working at Unidirect, an established company that has been selling third-party software applications for over ten years. I decided it was a good idea to reach out to other fellow entrepreneurs as well. Just a few of them had defined prices for products they created themselves, but most of them had a lot of experience selling software and services, as well as discussing pricing with providers and customers all over the world.
All of it represented decades of experience selling similar products, hundreds of examples for me to understand and study before I decided to create my own solution. I could access people willing to give away their time and expertise as many times as needed. It was an easy decision to start there and it proved to be highly valuable for me. Basic costs calculations, profit margins, volume discounts, special deals, license vs. services prices, tech support, and so much more. All of that knowledge initially came from talking to people who knew what they were doing and care about what I was about to do. The first part of my research tends to be strictly human whenever I have the chance.
The result of that initial effort was our first approach to pricing InsightMedi. Everything I heard and some early reading led me to advance towards a solution based on what I learned was called cost plus pricing.
There are advantages and disadvantages in every method used to set the price of a good or service. Cost plus, competitors-based, and value metric-based are all good and bad depending on the circumstances surrounding you, and the nature of your product. All of it is pretty well documented elsewhere so I’m not going to spend time describing any of it here. I’d just say that for me it was a good way to start thinking about pricing InsightMedi. It was a great way to start asking myself basic questions and it was also a quick way to come up with something that I could start testing. Time is always a paramount factor in the life of a startup.
I had a few interesting conversations with Luis, InsightMedi’s CTO, to better understand the cost of our new infrastructure — recently moved to Google Cloud Platform — and I also got to take a closer look into a few operations costs that I haven’t visited in a while. The result was the first pricing page ever placed on our website since the inception of the project.
This was not a great solution though. I mistakenly left some important things out but I never lost sight of the fact that this represented just the beginning, iteration number one. Many things would change in the following months based on the new knowledge that was being acquired on daily basis. Online research intensified.
Now, there are a few times when researching online that you hit the jackpot. That is when someone who’s extremely knowledgeable about the problem you have, decides to take the time to write about it and publish it to the world. It could be one person, a group, or a whole community. If you are a developer for example, you are certainly familiar with the motherload of all jackpots for coders: Stack Overflow.
On the other hand, if you have had the need to learn about pricing software, hopefully you’ve found Price Intelligently’s Blog. That was my jackpot! After just a couple of days of internet research I came across Patrick Campbell and his team. InsightMedi was clearly moving into a full SaaS product, and Price Intelligently had so much information about pricing SaaS that I knew I had found something special. The next few weeks were devoted to learning as much as I could about everything I could put my hands onto.
If you have no clue about my background, I’m a Computer Science major whose career focus, until a few years ago, had mostly been developing software. When I devoted to solving a pricing problem for my company and I found Price Intelligently, I was introduced for the first time to concepts like buying personas, feature validation, willingness to pay, and so much more. All of this was entirely new to me, but the most exciting new concepts I came across were the value metric and value-based pricing. I was as thrilled as overwhelmed about all of this new content. I knew I had everything I needed in my hands. It was time to buckle up and go “back to school” once again.
I started reading a very general document called the SaaS Pricing Page Blueprint eBook where I had the chance to dip my toes into the current state of SaaS pricing — which was a little dated but still very interesting — and other topics like the importance and challenges of pricing SaaS products, differences between pricing tiers structure, and page layouts for our website.
I continued with content related to the common mistakes on how to calculate your CAC, unlocking price sensitivity and feature analysis (which I loved), how to quantify your value proposition, optimizing your pricing strategy with the value metric (which blew my mind), the steps to quantifying your customer personas, and so much more. Topics like Churn, Life Time Value (LTV), positioning, packaging, and so many other key concepts that needed to be clear before even trying to come up with any solution for our own product.
I’d say that after doing most of the initial reading jumping from one random page to the other, the document which eventually brought it all together for me was The Anatomy of SaaS Pricing Strategy. Within the 139 pages of this incredibly valuable eBook, I was able to refresh recently acquired concepts and learn a few new tricks to finally build my own strategy.
I’d say that the biggest takeaway for me, after going through all of this content was understanding that pricing is a process, not an isolated exercise that’s carried out and left somewhere to die. Pricing should be reviewed and updated like any other dimension of your company. Just like you update your software, your financial projections, your business plan, pitch deck, and every relevant document you produce. Your pricing reflects where you are in the understanding of your business and your customers. It matures with you, and it adapts to new realities on the market, on your own product, your competition, and so on.
I must have read The Anatomy of SaaS Pricing Strategy at least three times before I felt comfortable enough to design and implement my own pricing strategy for InsightMedi. This was where “Going deep” stopped for a moment and my hands started getting dirty with actual work.
One of the very first things I did was re-define our target markets and buyer personas. Buyer personas “are research-based representations of who your buyers are, including their buying behaviors and preferences.”
Since InsightMedi just went through a business model change, everything I knew about our buyer personas at the time had to be assumed false. A fresh exercise of analysis, based on our new customer’s pain points and goals, had to be carried out. During this time I relied a lot on tools like LinkedIn, previous conversations, and good old web searching. A general schema of our new target markets was created.
Afterwards, I devoted most of my time to another side of the extensive research. This was by far one of my favorite activities. I designed a couple of surveys meant to gather information about our customer’s willingness to pay and feature validation. In order to do this I resorted to a couple of well-known methods: the Van Westendorp’s Price Sensitivity Meter to measure willingness to pay and Relative Preference Analysis for feature validation.
I usually work with Typeform for everything that’s related to surveying. I think it’s really a superior product in general. Sadly, Typeform is not yet flexible enough to allow me to create the surveys I needed in order to gather the particular feedback I sought. In order to create our sensitivity meter and feature validation surveys I went to Qualtrics. A nightmare of UI/UX at the time, but flexible enough to let me do what I needed.
I actually ended up creating several surveys since I wanted to gather this information taking into account currency sensitivity for both Europe and the US. InsightMedi is heavily invested in both markets and I thought it’d be interested to study both spaces at the same time. Even though currency localization ended up being pushed for a later update, the goal was to come up with the best configuration of features for each customer persona and target markets, as well as the optimal pricing points.
After a few more weeks of conversations and several interviews later, we had all the information we needed to implement the new version of our pricing page. This time we had identified our value metric, a better billing system for our product, and a set of features that we strategically placed with the goal of moving customers up to higher plans.
This time we also made sure to include additional information to help clarify some of the recurrent questions we were getting. Things like the limits of our plans, discounts for volume licensing, and definitions tied to our policy of billing per active user.
The complete pricing strategy chart, created as part of our documentation efforts on the final step (5), included a few side processes meant to add relevant information for the external reader. “External” meaning to the creation process and not necessarily to the company itself.
Your SaaS company exists to offer value to your customers. By finding out how much they are willing to pay for your product and what features they want to see you develop, then you will be able to not only give customers what they want, but you’ll also be able to attract and retain these customers better. — Patrick Campbell, co-founder and CEO of Price Intelligently.
Pricing as a process to be reviewed
Publishing your pricing page is just the beginning of execution. As soon as you make your prices public and include them into your official presentations, it is time to take those plans for a ride into the real world.
Selling InsightMedi, which can easily be another post on its own, would be the real-world activity in which all this theory would get to be tested. Talking to customers, watching their reactions when it came to discussing pricing, as well as processing their feedback was a key stage of the revision process that needed to be carried out every few months. Frequency, as it happens with many other elements, will depend on your business and its quirks.
After a few months of being on the road with our new prices and a brand-new selling strategy, we realized that we were — without deliberately trying — conducting informal, in person surveys about price sensitivity and feature validation. The information gathered from our potential customers and the nature of a business that was still fresh to us (hidden costs initially ignored or miscalculated, lawyers, international taxes, etc.) led us to believe that we were:
- Leaving money on the table
- Not covering our costs effectively
After six months or so, I was back at reviewing all my initial hypotheses, comparing formal surveys with informal ones gathered on the road and checking our burn rate once again. As a small company entering a whole new type of business, learning is constant and it becomes paramount to identify early trends that might need you to correct course. The later you realize this, the bigger the risk of being too late to fix it.
We adjusted our pricing plans one more time and a third iteration of our still-new pricing page was released.
Next steps for our pricing strategy
Just as I mentioned before, we understand now that pricing is a process that will inevitably change in order to adapt to new realities. At InsightMedi, many questions remain unanswered regarding our pricing. In fact, the process has just begun.
The more we talk to our customers and potential customers, the better we understand what they want, the better we understand their goals, their buying process, and how effective we are at meeting those needs in terms of product features and pricing.
It’s not difficult to imagine adding new features to specific plans or even seeing existing features jumping from one plan to another. Price itself will continue to be reviewed and localized prices will be introduced for different regions (right now price equivalence remains 1:1 between US dollars and Euros).
As our company grows, our needs will change and our product’s value will increase. I’m really intrigued about how we would match our needs and growth plans to the information we get from customer discovery and development.
For the time being I’m happy to see that once again we’ve been able to go from Research to Document, acquiring new knowledge, new skills, and preparing ourselves for the business opportunities the institutional side of healthcare has to offer. I’m sure we’ll keep the process moving forward and the conversation open.
Thanks for reading,