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Investors are increasingly supporting their investments not only with financial resources but also with networks and know-how, e.g., in setting up the organization. However, larger investment firms lack specialized expertise for specific topics such as pricing. This is also true for their portfolio firms, where pricing functions are often not specifically installed. Vocatus closes this gap by supporting investors and portfolio firms in professionalizing their pricing and sales processes.
Software companies are exciting targets for investors because they often represent growing markets and rely on future technologies, scale very well and, with subscription, have a business model that is profitable and sustainable, at least in perspective.
As with other companies, it is the valuation, i.e. the ability to monetize in the future, which sooner or later will determine the success of the investment. The words of Warren Buffet apply to both: “The single most important decision in evaluating a business is pricing power”.
In the beginning consolidation phase of the tech industry, investors are no longer focusing only on growth at any price, but on profitable and sustainable growth. This also and above all includes a good pricing strategy.
We support investors in evaluating the pricing power of a potential investment.
Investors have a natural interest in the growth of their investments. Very large tech companies focus on growth at any price, often with freemium pricing. This can be reasonable under certain conditions, e.g., when network effects are at work, i.e., when the value of the offering for users grows with the number of users (e.g., in the case of social networks).
Even though this may be appropriate for the Spotifys of this world, it is not for the vast majority of companies. Here, usage should be consequently monetized. This is also true because a free entry-level offer consolidates the expectation among users that the service costs nothing, and it becomes difficult to convince them to switch to the paid version.
Reverse trial models are therefore generally better than freemium or free trial: Here, users can use the features of the premium option for a limited period at the price of the entry-level option, learn to appreciate the value of the features, and decide after this period which options they want to continue using. The more convincing the options and upselling paths are designed, the better the mechanisms of product-led growth work (i.e., the better the product sells itself).
However, product-led growth and marketing- and sales-led growth are not mutually exclusive. For expensive and complex products as well as products requiring customization, it still requires sales contact and support. The biggest challenges for marketing and sales are to translate the product’s technical features into customer language and benefits and to tell those benefits via compelling, customer-centric stories.
We support software providers from optimizing their product-, price- and marketing-driven growth strategy to training and coaching sales representatives on customer-type-specific sales communication.
While traditional software companies often started as a licensing model before switching to subscription, many startups rely on subscription, pay-per-use, or combinations thereof. This is understandable and makes sense: Subscription enables recurring revenue, pay per use the direct monetization of value.
As with all business models the following applies: No pricing model is superior per se, but depends on what creates value from the customer’s perspective, what scales value for the customer, and which pricing model best fits the customer’s budget requirements and billing processes. The question of the best pricing model can therefore only be answered by understanding the customer’s needs and decision-making processes.
We support you in the customer-centric development of your pricing model, in answering the question of whether existing customers should also be migrated to the new pricing model, and in working out the migration strategy.
Not only, but also in the context of the evolution of the pricing model, it is worth thinking about a (re)packaging of features and services. The much-cited three-level “good-better-best” structure is just one way of packaging (which is particularly useful when customers are uncertain and it makes their decision easier if they can decide against the too-small and against the too-expensive option).
However, the example illustrates: How many options make sense and how these options should differ depends not only on how different the customer’s needs are but also on which structure makes it easier for the customer to make a decision.
We support you in the further development and design of your product structure, based on the analysis of the relevance and value of features from the customer’s perspective.
One of the requirements of a good pricing model is that it allows for future price increases. In the past, this was often not necessary. In fact, many software companies have not raised their prices in years, if at all. With rising costs for personnel, energy and infrastructure, the situation has changed and many companies are forced to raise prices.
In addition to defining the optimal price increase, timing and communication are crucial for the acceptance of price increases.
We support software companies in developing their strategy for price increases – from defining the right amount to the format, channel and content of the announcement, to negotiation in the event of objections.
“After ten years of working with Vocatus, the consultants still impress me with their fact-based and scientific approach, constructing sound monetization strategies, concrete portfolios and price models that exceed our expectations. [… ] Furthermore, Vocatus is always good at pinpointing the customer’s problems at hand and fast in grasping our business needs. Finally, and probably the most important point: A positive ROI with Vocatus is a guarantee.”
Eivind Berg Lühr
“All start-ups have something in common: they put all their energy into developing new, innovative products and services. This often leads to the loss of considerations regarding product structure, pricing strategy and, of course, the sales approach. […] Behavioral pricing is the perfect way to bring these factors into the focus of the founders. Professional help can be used to design them in such a way that growth and profitability are boosted in the best possible way. Thanks to its extensive expertise, the Vocatus team of consultants led by Prof. Dr. Bauer is the ideal sparring partner for this..“
Carsten Maschmeyer
Entrepreneur / Investor
“Besides the quick familiarization with our specific market and product conditions, we were thrilled by the specific recommendations for action […]. By integrating behavioral pricing, we received not only recommendations for a suitable price level but also ideas for alternative pricing models, and specific measures for marketing and selling our product. […] We […] would recommend Vocatus as a strategic sparring partner at any time.”
Tobias Huth
“ Together with our financial sponsor, I was looking for a partner that would have a rigorous analytical yet pragmatic approach to help us getting our pricing strategy right. […] Vocatus delivered. The insights we got are concise and actionable. The way there was productive and fun. A fantastic result! The precision with which our colleagues at Vocatus were able to predict our actual sales figures and realized prices one year ago is almost scary. Really impressive!”
CEO, Craftview Software GmbH
“Stop selling products and start managing decisions. The key element for this is your sales department.”
Member of the Executive Board
Vocatus AG
Challenge:
Stagnating revenue and increasing customer demand for subscription / as-a-service
Target:
Change of the pricing model from perpetual license to subscription
Approach:
Design and implementation of a multi-level product structure of a subscription-based pricing model
Activities:
Customer survey to determine relevance and value of features, price motivation and price acceptance
+68% Customer Lifetime Value
(5 years) after conversion to a subscription model
Challenge:
Increasing costs for personnel, infrastructure and energy as well as growing efforts to ensure security and system compatibility for a B2B software for document management
Target:
Increases in prices for software maintenance contracts without losing customers
Approach:
Hypothesis-driven and empirical assessment of sources of price increase acceptance, the definition of price increase strategy (scope, timing, communication), formulation of price increase communications
Activities:
Workshops and empirical surveys with existing customers on price knowledge, interest and expectations, as well as decision-making motives and propensity to switch
9% price increase without notable churn
Challenge:
Increasing costs for personnel and energy and lack of utilization at certain times of a diagnostic-as-a-service provider
Target:
Increase and control utilization, increase revenue per examination and customer, better monetization of additional services
Approach:
Price increase of the core service, price differentiation according to time of examination, the introduction of an installation fee and a monthly service fee, separate pricing of additional services, formulation of the price increase communications, coaching of the sales representatives on the enforcement of the adjusted pricing model
Activities:
Workshops and empirical customer surveys on price motives and value drivers
~17% increase in revenue per customer
We take a customer-driven approach to the development of pricing strategies, sales concepts and business models and focus on the decision-making behavior of customers. To translate this decision-making behavior into pricing and sales strategies, we use insights from behavioral economics.
We design all relevant facets of a pricing strategy and incorporate price enforcement into our thinking at all times. By applying behavioral economics, we uncover all sources of price acceptance, including and especially beyond value. In doing so, our research and consulting services provide measurable and sustainable added value, typically in the range of 20%+ higher margins.
We want to make sure that you can sustain the results and use the principles of price strategy and price enforcement beyond the project. Therefore, we do not only provide recommendations but also justifications and rules based on which information and considerations we derive our recommendations.
Many years of experience in strategy consulting and implementation support in B2B and B2C
Studies of social sciences at the University of Göttingen
More than 10 years of experience in strategy consulting and market research with a focus on B2B and software companies
Studies of Social Sciences at the LMU Munich and the University of Queensland
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