Pricing & Packaging is very unintuitive to most founders. And yet, a customer's willingness to pay is at the core of your business model.

In his excellent book, Monetizing Innovation, which I highly recommend, by Madhaven Ramanujam writes, "Price is more than just a dollar figure; it is an indication of what the customer wants -- and how much they want it. It is the single most critical factor in determining whether a product makes money, yet it is often an afterthought, a last minute consideration made after a product is developed."

We've founded 2 venture-backed software companies and worked at other growth stage companies like Automox, Relay Payments, Twilio, Microsoft, Fullstory, Umbel. In this blog we're going to share what we believe to be a crucial tool in the pursuit of both product market fit & pricing & packaging evolution as your business scales.

Step 1: Introduction & Product Presentation

No Willingness to Pay (WTP) exercise can get started without ensuring that the person you're interviewing knows what your product does. To ensure that the interviewee has the context, you want to do two things prior to the start of any WTP exercise:

1. have them read a few bullets describing what your product does

2. have them watch a recorded demo of your product (no more then 3 minutes)

Think of this as a 3-5 minute study hall that helps the interviewee focus on the conversation and concentrate on what your product does. If this study hall doesn't happen, the interviewee will be far less capable of giving useful feedback.

• Brief introduction of {Product} and its key features and benefits.

• {Business/Product} is the only {X Service} that provides {Y value}. With {Business} , {user type/persona} can do {X, Y, Z}. It allows users to {X, Y, Z}.

• Highlight the unique value propositions that differentiate your product from competitors

• Benefit A

• Benefit B

• Benefit C

Demo: {Link to your product demo}

Step 2: Value Proposition Discussion

You've now helped the interviewee concentrate on what your product does and the conversation at hand.

Next, you'll focus on understanding how they perceive your value proposition. To do this, you'll ask 3 questions to learn about how the interviewee perceives the value your product offers:

• "What specific challenges or pain points do you think this product could address for you?"

• "Are there any features or aspects of the product that stand out to you as particularly valuable?"

• “How likely would you be to buy this product if it were fairly priced on a scale of 1-5?”

Step 3: Relative Value

One of the most enlightening questions you can ask a prospect or a customer is how valuable your product is, relative to other products they've purchased and used. Generally, it's a good idea to focus on products that might be similar to yours by category, but sometimes it's useful to throw in a product that you might know they value highly, even if it is a different category, just to get a sense for how valuable your product is relative to that known high value product. That said, be judicious with comparing your value to products in different categories.

To run a good relative value discussion, you need to ask 1 question, but you need to support the question with a table that helps structure the interviewee's answer across three dimensions:

1. the existing tool or product they're using/paying for

2. what they pay for that product/tool/service on an annualized or monthly basis

3. how valuable your product is as a % relative to that existing product

The question to ask is: "How valuable do you think {my product} would be relative to...?"

The third dimension can be a bit tricky to explain, and I've seen it trip people up. You'll want to clarify the question like this: "Relative to this tool that you're currently using and paying $X for, how valuable would my product be? If half the value relatively, then my product is 50% as valuable as X tool. If double the value, then my product is 200% the value of X tool."

Pro Tip: come prepared with a table that has clear categories already listed so that the interviewee can easily identify the tool, product, or service that they pay for within that category. For example, if you're selling a SaaS to developers, your table might include categories like: observability, feature management, hosting, data warehouse, Auth, etc. Or, if you're selling a SaaS to marketers, your table might include categories like: email, ABM, SEO, paid social, marketing automation, etc.

Step 4: Price Metric

The term "price metric" refers to the specific unit or criteria that a business uses to determine the price of a product or service. It defines how the price is calculated based on certain attributes, characteristics, or usage of the offering.

It is a fundamental element of a pricing strategy and helps establish how much a customer will be charged for a particular offering.

Price metrics can vary widely depending on the nature of the product or service and the business model. Here are some common examples of price metrics in SaaS: Seats, API Calls, Customer Count, Events, Value-based, etc.

What would you assume to be {Business’} most intuitive price metric? In other words, which price metrics is most aligned with value to you, the customer?

• Seats

• API calls

• Integrations

• SKUs managed (e.g. Number of Plans or add-ons)

• Customer count

• Monthly Active Users

• Number of Products

• Number of entitlements

• Number of features

• Other

Step 5: Packaging Schema

In the context of willingness to pay, packaging schema can be explored lightly in a way that serves two purposes:

1. gives you another input into how your customers think about your product's value

2. gives you some initial context on what features your customers most value

To do this, you'll need to create a packaging schema. There are a few things to note when creating a packaging schema for your customers to evaluate:

1. Depending on your product this might be a single tier, or it could be several tiers, like the common, good, better, best.

2. Try to make it as intuitive as possible to the customer. Bias away from a schema that requires a lot of cognitive load, where possible.

Here's an example of a standard Good, Better, Best schema.

The way to frame this question is straightforward. Simply say: "I'm going to show you an initial packaging/pricing schema. Please take your time reading over the schema. Once you've reviewed, let's spend time on two questions:

• First, what do you like and what do you dislike about this schema?

• Second, please rank these pricing tiers in order of preference from most preferred to least preferred and explain your reasoning.}}

Here is an initial packaging/pricing scheme with multiple tiers for {Business}

Step 6: Maximum willingness to pay

Now, you're about to get into the really good stuff: the willingness of your customers to pay.

Simply ask the prospect/customer: "Considering the value you perceive in {my product} for your use cases & objectives, considering your budget constraints, and considering how {my product} compares to existing solutions – what is the maximum amount you would be willing to pay for {my product} on a monthly or annual basis?"

Sometimes the prospect will delay or try to deflect, because they may feel that if they answer truthfully, they're negotiating against themselves.

You may feel the urge to interrupt a silence, because it might feel awkward.

You may feel the urge to make them feel more comfortable.

Restrain from this. Ask the question and then be quiet.

If the customer tries to deflect, draw them back by restating the question calmly and thanking them for doing so: "I appreciate this question has implications for both of us. Your honest answer to this question is invaluable to our understanding of the value we're delivering to you and to the broader market, so thank you for considering it so thoughtfully. What is the maximum you would pay for our product on a monthly or annualized basis. Maximum being the price, above which, you would absolutely not be willing to buy this product."

Once the customer has give you an answer, and it's okay if they give you a relatively small range, say thank you again, and move on.

Considering the value you perceive in {my product} for your use cases & objectives, considering your budget constraints, and considering how {my product} compares to existing solutions – what is the maximum amount you would be willing to pay for {my product} on a monthly or annual basis?

Step 7: Factors Influencing Pricing Decisions

For every product and every buyer, there may be different factors that influence willingness to pay, and you want to get to understand those influences so that you can inform your go to market strategy.

Ask the question simply and then give them examples: "What are the factors that influence your willingness to pay?"

For example, we sometimes hear factors like:

• Perceived value of the product.

• Comparison with existing alternatives.

• Budget constraints.

• Frequency of use.

• The understanding and perception of value from other stakeholders

• Company or personal preferences.

These examples should help the interviewee think about the factors that do influence them and answer accordingly with their context.

Step 8: Feedback and Suggestions

Conclude the conversation by thanking the interviewee for their time and asking them if there are any suggestions that they have to make the interview better or more effective.

A question like this is appropriate:

"Is there any additional feedback, suggestions, or comments you'd want to relay regarding today's interview, or our product, pricing, or packaging?"