Dan Balcauski: Pricing Psychology and Sales Strategies

I'm a big believer in the subscription model. One of the reasons why it's been such a transformational innovation for the software world is it builds in a long-term relationship between the vendor and the buyer. Hey everyone, welcome back to Make It Happen Mondays where we talk about sales, business, entrepreneurship, personal growth, mental health, and everything in between with guests I truly respect and I think make a positive impact on the world around us. And today's conversation is with Dan Belkowski. He's the founder and chief pricing officer of Product Tranquility where he helps high volume B2B SaaS CEOs define pricing and packaging for new products and I was really curious about this one because I'm going through some reworking of my packages for my on-demand program and also trying to figure out what the cap is for my pricing on what I do for sales training with clients.

So this was a real curious one for me to learn from somebody who's been in this business way longer than me. And so what you're going to hear here is a lot of stuff from both the founder, like if you're an entrepreneur and you're starting a business, but also from a sales rep and how do you defend pricing? You know, how do you work it when you're talking to a client? So we started with, where do you start? Like if you come up with a product, where do you start when it comes to, you know, product pricing and testing the marketplace? What's the difference between freemium and PLG product-led growth and why he hates freemium, which is pretty funny because value in a lot of ways is about the pleasure and price is about the pain.

So you've got to come up with a really sweet nuance there to figure out how to optimize it. Then we talked about positioning and what your price does and how it invites comparison for competition, which is a good and a bad thing, depending on where you are. But really, ultimately, how it all starts with the ideal customer profile and knowing exactly who you're going to sell to so that you can price accordingly. We peeled this one apart quite a bit and dove into other things like the value of an SDR and an inbound motion. And is it going away because of the direction that we're headed in the marketplace right now? And then what I was most curious about, which is the psychology of pricing and discounting for that matter.

So why does 1999 sell better than 20 bucks? You're going to have to listen midway through. You're going to find out why. And why I believe you should not use round numbers when discounting. You know, instead of 10% use 6.75 and there's some psychology around that. And he validated a lot of my assumptions, which is good because I don't want to make sure I'm not out there lying to people. So if you're interested in defending your pricing or coming up with pricing for a new product, you're going to love this one. Hope you enjoyed it as much as I did. Let's make it happen. Dan Belkowski, welcome to the Make It Happen Monday podcast, my friend. How are you doing today? It's Monday. Doing very well for a Monday.

How have you been, John? Surprisingly, I am too. As a matter of fact, the weather here in Boston is absolutely fantastic. It's my favorite time of year, so I can't complain, man. I can't complain. How's Austin treating you these days? It's still hotter than expected. We got a little relief about a week ago, and then it sprung back on us. There's 100 back this weekend. But, you know, it's football season, so doing all right. There you go. Now, what fan are you being from Austin? Are you Dallas? Where are you at? I grew up in Chicago, so I was a Bears fan through and through, and, you know, with blackout restrictions, it's a bit harder and harder to watch over the years. So, you know, I can't turn on the TV on Sunday without seeing either the Texans or the Cowboys.

So I kind of stopped watching NFL, for better or worse. But, you know, had my run of Michael Jordan and the Bulls during the glory days. So, you know, that was kind of a peak experience. See that right there? That's MJ right there. He's my favorite ball player of all time. So I grew up in Boston, obviously, in Boston Celtics, Larry Burr, the whole thing. But, man, when Jordan hit the scene, I couldn't not watch. So I was actually a—my whole family's from Chicago as well. So I was a massive Bulls fan, and still am, but I'm more of an MJ fan. I mean, there's no question in my mind, as far as the greatest of all time, it's not even a debate, as far as I'm concerned. Yeah, well, it kind of ruined it after that.

You're like, well, it's never going to get better than this. Don't get me wrong. I actually think the talent in the NBA right now is off the charts. But as an individual player, I don't think I'll ever see anything as—it was more about his drive and passion than it was his actual talent. So that's what I miss a lot. We could talk sports all day long. But let's get to some of the points of why, actually, I was really interested in this conversation. And quite frankly, I've been interested in this conversation because it's always been a bit of a black box for me as far as pricing is concerned. So for the audience listening, we're going to talk about pricing and kind of how to come up with pricing, how to look at it, how to evolve it, and what it means from a perception and reality standpoint.

And also, as a sales rep, how to defend it, how to approach it when your clients are beating you up on discounts. But before we get into that, Dan, do us a favor. Give us your origin story, my friend. You know, we can all look on LinkedIn and see your background there. But talk to me. You already said about growing up in Chicago. So talk to me about family. Like, how'd you get to where you are right now and who is Dan? And then we'll take it from there if that's cool. Oh, man. Well, I won't bore everyone with stories of grade school, etc. But yeah, I've been in tech my entire 20-year career. Like many young kids going to high school in the late 90s, I thought, you know, dot-com millionaire money was only a breath away.

So decided to go study computer engineering in undergrad. And, you know, one rolled around, graduated from undergrad in 2003, graduated in a very different world. So, you know, props to all those folks who were, you know, of working age during those prime years. I didn't quite make that, but did end up on the builder side as an engineer early on. And that's how I ended up actually in Austin, Texas, got a job out of undergrad down here. And can't be mad about that. Austin's been a great place. And, you know, over my career, you know, I found, you know, I got much more excited about the value we are creating for customers and how that turned into dollars and cents for the business than the individual lines of code that I was writing.

And so it gradually morphed my career more into management and product-related roles. And so I went to business school and got thrown out into the real world of pricing and packaging during my business school internship. Worked for a very successful Silicon Valley startup. And one of the questions on the CEO's desk while I was out there that summer was, should we do a freemium model? And among several different projects I worked on for them that summer, I have to say TLDR, I do not believe in freemium. It's a terrible idea. But that was kind of my first real world experience on that side. And then post-grad school, spent my time, you know, really focused on, like, how do we drive customer value on the product side?

And was put into a lot of positions where, you know, my function as a product leader didn't specifically own pricing and packaging. Companies I was at was usually owned by product marketing, which I think is generally that we might talk about who should own it. And I think that's generally a really good place for it. But those product marketers were sitting there being like, hey, man, I got to do this pricing for a product. And I don't have any idea. You went to business school. Do you have any idea how it is? And I was like, well, they thought of some things. Let me see if I can help. But let me tell you, I made a lot of mistakes. Tried to, you know, pricing Minute made orange juice very different than pricing B2B software.

And so if you try to use methods from one, you're probably going to have a bad time applying them to another. But, you know, I think that's a, we may get into this, right, as we talk about pricing and packaging. You know, I might, people might think of it as one thing, but it looks quite different. I mean, look, all the things underlying it have fundamentals of economic theory of supply and demand. But if I'm pricing airline seats or Airbnb nights, that looks very different than pricing for, say, a B2C SaaS service like Netflix or Spotify. It looks very different than pricing for B2B software. It looks very different than pricing consulting services or one-off, you know, services like that. So, you know, there's fundamental underpinning things that we can talk about.

There are commonalities there. But you want to be very cautious when you're kind of straddling domains that you don't, you know, misapply frameworks where they're not needed. And so, yeah. So, you know, with too many levels of product leadership and eventually went off my own about five years ago. Now all I do is help B2B SaaS CEOs define pricing and packaging for new and existing products. Hey, I hope you're enjoying the conversation so far. I want to take a quick minute to share with you what I'm working on these days with my new JB Sales membership. It includes live monthly training delivered by me on my two signature courses, which are filling the funnel and driving a close that cover all aspects of the sales process.

It also includes monthly workshops that I'll be running on specific sales skills and different tech skills like ChatGPT and how to leverage AI throughout the entire sales process. Finally, the membership gives you access to my entire online catalog with every course and every tip I've ever done. And as an exclusive offer to my podcast listeners, if you go to JBarrows.com, click on the individual membership link and use coupon code PODCAST at checkout, you'll get 25% off. Now let's get back to the conversation. Mother man, yeah, I think this is, it's super interesting and especially with everything that's going on right now with the AI and also like, you know, surge pricing and like for instance, like I saw Wendy's try to fuck around with surge pricing recently where it's like if you went at the high times, like you charge more and people revolted from that.

I mean, I get it from an Uber standpoint because it's supply and demand there. But when it came to like buying a cheeseburger, I'm like, you shit me, you're going to pay me like I get out of work at five. So you're going to make me pay more when everybody else gets out of work. So I think it's interesting what people are playing around with, with the algorithms and the AI trying to price price at the perfect price at the perfect time. And I think we'll get into that, but just kind of get your gut check on, on how a lot of this tech is, is impacting this. And is it smart enough to really price the right price at the right time for the right person yet? Or are we still pretty far away from that?

Just kind of curious. We'll come back to that, but I'm kind of curious of your initial thought on that. Well, there's a whole topic to be had about pricing for AI. It's probably one of the hottest topics that I've been constantly asked about now, because as you imagine, right, you've got all these Gen AI companies, the foundation models with Google, Anthropic and OpenAI, right? And then everyone building in those capabilities. So I think that's a whole discussion, but I'm pretty sure that's not what you were asking about. You were asking about more, like, can the algorithms, you know, determine up to the minute per buyer price segmentation? And look, that's not a new technology. The airlines have had a whole field called yield management.

The hotel industry as well has been having to use algorithms in that space for a long time, right? And anyone who's ever bought an airline ticket, right, I look on a Tuesday, I look on a Thursday, there's two different prices for the same route. You know, there's a bunch of really intelligent software that backs those prices up. And then in the B2B, on the industrial side, there's been companies for years, Exilient, Pros, PriceFX, or a few of them who play there, who, you know, if you're selling industrial solvents to paint manufacturers or whatever, right? There's a whole bunch of capabilities and algorithms that people have been using there. And we run into this as a consumer on a day-to-day basis, not only in the airline or hotel space, but, you know, Amazon, I think, at one point, I think they read they changed prices on Amazon three million times a day, right?

So it's very, very often you're seeing, you know, prices move pretty real time. And so anybody who's in the e-commerce space knows what a joy that is. And there's a whole set of tools, even as a seller, to help you understand, like, what's going on in my market. So, you know, you did raise some other, you know, pretty big, meaty questions, which I'm sure we could spend the rest of our time on, around fairness and surge pricing and Wendy's hamburgers. So happy to go into that. But, you know, we might be here for a couple of episodes if we have to unwind all of that. Perfect. So then let's back up a little bit because the audience here, I mean, there's two angles that I want to take with this.

One is for the sales rep out there who has no control over their pricing and kind of has to defend it and put packages together to, you know, service a need to a client. And I want to talk, you know, education of that, of what the company needs to do. But I want to start first with, you know, if you're an entrepreneur or if you are a founder, if you will, and you've come up with whatever it is, right? And I'm sure there's a huge difference, obviously, between service-based pricing and product-based pricing or software-based pricing. But from a starting point, I mean, the idiot version is you just kind of look what everybody else is doing in the space around kind of where you want to be and you use that as a benchmark.

But should you take a more strategic approach, kind of like if you look at, you know, going after your clients from a sales standpoint, for instance? I talk a lot about how making sure you really refine your ideal customer profile so you know exactly who your exact customer that you want to service is and then start to think about pricing in that regard. So help me walk through if I'm a founder and I'm starting off, what's a benchmark that I start with and then how do I test based on the quality of my product and what I'm trying to get out there? Obviously, understanding that expenses need to be covered, right? So, you know, whatever it costs me to deliver this thing, I have to cover that. But then the margin on top of that is really what we're talking about as far as the, you know, the percentage there.

So, could you help us get a starting point here so we can, you know, start it out? Yeah, yeah, yeah. So, there's a lot there. So, let me see if I can unpack it a bit at a time. So, you know, I'll say something maybe slightly controversial, which is early on, I do not believe that your pricing and packaging is going to be the defining factor of whether or not you survive into the $5, $10 million in revenue. It just has to not be terrible. So, a couple of things I would lay out is, you know, keep it simple, charge something. One reason, there's a bunch of reasons why freemium doesn't work. But, you know, if we think about price as a fundamental relationship to value, and so when we're going out there trying to determine market feedback and market signal, the value is the pleasure, hits the pleasure side of the brain.

The price is the pain. And so, if we don't charge anything, if we go out there like, oh, I got all these users, how much are they paying? Well, they're just, they're not customers because they're not actually paying us anything. There's a big, big question mark in my head of like, are you getting validated market signal there? Because you're not really balancing that pleasure and pain. So, charging something, but knowing that, I think one thing you said there was really important, which is you really have these hypotheses about who your ideal customer profile is. And I couldn't agree more, like, so many companies at every scale need to do better at just whittling down and continuing to focus, like, who really is our ideal customer?

Who is our ideal customer? But a lot of times when you're first starting out, you don't know. You have, like, some strong hypotheses, and there's a little bit of wandering in the desert. And so, you need to really focus a lot of those early days on creating, communicating, and delivering that value. Charging something along the way, I think, you know, to your point, making sure your costs are covered. One point that I would say that is not covered very often, that I think is really important for folks at that early stage, is do you think about this concept of what I call price positioning? So, you know, many folks are familiar with, you know, Ries and Trout, the positioning world, right, that helps you define, you know, who is your ideal customer?

What is your next best competitive alternative? Who's, you know, what features do you have that are differentiable that allow you to create differentiated value for that group? What's completely missing for that puzzle is this idea of price. And so, price positioning, one example that can help set the framework here is, like, the auto industry. So, by setting a price, I invite specific competitive comparison. So, if I'm, like, the market player, right, there's going to be the Toyota Camry, the Honda Accord, maybe the Tesla Model 3. If I'm in the premium segment, I'm now in the Tesla Model S, the BMW, Mercedes-Benz. If I'm in the ultra premium, high luxury, Bugatti, Lamborghini, Ferrari, the Tesla Roadster, that's a strategic decision.

That's not something that we check and test our way in, but that has huge downstream consequences on how we decide to go to market and run our business. If I'm at a very high premium price point, like, that's a decision I make. Like, I'm deciding, like, hey, I'm going to offer this premium offer. I have all sorts of options now for how I sell, market, and support that. I can go meet customers where they're at in the field. I can spend, you know, equivalent or ratio amount of money on acquiring those customers. If I'm selling a very low dollar value item, like, Amazon can't send people into the field to go sell widgets. Like, it's completely uneconomical. So, that strategic decision up front helps us understand, like, okay, what does that mean for the rest of my business?

Now, like, you know, now, okay, I'm in that group. Now, okay, I've got some sort of range. Now, I can go do testing and iteration at that range, but I'm not sort of asking the market, well, like, oh, should I be a Lamborghini or a Toyota Camry? It's like, I don't know what kind of answer you're going to get from the market, but I wouldn't trust it. Like, that's a decision that you have to go as a market. And so, I would say, like, thinking through those type of things early on is probably one of the most important things. And then focusing on the value and then charging something. So, you actually brought up something super that I have a theory on. I would love your feedback on this as far as the cost, right?

When you say Amazon, you can't have a rep out there, you know, selling widgets when it's such a low dollar figure. My back and napkin, dumb math, just an experience from a business standpoint is I'm going to say five, but I really believe 10, that if your product is in 10 grand or above, it's really hard to justify a sales rep being inserted. And when I say $10,000, I mean, like, you know, for the year, like, you know, ACV or whatever it is, that it's really hard to justify a sales rep being involved in that process because of the cost of sale. I know there's a shitload of variables there, but is there a dollar figure that you look at it and you're like, guys, you just can't have a sales because I've seen business after business after business fail with like $5,000 products.

And they're really good products, but they still take an explanation. They still take one to two sales calls because the person has a question about it or whatever it might be. So, is there a threshold that you look at? You're like, dude, you can't go below this if you really want to sell this versus market it. Hmm. It's a great question. I've seen numbers out there over time. I don't think there's a hard and fast line. What comes to mind is, you know, I mostly focus on just because of the background of where I've worked and what I like to focus on is high volume B2B SaaS, which is, you know, I spent some time at SolarWinds, which is in the IT operations management space. And, you know, one of the pioneers of a high volume and velocity go-to-market model.

So, marketers can't have anything nice for too long without somebody rebranding it. And so now, so you might refer to that as product-led growth, but, you know, it was PLG before PLG was cool. Now, it may have changed over time, but I think when I was there, the ACV was around $8,000, $9,000 for perpetual license software, mostly. And so, the question is, is like we had an incredibly, incredibly profitable model. I'd be talking about 40% net margin on an $8,000, $9,000, very technical product. But the entire company was architected around that financial model. The product had to be incredibly easy to use. It had to be self-serve. So, remember, this is the world of perpetual software. So, someone had to be able to go on the website, download the bits, be able to install it themselves.

You know, if you're monitoring your network or storage or servers, be able to discover their environment by themselves. And, yeah, we had sales reps. We had sales engineers. If a sales engineer was touching more than 5% or 10% of the deals for that product, the model breaks down. So, most deals have to close. The reps, it was some of the hair would blow back on some of the new reps because we had a motto, deal a day. Like, you get hired as a salesperson on Monday, you better be closing three deals by Friday. Like, because the go-to-market model had to accommodate that because of the price point. And so, that went into how we staffed engineering, how we, you know, the entire focus of the product management team, etc.

And Amazon's very similar, right? Amazon has this embedded in their culture. Like, their per diems, when you travel, like, what they give to their employees for, like, oh, you can only stay at the Best Western, you can't stay at the Four Seasons, etc. I've never worked at Amazon, so I'm only speaking about what I've known externally. But, you know, I'm sure that's very different than, you know, if you're working for, obviously, very different if you're working for McKinsey or something like that, right? Very different cost model. So, let's keep driving into that because my curiosity or my concern, I'll call it, and I'm not going to obviously name any names here, but I've been working with some clients recently where they have the inbound model, right?

Where it's a, and actually, pause. I want to ask you what, and help educate me and the audience here on your definition of the difference between freemium and PLG. So, could you, could, let's first define that and, like, from your perspective and then unpack something about the PLG motion that I'm concerned about? Yeah. So, I don't believe that those are opposite concepts. So, a freemium model is similar to a free trial model in that a free trial is usually time limited, 14, 30 days, and then your access goes away until, unless you pay or you're involved with sales and they give you an extension on your trial. Or a freemium, there's a part of the software that you could use forever. One of the reasons I don't like to talk about PLG is because we may spend 10 minutes trying to get on the same page of, like, does freemium imply PLG?

I don't think so. I think they're orthogonal concepts. I think a lot of people try to blend them together, and it causes a lot of confusion. But usually, there is some sort of at least free trial motion in a high-volume velocity model. There was at SolarWinds. It was a 30-day free trial. And you could get extended if, say, you had a more complicated environment, or maybe you need to evaluate multiple products at once, right? But at that point, you're engaged with a salesperson in that model. Got it. Okay. So, with that, what I'm seeing right now and my concern for specifically the role of sales with inbound, technically-led products, like you had explained there, right? To your point, it's got to be super easy to use.

And I've been working with some clients recently who wanted me to review their cadences for inbound. And it's like a trial download comes, right? And the rep gets alerted. And usually, the trial, because it's a technical product, it's coming from a technical person. And it's a small, it's a 5,000 ACV, 5,000 to 10,000 ACV product. And what happens is this sales rep then kicks off this cadence to say, hey, I saw you done, you know, the typical bullshit. Like, hey, I saw you done on the trial. I'd like to talk to you about your 20-whatever priorities. Now we can help achieve your goals, da-da-da-da-da. And if I'm a technical person, I grew up in the IT services world, so I was, I don't know if you're familiar with Thrive Networks, but I was one of the founding members of Thrive, the largest MSP in the country.

So I understand engineers, and I understand the value that they bring. But I don't bring very much value to an IT person as a sales rep, you know what I mean? I could get, you know, I could ask questions and get them to think a little bit. But my point is, is they put this cadence together. And I was like, oh, let me kind of rewrite this a little bit, because I'm going to say, hey, I'm going to placate towards the engineering mentality. Say, hey, I'm sure you know how to use this. Love to jump on a call and maybe show you some additional use cases that you might not be aware of. And the feedback was, oh, well, our reps can't do that. And I was like, they can't show the nuance. Okay. And then we asked the team lead, and they were like, oh, no, no, that's why we have an SE on the call.

And I was like, wait a minute. So a technical person downloads a trial. It kicks off a sequence. The sales rep tries to schedule a meeting to an engineer, gets the engineer on the phone, maybe ask him a few questions. And if the engineer needs help, they have to set up another meeting with an SE. And my direct question was, what the fuck value is the sales rep in this equation? So I guess from your perspective, because I think the inbound with AI specifically now, because it's routing everything and you could put all the answers in there for anybody to just ask questions to it. I personally think the sales role that is in the most danger currently, as of right now, is the inbound sales rep role for a pseudo-technically-led product with PLG.

Are my fears accurate? And where do you think that we fit from a value standpoint in that equation? There's a lot of pressure on go-to-market teams in software right now. Is the pressure most acute on the sales rep versus the SE? It's interesting. I got to say, I don't know. Where I feel it probably is more acute is on this model of BDR to sales rep. Because now you have two people who are non-technical who need to touch every potential lead. And it's a very uncomfortable position for all involved. Like, as a buyer, it sucks. Oh, there's someone who's going to qualify me to know if I'm going to talk to a sales guy? Like, it's just a terrible experience. And I think it's, you know, it's a weird idiosyncrasy, I think, of the Salesforce model point in time where there was incredibly large LTVs and very small customer acquisition costs.

Where all of a sudden sales folks didn't have to become first touch. And now you have two people in that process. So, I'm more concerned about that as maybe the first domino. But, yeah, if you're a sales person, they should be able to answer basic questions. They should be able to give a canned demo. They should have some capabilities. Like, I wouldn't expect them to be, you know, talk person to person with an, you know, in-depth IT. You know, if someone's a Cisco certified network admin, like, they're probably going to fall on their face if they get too far in that week. But they should be able to answer the basic questions about the product without needing a sales engineer on the call. Because that's who's going to, it's going to flip the economic model upside down.

Well, it flips it upside down. And quite frankly, it adds a ton of friction to the sales process. And don't get me wrong, I think the, like, really good sales reps can get on a call, diagnose an issue, ask some questions, get the person to think a little bit differently, and potentially, quote-unquote, upsell them in a way of something that they really need when they didn't even know, right? So, I think a really good sales rep can and should be able to do that. The unfortunate thing is most of what we're talking about here, SDR, BDR roles, are kids right out of college. You know what I mean? So, they're stuffed with about three weeks of technical knowledge based on their onboarding, and now they're expected to go out and have these value-oriented conversations.

And quite frankly, when you add that much friction, because there's so many options out there right now for every single solution, if I'm a sophisticated buyer, and you add friction to this process, I'm fucking gone, man. I am done. I'm going to the next website. I'm downloading that shit. I'm trying to talk to somebody who knows what they're talking about, and until I get to where I want, I'm going to keep ripping through them. Unless it's like, holy shit, I absolutely have to have this, because you're the only one, which is rare these days, right? Amen. All right, thank you. Okay, cool. Just want to make sure that I'm on the same page here, trying to make sure. Look, I'm trying to save, what I'm trying to do ultimately is evolve the sales product, because you brought it up, the Salesforce predictable revenue model, it was a bullshit model when it first came out.

It was fantastic for us as businesses, as companies, because we could scale our sales organizations, but it has never, ever, ever been customer-centric. Nobody wants to be handed off three times before they actually talk to somebody who knows what the fuck they're talking about, right? Yeah, and especially for pricing, don't hide it like it's the goddamn nuclear codes. Okay, so that's another thing. I put on my, by the way, people gave me shit for this, but I put on my, I charge $30,000, $40,000, $50,000 for my training, and I literally put that right on my website. And there's a factor of that, because I don't want to fucking talk to you if you can't afford, now, don't get me wrong, I have individual licenses for small teams and all this other shit, but if you're a company looking for training from me, I don't want you to do an inbound lead if you can't afford 30, 40, 50 Gs, because otherwise, like, I can add value and uncover and all this bullshit.

But if that's so far out of your range, like, I don't, the last thing I want to do is waste my time on 30 minutes with a conversation for you to figure that out, or try to, you know, figure out if you can get any discounts on me. So do you believe that everybody should be that transparent with their pricing? No, you shouldn't. Absolutely. I would say numbers on this are, obviously, it's a moving target, and they're hard to come by. I've seen numbers, about 75% of B&B SaaS companies have public pricing and packaging. Is it right for everyone? No. I've worked with companies where it's absolutely not the right thing. For example, I go work with a client, and they show me their price list, and it's a 55-page PDF.

Like, good luck putting that, like, you could go put that on a file share, but like, you know, nobody could understand it. Like, even the internal sales reps can't understand it. And look, if you have that problem, call me. I'm happy to help you. There you go. I like it. But look, there are definitely situations where it doesn't make sense. I think you brought up a very good point of where it does. So if you have a very large, horizontal-type market, a very fast volume and velocity go-to-market motion, a PLG motion, if you will, then it can often make sense to put your public pricing and packaging there. Also, like, who is your competitive set? If they all have public pricing and packaging, and you think that, oh, wait, I'm going to wait until my sales folks have a chance to sort of qualify this person, you're probably not even getting that bad.

Because you're going to get X from the short list if nine out of your best 10 competitors all have public pricing and packaging. So some of it's competitive dynamics. But then also, to your point, for those high-velocity go-to-market models, having my sales reps on any call is super expensive. I don't have a lot of dollars on my customer acquisition cost budget, of which sales and marketing go into that numerator. And any time my reps spend on a call, saying what I could say on the website and saving a conversation is a huge amount of savings, right? So you worry about, like, okay, we somehow got a little bit higher incremental revenue than we otherwise would have, but how many calls did we burn saying the same thing when people weren't a fit and they could have just got that on their website?

So it's a bit of a pre-filtering mechanism, which I think is a perfectly valid use case. But look, you may have situations where you've got a market that is, look, if I'm only selling to the Fortune 100, the Fortune 500, like, probably each of those configurations look so different. I really have to know, like, there's going to be all these configuration options. You know, maybe I can, if I have really well-designed offers, maybe I have the structure of what, like, my good, better, best tiers are on the website, but pricing says, hey, call us. You know, but if I've got one of these other folks who are like, well, hey, our current price list is a 55-page, you know, 10-point font, you know, Excel sheet, then, yeah, like, probably you're not going to be able to put anything on there.

You're going to have to be like, hey, yeah, call us. Sales will help walk you through it. But, yeah, also, I've been on the other end of that, too, where you do not want to have, like, even if you don't have it on your website, having it where, you know, I don't have to wait until the fourth call before you finally tell me what the price is. Like, it's just very, very frustrating, and you're not really helping anybody's case by doing so. Yeah, I think my philosophy on pricing, because there's two sides, you know, that sales reps get trained on. One is literally don't talk price at all until your point, until I've showed enough value, and then I'm going to show you the price. Or talk about price, like, right up front, like, put it on your website, and fuck it, that's what we're talking about.

Now, you know, there's pros and cons of each. The pro, you know, the con of putting it on your website, to your point, is, like, somebody sees 30 grand and says, holy shit, like, whoa. When maybe, just maybe, I could have had that conversation and been like, hey, you know what, we have some options here, and we can, you know, do this. This is what pisses me off, same as you, is, like, I go through this whole problem, like, yeah, this actually looks exactly like what, and then all of a sudden, they drop a number on me. I'm like, holy shit, dude. And now I'm embarrassed, because, like, you know, say it's 100 grand, and I thought it was 20 or 30, and now you're saying 100 Gs, and I just went through three sales calls with you.

I'm like, oh, fuck, like, that's where ghosting happens, because I'm too embarrassed to say, oh, my God, I don't have 100, I thought this was a $20,000, $30,000 thing. I don't have that money. So, that's, I think, a lot of times where ghosting happens. So, the middle range to me is, on a sales call, is the highest thing, where it's like, hey, give me some parameters, give me some gut checks here. How many licenses, what's your growth projection, those type of things. Okay, you're probably in the ballpark of 30 to 40, 50 to 60, that type of thing, and usually that gives people a comfort level to say, okay, at least I'm in the range. Yeah, and you as a salesperson, right, you can structure this such that you say, hey, like, most of our clients, their initial budgets for a purchase like this is between $100,000 and $500,000.

Is that where your expectations were? And so, when I said there's most folks who come to us, their initial expectations are in this range. Oh, no, mine was at 5K. Okay, like, we might not be the one for you. You didn't quote price, but you were able to very nicely sort of lay out, like, you know, that's where they start. And, like, then we get them up. But, you know, just so we're not wasting anybody's time here. Well, and you brought something up that I think what I want to get into now is the psychology of it. What you didn't say is we charge between $100,000 to $500,000. You say most clients who are looking to solve this problem usually come with a budget range of $100,000. So, what you're doing is you're putting it on the other clients.

You're not saying we charge $100,000, so, you know, suck it, right? And that nuance is actually important when it comes to pricing. So, with the psychology angle here, help me understand the psychology of A packages, like small, medium, and large, like you see in the SaaS industry all the time, right? You got your basic package, your kind of most value package in the middle, and then the high premium package. And, obviously, they're, you know, again, dumb psychology. The person picks the middle because they don't want to spend the most. They don't want to be cheap, and they like the middle. But then there's the other factor here of, like, literally the exact price. And why does $19.99 sell a shitload more than $20?

So, could you talk to me about the perception of pricing in those two regards? One is packaging, and the other is the actual dollar figure that you charge. Yeah, so, these are big topics. Okay, let's talk about the magic of the middle offer configuration. So, I normally talk about SaaS packaging in four elements. Price metric, what's the value you charge for? Price model, subscription pay-as-you-go, perpetual transaction, hybrid models, offer configurations, which, good, better, best is one of them. There are several others. And then your price fences or price structures. So, when it comes to good, better, best, it's a type of offer configuration. It's the most common because it works. As you mentioned, you know, there is a magic of the middle where, you know, it's Goldilocks, like, not too hot, not too cold, it's just right.

Where this come out of is, you know, for the longest time, you know, economists would talk about, you know, this creature who was a, had complete omniscient view of the market, knew about every possible solution that could satisfy them, knew all the details of all those solutions, knew all of the comparison points and features and prices of each of those. Well, this homo economicus, as they call it, does not exist in reality. Your buyers are, they're not maximizers. They're usually what we might refer to as satisficers. They're just trying to get a solution that's good enough. They're super busy. Can you imagine? I mean, you deal with sales folks. Some of them may have been christened by their CRO or CEO.

Hey, go find us a new CRM. Oh, by the way, you don't get to stop doing your day job while you do that. So, you know, they're off in the market being like, you know, so what are they doing? They're calling a couple of buddies. Hey, what did you guys use? What did you evaluate? Why'd you like it? Okay, let me build my shortlist. Are they going and searching, you know, G2 or any of these to the ends of the earth to find every possible option? No. They're going to find, you know, three to five that generally other people seem to be happy with, and then they're going to say, okay, here's kind of my shortlist, maybe do a little bit more digging, and then they're going to make a decision. And so in those situations, the magic of the middle works because people have imperfect information.

It's the same reason why we have logo gardens on our website. You know, it's like, oh, trusted by JP Morgan and Disney and Sony and Apple, right? It's like, oh, well, those big companies did their, must have done their diligence. So mental shortcut, I'm going to do that as well. The customer testimonials are the same thing, et cetera, et cetera. So, you know, in the absence of perfect information, we try to minimize risk. And don't forget, there's always risk in a purchase decision. And I think we forget about this at our peril as B2B marketers and sellers and pricers, because, you know, not only does the product actually have to deliver the functional value that we say, it's going to help you increase the effectiveness of your marketing campaigns or close more deals or whatever that is.

But also, if I choose this product, I bring it in my company, my boss is not going to fire me in six months because this thing is an absolute disaster. And so- That's actually what you nailed is, just to pause for a second, you're nailing what I'm talking about ad nauseum right now, indecision versus no decision, right? Everybody thinks it's no decision. It's actually indecision because there's too many options right now. And the risk factor is, even if I know a solution, I know I have a problem, I know I need a solution to fix it. Now, once I've made that commitment, it's all about risk. A hundred percent is about risk of me making this decision and not being holding the bag in six months saying, holy shit, this thing didn't work because nobody got fired for not making decisions.

People get fired for making bad decisions. And so, to your point, with a lack of information, they tend to err towards social proof, all these different things that are saying, okay, at least other people in the market are saying that this is the package to go, if nothing else. And by putting those offers together, you give, I'm saying now as a, whoever is responsible for pricing, enabling your sales team to have those conversations in a structured way such that you're framing the options such as, hey, which one of these do you want to go with? Rather than the all-in-one, which says, are you going to buy from us or not? And it suddenly changes the framing of the conversation such that now you're helping them decide which one are you going to buy from me?

Which is a very helpful frame. And there's other things that we could talk about in terms of like anchoring and et cetera. But the other thing that you asked about, I'll touch on quickly, why is everyone enamored with nines? Yes, please. There's been actually a surprising, surprising amount of academic research on this, and there's no clear result. The best answers are around, well, there's a couple of, the top contenders are, A, we've been conditioned to signal that prices ended in 99 are a bargain, that we're getting some sort of discount. So there's, so it's just, it happened at one point, it's been so prolific in our culture that now we're just conditioned to think that that's a deal. The other high contender is that we read from left to right.

And so even though rationally, I say $1.99, really around up to $2 in my head, but there's a part of my animal brain that doesn't do that rounding. And so I only really see that first digit. So those are probably the two highest contender, but having poured over this research, probably more than I should have, there's actually not sort of a clear, clear winner on why this is. And there's, the argument for the first one is, there's actually a lot of cultural behavior that flows from that. I think eights are very popular in Chinese culture. So you see a lot of 88 cents, you know, endings and stuff in the Chinese market, etc. That's probably the best explanation, by the way, that I've heard from it is because we've been conditioned to think that that, regardless of, you know, the psychology of like what it does for me when I'm reading it left to right.

It's like, well, somebody came out crazy Larry, you know, 1999 instead of $2,000. And that 99 got us in that, you know, that mode. Right. So I like that. Let's talk about, um, cause I think this, the psychology is, is really what I'm fascinated with when it comes to this stuff and the, the psychology around premium pricing. And I'm going to use the anchor here of one of my favorite examples. And I've heard you talk about Tesla in this regard, but one of my favorite examples is the original, uh, co-founder and CEO Red Bull, I guess Dietrich, um, so-and-so I met my test. So I think anyways, he, he was asking an interview, Hey, when Red Bull first came out, he said, well, the interview was like, why, why is Red Bull so expensive?

Like it's, it's called two 50 a can, right? So it it's $2 and 50 cents a can, and it's less fluid ounces than a Coke. Um, Coke is 50 cents. So, and what she was trying to ask was like, is there better ingredients? Is there better this? And the guy just looked dead at the camera and he said, how else would you know it was a premium product? And I, I basically fell out of my chair. I was like, fuck yes. I'm like, that is the best answer. I think I've heard from why something is expensive as it is. Cause there is a perception of quality related to price. And, and there's something that I think you brought up, which I'd love for you to explain to the audience is that the van, the van Westendorp, uh, price sensitivity meter to help address this.

Cause there's the premium, holy shit. And then there's too cheap. So with that as kind of a baseline here, explain to us what that, what that is, but also what it does to us when we see something that's super expensive, even though it might not cost that much to build. All right. Let me, I'll, I'll touch on Van Westendorp. In a second, but let me, let me blow your mind first. Uh, I know I just, I just, I oversold it real quick, but, um, what should a beer cost? I have no fucking idea. Like whatever, I mean, at this point it, it kind of gets, it depends on the beer, right? If it's a Bud Light versus a Sam Adams versus a, you know, a short, uh, stint on IPA or something like that. So probably I'd say less than 10 bucks.

Okay. Less than 10 bucks. So, and so anything less than 10 bucks. Okay. So, so first of all, you just give me a range. So that's great. Um, what if you're, uh, what if I was asking you when you're in the grocery store, would your answer change if you were at a bar? Yeah, absolutely. Would it change if you were at the Bulls game? A hundred percent. Yep. Cause I just expect it to be 15 fucking dollars for no apparent reason other than they have a captive audience and I can't go anywhere else to get that beer. Yeah. So, so value like beauty is an eye of the holder. It's, it's subjective. It value only exists in the consciousness of men. It is not an external thing that we can measure like Planck's constant or, you know, the, uh, force of gravity, right?

We, it's also contextual. So let me, here, let me blow your mind. So, so they've done pricing studies where they go to people laying on a beach and they, they have their friend ask the person and say, Hey, uh, I'm going to go grab beers. Do you want one? And the thing that they change is the guy says, Hey, I'm going to go grab a beer from a convenience store or Hey, I'm going to go grab a beer from that five-star hotel, same beer, people's willingness to pay like nearly doubles. They're going to be on the beach drinking it, drinking the same Bud Light, the same Sam Adams has nothing to do with the beer, has everything to do with your subjective expectations of what it should be priced. So like when we think about price, I would like folks to stop thinking about it as this external thing that exists out there.

Rather, it is, it is a measure of your psychological state of desire and the context that you are in. And so one thing I'll now tie this back into the Van Wessendorp, we learned a long time ago in the world of pricing. This is actually way before I was even born, um, that asking people directly, Hey, what would you, what would you pay for this widget is a bad way to conduct pricing advice? Well, uh, this guy Van Wessendorp, he was a Dutch economist in the seventies, came up with this method and the, uh, method is composed of four questions. Uh, the four questions are, you know, at what price would this product be so cheap that you wouldn't buy it? Cause you would question the quality at what price would this product, uh, be considered a bargain and you would buy it at what price would this, you consider this product to be getting expensive and you would buy it.

And what price would this product be so expensive, it'd be prohibitively, uh, costly for you, for you to consider purchasing. Um, and so why is that better than sort of the, Hey, what would you pay for this widget is because when people tell us, Hey, I would pay, I don't know, $3 for a beer, I'd pay $5, I'd pay less than 10. Like, I don't know in your mind, if you're giving me like, is that a low end of the range or high end of the range? And so at least then if I, I could apply that method over multiple interviews or there's quantitative surveyed methods I could, uh, leverage such that I start getting, um, patterns of where folks, uh, land on that. And then there's sort of these intersection curves that I can create that allow me to understand sort of what are the acceptable ranges of prices that people have.

Uh, but I, going back to what I was saying before is like, even with that method, when you change the context, someone is in, you frame how, what the product is or the, via the description, right? People react to the description of the thing, not the thing itself. And so I think that's really key. Like for any salesperson who's, you know, like you can move a lot of numbers if you, you know, frame things in the proper way. I love that. I mean, it is all relative, right? I mean, that's what I find fascinating about this. It's like the one person would gladly pay a shitload of money for that thing. And the other person, not a, not a chance. It goes the worst, go to a Las Vegas mini bar, uh, in your hotel room that you can't even like, they now have the automatic thing where even if you move, you move it, like all of a sudden I'm paying $20 for one of those tiny cooks, right?

Oh, absolutely. And that's like, nobody wants that. Um, awesome. So let's, let's flip the script here a little bit, uh, in the remainder of time that we have, cause you know, it's for, for the sales reps side of the house, like delivering price. And actually the, the, the, the transition here is, is something that I trained sales reps, you know, objection handling when somebody says you're too expensive, right? That's a very scary objection for junior sales reps. Like, oh my God, you know, we're too expensive. What can I give you a discount? They almost dive into it. And I always tell them like, you should just ask the question compared to what? Like compared to my direct competitors, compared to the problem you're trying to solve, compared to, you know, in my case, losing some, a sales rep because they don't feel like they're being invested in.

Oh, and by the way, how do you look at cost? Do you look at it as the dollar figure on a month to month basis, or do you look at it as total cost of ownership? So what I'm doing there is I'm trying to peel back the onion to say, okay, look, you're too, there's a lot of layers to too expensive here. Um, so with that, with context, you know, reps get beat the shit out of all the time on price, especially in the SaaS world. And I think it's for two reasons. One is they have no confidence. It's actually conditioned and it's a lot of times built into the product pricing, which I'd love for you to tap on a little bit. Like, should you bake discounting into the pricing upfront? And B, they, they just know, you know, again, as a, and I'm going to put myself in this role as a dumb sales rep.

Um, you know, an extra license of, of Salesforce for $1,500 is not costing Salesforce $1,500, you know, anywhere close that to give it to me. So I'm, I'm inherently passive when it comes to, uh, you know, push people pushing back on me because I don't understand where it's coming from. So what can we do to give sales reps the power to have confidence in what they're presenting? And does that come from a company standpoint where we should educate the reps on where this price is coming from, or should we just equip them with better tools of handling it from a negotiation standpoint? No, man. I feel like we could go a couple hours on this question. I love this. So a couple of things, um, yes, you as the organization broadly should be creating pricing and packaging such that you're able to properly support these poor reps.

So, you know, any negotiation that is purely tit for tat on price is already a losing battle. And that goes for anything. You're negotiating on a car, you're negotiating to buy a house. Like as soon as you're just, there's one person saying one number, another person saying another, like something has gotten lost in the mix. I'm a big believer in the subscription model. One of the reasons why it's been such a transformational innovation for the software world is it builds in a long-term relationship between the vendor and the buyer. So if someone is, you know, and this goes both ways, right? Barring out, you know, let's leave outright deception off the table, right? But both sides should be entering into a partnership.

For most B2B software, you're going to, the price you're going to pay for that piece of software pales in comparison to the organizational costs. It's going to take you to do all the integration with other systems, training all the people around it, right? Getting the thing operational, right? And so, you know, do you want that whole thing to fall apart because everyone, all the other customers who came behind you played the same game and now this company doesn't have enough margin left to invest in future product development, to fix the bugs in the software, to keep the thing running at five nines of reliability. So it's going down all the time. So look, I think that's one thing, right? If you're in a bare knuckles boxing match where someone's just taking you, you know, price to price, like something, you've taken a hard left somewhere like earlier in that conversation.

But look, we're talking about what can companies do to make sure that doesn't happen. One is helping that person with strong give gets, right? So creating something like a good, better, best offer configuration is one way to help them direct the conversation. Oh, like you don't like that exceeds your budget. Okay, well here, I think probably the smaller offer will probably get it done. It doesn't have these other things I know you wanted, but you know, that more effectively would meet your budget. Having additional terms that they could bring in, right? So the raw discount, look, there's a long conversation to be had of like, you know, should you build in discounts, should you not? There are market, there are so many markets where it's really dependent.

You might be selling into procurement in France and they're not going to feel like they've won unless you discount 95%. And so your price list for France has to be at, you know, 10X what your list price is every other country. Like, it's like, okay, like, but those, those situations exist, right? So blanket, like you should not like to build those into your list price are very hard to, hard to say, you know, without sort of context. Um, but you know, can you build in other things beyond, uh, like you as the, as the sales organization, uh, and the company broadly, can you build in other structural give gets? Hey, this is what we give for a discount. If you commit to multi-year, this is what we give you for a discount.

If you commit to giving some customer testimonial and use of your logo, this is what we give. If, if you, you know, whatever, but if you, you come and mow our lawn, uh, every third weekend or whatever you want to do. Um, but having those versus the raw, like, do you just push me and push me? And so then I'm, then I'm offering you, I put that back, I put that pressure back. Right. It's a little jujitsu where I'm not saying, okay, like we're in a bare knuckle boxing match and you're just, you're going to be upset unless I give. I say, oh, LA, like I'm willing to give 10% off if you committed multi-year. I'm willing to give 10% off if you're, if your annual commit is this much money, right? And we would just, we, you know, discount that back at the end of the year on your, on your next year's invoice or whatever it'd be.

Um, so there are ways to handle that conversation, uh, such that you're able to, you know, get what, get what every party, uh, needs there. So, you know, you're speaking, man, literally I trained give, gets negotiations, right? Line up all the gives, line up all the gaps, point score them a certain way. When somebody asks for a 10, you ask for a 10 in return, ask for a five, you know, and you got to make them like, you know, not so obvious, but you know, there is quid pro quo versus reciprocity, which is when somebody asks for something, they feel obligated to give you something in return. So if you're like, Hey, I'm thrilled to give you that discount. And in order for me to do it, uh, you know, we really need to talk about a multi-year commit, um, you know, additional licenses or some other factor here, um, because that'll help me be creative.

Um, one piece though, that I want to ask, cause I've been pushing this and it makes logical sense, but I have no psychology or, or, or reasoning behind it other than perception versus reality, which is we talk about buying something at 1999. What about like discounting and you, and you brought up what almost all reps do. Round up their number of discounting. Now to me as a negotiator, if you come to me and give me a 10% discount, I kind of get a sense. You don't know. You're not a good negotiator because you're, you're going up to whatever you can and it's rounding it out. My suggestion to reps is give yourself a little bit more like wiggle room here so that you can control the process a little bit.

Say you can give up to a 10% instead of giving a 10% immediately, give a 6.35% discount and see what they say. And if they want more than give them us 8.6% discount that gets them up there. Is that me just playing, playing games or is there some validity to that? Yeah. I mean, you know, honestly, now we're in the world of discount controls. I would say two things. One is, you know, you're playing like that's, that's a level 10 optimization. I would love it if more companies just actually had a discounting policy and actually enforce it. Like that would be a win for most of what I've seen because, you know, I, I, I don't spend a huge amount of my time optimizing discounting policies, but what I definitely go in and look because we could do a bunch of beautiful work on the strategic pricing aspect.

And if, and if it's a wild west is none of that's going to matter because it's never actually going to touch the market. But yeah, I mean, there's a, there's a well-known negotiation principle. Uh, I think, uh, Chris Voss covers it in, uh, never split the difference called Ackerman bargaining, uh, where he kind of talks about the same thing, right? Like you're, you're sort of, you're creating these very specific sort of cut points, uh, you know, when it gets down to those, uh, sort of brass tax numbers and doing it in a very strategic way. Uh, but you know, that probably opened up a whole other 30 minute conversation. Have you, uh, on the final note, have you read, um, Todd Caponi's transparency sale?

I have not. Oh, just based on what you said there, put that on your fucking list and I got to introduce you to Todd. I've, he's one of my good friends and he's been on the podcast a bunch of times. His whole concept is transparency sales. So when he walks in, it's exactly what you said. He walks into a situation and says, Hey, here's the rate card. Like here's, here's what you asked for. Here's how much it's going to cost. Now I know you're going to want a discount. So here are the levers that I have to play with. Um, and he talks about it in the, in regards of what's important to him and what he's willing to pay for. So he'll say, what's really important to me are long-term relationships. So I'm willing to pay for a longer term relationship and get, and get creative with this pricing.

I also bigger contracts that that's really important to me. I want, and I'm willing to pay for that so that there's this, then it's, um, payment terms, right? If I get upfront payment, I can be a lot more flexible. And there's a fourth one I always forget, but he basically maps all those out on the whiteboard with a client or, you know, on a, on a zoom call and says, okay, cool. So what do you want to do? And then it becomes this game with the client to say, oh, well, what if we did three instead of two? And what if we did 50 licenses instead of 30, dah, dah, dah, dah. And it's more of a collaboration than a back and forth tit for tat. Love that. Love all of that. Yeah, definitely. If you read that book and let me know what you think, cause he's a, he's also a super sales nerd.

Like the guy knows everything about sales history and like all the way back in the day. So I think you'd find him a pretty interesting conversation. Um, I found this to be a fantastic conversation, Dan. And like you said, I think I kind of scratched the surface of a bunch of massive topics that are, that you go deep in. So I did that to a certain degree on purpose, cause I'm a keep it simple, stupid guy, but I also did it to, to kind of set you up for people find out more information so that you can really help them think through this stuff in a much more strategic way. So where can people find out more information about you, what you're working on and where you want to point them? Yeah. Uh, well, it's been an absolute pleasure.

Uh, thank you so much for having me and thank you all the listeners. Uh, we've made it this far. Um, uh, happy to connect with folks on LinkedIn at Dan Balkowski. Uh, I try to blog very regularly on my website, product tranquility. I also have my own podcast, SAS scaling secrets, where I interview, uh, scale up SAS, uh, BB SAS CEOs trying to figure out all the lessons learned that they've had sort of building and scaling, uh, SAS companies along the way. So if anybody's a little bit more entrepreneurial or, uh, sort of scaling company minded, I mean, we touch on, uh, go to market stuff, monetization stuff, uh, but all sorts of different cultural aspects. Uh, so great, uh, resource for the folks there that can be found wherever, uh, you find your, your podcasts.

Love it. And for everybody listening right now, we're going to put it in the show notes, but if you're listening, it's Dan Baal, B A S B A L C A U S K I, right? Correct. All right. Perfect. Uh, so look him up and take a look at what he's doing, especially since, you know, we're moving into new worlds right now with, with pricing in a lot of different ways. So at least having an understanding where this shit comes from, uh, I think it'd be a really powerful thing for any sales rep to know. So Dan, thanks again for coming on the show, man. I really appreciate it. It's been a fun conversation. Thanks, John. Absolutely. And for everybody listening, uh, hope you enjoyed the conversation as much as I did.

And like I say, at the end of all these podcasts, go out there and make somebody smile today. Cause no matter how bad your day is going or how bad you think it went, you make somebody smile and you know, you had a good day and the world needs a lot more of that right now. So thank you all very much. And I will see you on the other side. Hey everyone. I hope you enjoyed that conversation as much as I did with your support and our incredible guests. We're one of the top sales podcasts out there right now. And I can't thank you enough now to keep the momentum going. It would mean the world to me. If you could go and leave a five-star review on your favorite podcast platform and share some of your favorite episodes with your network.

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