Andrew Michael, entrepreneur and host of the Churn.FM podcast, discusses the crucial role of Customer Success in pricing and packaging strategies. Discover when to get involved, strategies for rolling out new pricing models, and how to overcome challenges that come with changes.
No one understands customer needs and product value better than Customer Success teams. Involving them in pricing discussions is a fast-track solution to more impactful pricing models that increase customer satisfaction, retention, and success.
In this episode, Andrew Michael, entrepreneur and host of the Churn.FM podcast, highlights the importance of giving Customer Success teams a voice in these critical decisions. He shares advice for adopting a mindset that treats pricing and packaging as a dynamic part of the product, and his strategies for a smooth transition when rolling out new pricing models.
About Andrew:
Andrew is an entrepreneur with 12 years of experience in digital growth companies as a founder or senior manager with a focus on customer retention, product development, strategic planning, and marketing. He is also the host of Churn.FM, the podcast for subscription economy pros to learn how the world's fastest-growing companies are tackling churn and using retention to fuel their growth.
Guest Quote:
“The best way to think about pricing and packaging is that it’s just another part of your product—it’s a feature of your product. As you would experiment and feel comfortable with changing your onboarding experience or updating a feature, you should be comfortable with making changes to pricing and packaging. The first thing is getting your mindset changed and realizing, ‘Okay, this is a part of what we do as a product, our product evolves, our value evolves, and so should our pricing and packaging with it.’”
Timestamps:
*(02:30) - Deep Dive into Pricing and Packaging Strategies
*(11:00) - The Importance of Customer Success in Pricing Decisions
*(16:05) - Rolling Out New Pricing Models: Strategies and Challenges
*(20:05) - Quick Hits
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Taylor: [00:00:00] Welcome to Success/ful, where we break down the essential elements of leading Customer Success strategies. This podcast is all about uncovering blind spots, pushing beyond typical best practices, and tackling those out-of-bound topics for CS leaders that are key to our success. So if you're a CS professional seeking to innovate and adapt to an ever-changing landscape, join us on this journey to be more successful. I'm your host, Taylor Johnston, VP of Customer Success at Vitally. Today, we're talking to the amazing Andrew Michael. You might know him from hosting the Churn.FM podcast, where he dives deep into the world of churn and boosting retention by keeping it real with industry pros from all different backgrounds. He's also an entrepreneur with 12 years of experience founding or managing digital growth companies. You'll hear in just a minute all about his newest research and [00:01:00] methodology on pricing and packaging. That's why Andrew is the perfect person to talk about the important role of Customer Success leaders in pricing decisions: why your input matters, overlooked aspects we miss in churn and retention, and so much more. There was a lot covered. So let's dive in.
Taylor: Andrew. Thank you so much for joining us today. We gave a bit of your background at the beginning of the show here. But tell us how you got into the Customer Success world and the origins of your podcast.
Andrew: Yeah, so it was actually a little bit by accident that I entered into the Customer Success world. And I think for myself, it was just a big lesson in positioning and how important a name can actually be on the perception of the market of what your podcast or your product or service does. Like earlier in my career, I was always told that the name doesn't really matter, but I think in this case, Churn.FM, it sort of resonated with the core audience being Customer Success and slowly, but surely, like it started being [00:02:00] recognized in the Customer Success space. We started getting more Customer Success folks joining the show as well, and then started appearing in like top 10 lists for Customer Success to listen to. Because obviously the topic we focus on, churn and retention, a lot of companies, the majority, I'd say have Customer Success owning this metric or to some degree, being heavily responsible for the output of it. And it naturally just gravitated in that direction. And since then, I've just followed the flow and grown the show as it's been going from strength to strength over the years.
Taylor: That's amazing. And you've touched on so many topics in your podcast and over time, but talk to us a little bit about the kind of research that you're doing right now and pricing and packaging and why that's become a focus for you.
Andrew: I previously, I used to work at a company called Hotjar and I led the pricing and packaging research for the company there. We saw very big success in the rollout and afterwards I actually went and did some consulting for other companies with similar success as well, where I found it fascinating though, as well, [00:03:00] recently, more recently, just trying to dive into the problem a bit deeper, figure out what I want to do next. And I just found it fascinating just like how many people just pull it or suck it out of their thumbs and come up to their first iteration of pricing and packaging. Or worse, they're looking at their competitors and seeing what their competitors do and then price and package their products as their competitors do. And yeah, I've just been diving too deep into this world at the moment, trying to understand how to effectively price and packaging products and as well working on my own research and methodology to help others with it.
Taylor: Awesome. Well, I mean, you hit on it, you know, it's a, it's certainly a topic that is top of mind for so many organizations right now, but maybe not as familiar in the Customer Success world. So educate us a bit. How do most businesses think about pricing and maybe where do they go wrong?
Andrew: So I think that's just it. Like most businesses don't think about pricing and packaging to start. It's sort of like an afterthought. And I think most of the time it's because like at early stages, the main [00:04:00] job of your product is to deliver value and you're really focusing on delivering that value. And I think a lot of founders and earlier-stage startups undervalue what they actually produce as well because they have their own internal cognitive biases of what good is for them and what delivering value is.
I think a lot of startups end up coming to a point where they face this problem, where they're held hostage by the decisions that were made in the past by the founders, and they lack the confidence to actually make the changes because maybe they got to some level of scale now where they need to actually look at pricing and packaging as a growth lever for them, but they're just too worried without the evidence or data to be able to back the decisions going forward.
So I think most startups just get into this position of analysis paralysis and not really being able to pull the trigger and say let's make changes. I'd say like the biggest mistake I make is a mistake I see with companies that I've been speaking to lately is just not doing the work and just being too scared to do it.
Taylor: You know, we talked a little bit about the pricing side of it, but we often lump these two words [00:05:00] together, pricing and packaging. What is packaging? Can you define that a bit in the B2B context?
Andrew: So I think this as well is like an underutilized growth lever when it comes to pricing specifically of your product is more often than not, we just sort of like come up with a list of features. We define what we think is most interesting for each plan and which ones we believe will resonate most with the audience. And then we plot them in a plan and then we put a price tag on the back of it. But in the context of packaging, there are specific features that resonate with different audiences.
They have a different willingness to pay from your audience and your prospects as well. And they perceive differently in the market in terms of the value that they deliver. So when it comes to packaging, really, it's trying to understand two things. It's trying to understand what is like the ideal value metric that you'd want to price your product against.
So how can you align the price? Price that your customers pay with the value that they receive. And that's the ideal scenario where you can find a metric that's closely [00:06:00] tied to the value that the product delivers. And then how can you then go about dissecting the product that you have and breaking those up into packages that make sense for the different audience and segment that you have. And ideally what's going to be driving revenue to help you make that decision. land and expand. So like land an account and be able to expand and grow with that. And a lot of times as well, we may have features that we just bundle up into a package, but they would be better off served as an add on for a specific audience. So we can dissect that and jump into the details on it. But essentially I think this is a big area where we just miss out on a lot of opportunity.
Taylor: Well, let's do it. Let's dive in. You mentioned analysis paralysis, and I can hear even as you're talking through it, gosh, there are a million different ways you could package things together. What are some of those critical data points that, instead of looking at everything, you would encourage businesses to home in on?
Andrew: In terms of research itself, and this is like the area where I love to geek out on and focus, and it's a lot of what we did at Hotjar and what I did helping others, is [00:07:00] really you want to try to understand, as we mentioned before, like, what are the features that are driving the most value? What is the, like, the highest willingness to pay? And what is the preference, like the feature preference? So, typically, what we do is a study, which would incorporate max diff analysis, and it's just a fancy word for saying, okay, what do people favor most and what do they favor least? Typically, what you're doing in a survey like this is you're surveying a group of panelists.
So these are potential buyers who are interested in a service or product like yours, or would be in the future. And you're really making sure, like, what You do the groundwork that you can actually find these people, first of all, and that's another topic we can chat about, and then you really want to understand, okay, breaking your product up into, first of all, looking at what could be potential value metrics that you should be charging for.
So ideally, you want to give two to three, maybe four options. And you're asking the question like, as pricing scales for this product or service, what makes most sense and what makes [00:08:00] least sense? And it's important that you do these, this max diff analysis, because then you get the relative preference from your audience. And typically in a survey, you want to have some basic segmentation, so you understand who's saying what and what they're favoring most and least. And from this, then you can determine what could be the ideal value metric and what resonates most with the market. And then next, you want to do the same thing then for features.
So you want to take your company's core features, and then we ask at the end of the survey as well, you can do secondary features as well, but at the end of the survey, then we look at what is the willingness to pay. And we use Van Westendorp, which is a very common, um, pricing research, where we ask four questions, like at what price point is this too cheap, you would consider the quality to be bad, at what price point is it cheap, at what price point is it expensive, but you'd still purchase, and what price point is it too expensive that you wouldn't.
And then this allows us to map out the ideal price point for the product. And having then the relative preference of features and the user's willingness to pay, you can then [00:09:00] identify and see users that selected a specific feature and had a high normal willingness to pay. That will typically be A, and if they were like a large percentage of your audience also really wanted that feature, that would be like a premium feature. You'd want to stick that in your premium plan. If you had a feature there where there was like a large preference for it, but there was a lower willingness to pay. That's a feature you want to stick in your call plan that everybody should be having that. If there was a feature that had a very high willingness to pay, but not so many people that were interested in it, that's a potential add on. So the survey is really interesting where you can then figure out your pricing and packaging from that perspective. But also, as I mentioned, like it really then comes back to triangulating and seeing on the data side internally and usage patterns there.
Taylor: Yeah. So on this, on this point, you know, there's, there's going to be risk in whatever model you choose, right? Whether it's upfront, there, where there may be some risk around the variability or long term, if you go with the package, it's not super valuable. There's risk to that as well. So how should leaders [00:10:00] be thinking about risk tolerance when exploring different models?
Andrew: I would say the biggest risk is doing nothing. Like that's by far the biggest thing. Uh, risk. So I think that's just first of all, like the mindsets going into pricing and packaging is very, very important. And a lot of times companies get very, very scared to iterate and make changes to pricing and packaging. And I think the best way to think about pricing and packaging is it's just another part of your product.
It's a feature of your product. And just as much as you would experiment and feel comfortable with changing your onboarding experience or upgrades. Updating a feature, you should be comfortable with making changes to pricing and packaging. So I think the first thing is really just getting your mindset, uh, changed and realizing, okay, this is a part of what we do as a product. Our product evolves, our value evolves, and so should our pricing and packaging with it. And that's probably the first place just to get started is really thinking, okay, like this is a feature, I'm updating this feature, and it just happens to have a monetary value attached to it.
Taylor: What about on [00:11:00] the on the churn side? What level of risk should we accept from a potential future churn coming out of price and changes?
Andrew: Yeah, I, and like, this is my bread and butter, obviously with churn. fm and I think the, when it comes to churn and pricing, like if people aren't churning because of your price, your product is too cheap, I think that's like a very common, it's not a myth, but a very common saying, and I think it's true. At that point in time as well, like it's important to know you need to have an appetite, uh, for churn and there are different models you can implore to sort of calculate what is the optimal price point as well, based on conversions and based on likelihood to churn. And I think this is a good area and exercise where Customer Success can really come in and have a seat at the table when making decisions around pricing and packaging because ultimately Customer Success has a much closer pulse and understanding.
Customer's appetite for pricing and packaging. And a good exercise I've seen companies implore from this perspective is really just going through an exercise and saying, [00:12:00] okay, looking at our book of business today, let's first off start of like our most engaged customers and our power users, like, and grading, who do we think is at risk of churning based on these pricing changes and based on the relationships that we have with our customers. And quite quickly, you can sort of do this exercise as well, internally of gauging where you think you're at. I think What is an acceptable level of churn depends on the variables in terms of like, how much pricing impact is increasing, and how much you expect that increase to impact conversions. I think like, speaking to more and more companies, it's unfortunate that it doesn't happen with CS coming in earlier, because I think like CS sales, like, Customer role support, they understand the customer nuances better than anyone else.
Most, like in most companies, can empathize better as well and get a better understanding and feel for how the market is going to react to pricing changes. So I think it's important for CS to be [00:13:00] brought in early to these discussions. And there are various different data points and insights that they can bring to the table to help better inform these strategies. So coming to the table with data related to user engagement insights and statistics can really help them infer and decide on what pricing and packaging looks like. And a good point in case it might be that you identify a feature, it comes back from the market research saying that this is a very high potential like a lot of people want this, but there's also a very high willingness to pay.
This should be on the premium side of things. CS will know and understand that, wait a second, maybe that feature actually is a very big driver for retention for us. And we know that if companies use this, they're almost certain to stick around. That doesn't want to go into your premium features. You don't want to be blocking off a retention driver, which will drive long-term LTV for short-term gains on pricing. CS is important because they understand these nuances, they're working on them day to day with their customers who are trying to drive value [00:14:00] and they can come to the table early when it comes to sort of identifying these pricing and packaging. They also have market insights in terms of who the buyer personas are and that can help as well at the first study identify first of all who we should be surveying and who we should be trying to speak to and who are potential buyers from our understanding. So, the earlier CS gets in, I think the better for everybody because they just bring that customer voice to these conversations and to these decisions.
Taylor: You know, what I'm hearing is historically Customer Success has not been involved in that conversation. So, CS leaders out there, my challenge to you is don't wait to be asked. You might not be. Come to the table with some interesting data points. Andrew, of everything that you mentioned there and a lot of good stuff, what would you say is the most valuable data point for a CS leader to bring to the table to start a conversation and get involved?
Andrew: So the most valuable I think is definitely around usage metrics and the patterns of specific users and I think a lot of [00:15:00] companies as well and from a CS perspective, I see realizing that retention is really the output and the inputs are all of the activities that our users are taking and being sort of that advocate for retention based pricing, I would like to position it in that perspective in the sense that Yes, we want to grow revenue and we want to increase monetization, but at the same time, we need to make sure that the pricing and packaging that we do produce is also, it takes into consideration retention and keeping customers.
So I think the number one area, I think where CS already has a good understanding is that a lot of them already like CS teams that I speak to have goals set against increasing activation metrics and increasing engagement and specific product usage. They should be bringing that. Data to the table as well, when it comes to pricing and packaging and saying, okay, based on our insights and in terms of what we see driving long-term retention, these are some of the features that will absolutely need to be on the core feature. These are some of the less liked features that can [00:16:00] actually go into a premium and align with what you're seeing in the market data as well. So I would start there.
Taylor: So. Ideal state, we've got the right folks at the table, we've done the analysis, we're not getting paralyzed by it, we've talked to customers out in the market, we've come up with our new pricing and packaging model, we've talked a little bit about how crucial it is on the rollout side and the communication to the market and your existing customers. So can you give us some of your experiences with what's gone right, and what's gone wrong with creating and implementing a rollout strategy?
Andrew: Again, this is a big area for CS as well. So I'll talk about it a little bit in the context of Customer Success. But in general, I think rollouts themselves are probably the hardest part when it comes to pricing and packaging. So I think it's easy to get to the point where you can decide on like what pricing and packaging should look like. The rollout is where the risk happens, and the rollout is where everybody starts to get a bit scared. So, I think it's important to have a very good and solid rollout [00:17:00] plan, and some of the areas where I've seen, like, things go wrong previously as well is, like, not having good, uh, The communication internally and alignment around pricing and packaging internally, which can confuse then when it comes to sales and success and updating docs and websites and pages.
Pricing normally has a large footprint that touches all parts of an organization and roles. So I think first of all, just getting alignment right and making sure there's a good communication plan for internal alignment so that everybody has a good understanding of how these changes are being made. And the next thing then as well, like I see is a risk factor that I think can be deferred is the question you asked earlier about churn, like what is an acceptable level for churn? But also I think, how can we avoid a specific level of churn? And in a great way, I've seen an effective rollout method is really just to sort of segment your users into three different buckets where you can have your power users, your core [00:18:00] users, and casual users. And rolling out in these three phases, you then get to get a sense of, okay, how is your existing user base going to react to these changes? Are you seeing any high levels or concerning levels of churn? If yes, It's a great point where you can just stop and you can say, okay, let's revisit the strategy before we do the big damage in the other audiences.
And this goes back to the early exercises with CS and saying, okay, who do we think is at risk of churning? And doing that exercise and then understanding within the context of the core users, you then sort of have a gauge to say, okay, are we on track with what we expected or what we anticipated for this rollout? And if all looks good. Then you proceed to your core users. If everything looks good there, then to casual. And this gives you sort of like stop gaps in your rollout strategy. And it's a great way then just to sort of sense check and make sure that you haven't just destroyed value for the business and the research that you did was solid.
Taylor: All right, well, we've talked about [00:19:00] the definitions of pricing and packaging, the build out, the analysis, rollout to customers, feedback loop. What have we missed?
Andrew: I'd say like in maybe in the context of Customer Success, when it comes to pricing and packaging, I think again, sort of, you really want to be, you want to be thinking about how pricing and packaging is going to influence not only retention, but also usage within the product. The metric that you select should not be restrictive in terms of allowing customers to extract value. So I think, for a long time, there was certain analytics products that used to charge in a restrictive manner that would limit it. Limit product usage, and you never really want to limit your users or have users thinking twice about getting more value from your product because the pricing is going to be the main driver. So I think it's important as CS to have a good understanding of that as well and to influence those strategies. But we did cover a lot, so there's probably a lot that we haven't covered as well, but yeah.
Taylor: All right. Before we let you go, [00:20:00] Andrew, we've got a couple of fun questions for you. So first off, what is one thing you wish you could spend more time on in your life or at work?
Andrew: Surfing. I think that's for sure. Yeah. So I, I only learned to surf like probably like six years ago now, seven years ago, I grew up in South Africa and, but I lived in Joburg, so I never really got to explore the beach. And since then, like I went on a holiday, actually ironically in South Africa, cause I live in Cyprus now and sort of been addicted ever since. So, uh, unfortunately in Cyprus, there's not. That much great surf, like you need to be lucky. And so wherever it's possible, whenever I can go on holiday, that's what I enjoy doing.
Taylor: What's your dream location?
Andrew: Ooh, I think probably my best experience of all, cause I've been to a lot of, I've probably been to all the dream locations that I wanted, was in Tenerife, which it was like, we went out surfing to get there. It was like on a cliff place. So you needed to actually go to the harbor and you needed to [00:21:00] paddle out and there was no beach.
So it was like a really, really beautiful, serene place. We ended up staying for hours. The sun was setting and then it went dark and everybody forgot that we actually needed to paddle back about a kilometer now in the dark at night. So we all loved the experience, but then I really was frightened on the way back when the thoughts of sharks started going through my mind as well and needing to paddle back to shore.
Taylor: Yes, that is one of those, fun in hindsight, probably stressful in the moment. What is one habit or routine that you feel like has had a positive impact on your life?
Andrew: For me, I would say like, hyper-focus is something that I, it's probably, it's been a positive impact, but also in some degrees a negative impact, but I found like, when I really get Interested in something, I get extremely fixated and like I can zone in and I can focus purely on that specific thing for very extended periods of time. And I find that sort of helps me [00:22:00] like learn a lot and be able to move pretty fast in whatever it is I'm interested or excited about. So, I don't know if that's a skill, but yeah.
Taylor: All right. I mean, I'd say holding that sacred is probably a skill that we all have to get better at, for sure. If you could go back in time when you were just starting your podcast and give yourself one piece of advice, what would it be?
Andrew: I was going to say, think carefully about the name that you choose for the podcast and the audience that you're going after, because as I mentioned in the beginning, like, I didn't expect it for it to be a Customer Success podcast and it ended up becoming like, in the beginning, it was really focused around growth and the ideal, the initial premise was really okay, churn and retention, it's a complex nuanced problem. There are many people, different stages of growth, different roles, and just seeing how they approach the problem. But the name specifically just naturally gravitated to being like a heavily influenced Customer Success podcast. I'll put it that way.
Taylor: Well, thank you [00:23:00] so much for your time, highly, highly appreciated, incredible insights, and looking forward to seeing more as you do more research in pricing and packaging, but thanks so much for your time.
Andrew: Thanks, Taylor. It was great chatting.
Taylor: Big thanks to Andrew for sharing his insights with us today. Special thank you to all of you who tuned in. Mark your calendar for our next episode. We're breaking down the first 90 days in the new CS leadership role and how to make the most out of that crucial time. If you enjoyed this episode and found value in our conversation, don't forget to spread the word to your Customer Success friends.
And before you go, we would love to hear your thoughts. Take a moment to leave us a rating and review on your favorite podcast platform. Your feedback means the world to us. Until next time.