Unlocking Hidden Profits: The Power of Value Metrics and Pricing Experiments with Stephen Plume

Update: 2024-10-21

Description

Stephen Plume has more than 20 years of success in venture, executive leadership, and consulting. He is a General Partner of an early-stage venture fund since 2019, driving business strategy and coaching executives in the portfolio.

In this episode, Stephen discusses how AI is shifting pricing models from human-based to consumption-based metrics. He emphasizes the importance of identifying the right value metric that resonates with customers encouraging businesses to experiment with pricing to uncover hidden revenue and margin opportunities.

Why you have to check out today’s podcast:

Gain insights into the cutting-edge pricing strategies for AI companies and how these differ from traditional user-based models to get a glimpse of the future of tech pricing.
Learn about actionable strategies like identifying the right value metric and conducting low-risk pricing experiments, which can help businesses capture hidden revenue and improve margins.
Deep dive into how venture capitalists think about returns, risk, and value, which can benefit entrepreneurs and business owners seeking to understand how to attract investment.

"There is so much opportunity to learn from low-risk pricing experiments, and people worry so much about their reputation. Get over that feeling, go out and experiment, and learn from it."

- Stephen Plume

Topics Covered:

01:54 - A funny thing about Stephen not related to pricing

02:46 - How he found his way into pricing

04:21 - Reflecting on his first pricing project with Sybase

05:57 - Contrasting enterprise-level pricing with startup pricing, highlighting the complexity of pricing for larger companies

09:12 - The importance of focusing on the Ideal Customer Profile (ICP) for early-stage companies

10:39 - Explaining how companies often face pricing erosion as they grow and introducing the concept of 'layering' and 'fencing'

16:38 - Discussing how companies, like HubSpot and Salesforce, often start by solving a specific problem with a focused solution but later expand by adding numerous features and add-ons

17:27 - Delving into the concept of competitive positioning

21:40 - The importance of delivering significant value to customers to motivate a decision to switch from a competitor or the status quo

25:09 - Sharing insights about pricing for AI companies and broader trends in AI adoption

29:14 - Discussing the concept of pricing metrics in the context of AI and SaaS

30:32 - Stephen's best pricing advice

Key Takeaways:

"When I'm working with early stage companies my drumbeat is, don't worry about anybody else right now, worry about your ideal customer profile. Because they are the ones who, by definition because math is a thing, will pay you more money faster than anyone else." - Stephen Plume

"In the venture world what I tell the early companies I work with is, for someone to take a bet on you, they're expecting venture returns. They need to be getting 10X their money out. That's not just the investors. That's the customers need to be getting 10X their cost out, or they're not going to adopt you." - Stephen Plume

"The advantage of a platform growing to solutions is, if you do it right, your margins improve rather dramatically." - Stephen Plume

People/Resources Mentioned: