VENTEUR spoke with Daniel Gray about how to properly price products and services. Gray has spent over 20 years in the localization industry. Now Chief Revenue Officer at BLEND Localization, a tech-powered localization company that helps companies go global, he is well-versed in everything from sales to finance, including how to deliver on revenue generation, localization/translation, customer success, how to scale commercial models, modernize enterprise acquisition sales and more.
Gray started in localization as a project manager in Brazil 25 years ago and has worked at well-known companies like Welocalize, Amazon Web Services, Lionbridge, Deluxe Media & Entertainment, and THG (The Hut Group).
BLEND helps companies localize their business based on a unique understanding of local context, culture, subtlety, and consumer behavior. Its platform combines AI-driven technologies, a global community of language experts, and voice talents in over 120 languages to deliver complex continuous localization at scale.
When should entrepreneurs start thinking about pricing their products, and why?
As a startup, you should consider pricing before generating your first dollar. Take BLEND, for instance, over its 13-year trajectory. In the beginning, the whole thrust for BLEND (originally One Hour Translation) was to fulfill the market's demand for fast, accessible online translation services. The company's founders couldn't find such a service online, so they launched One Hour Translation. This company's first iteration went to the market with basic, transactional pricing—effectively cost-plus, the general model for our industry.
As the marketplace and the maturity of our customers' needs grew, BLEND's phase two added new characteristics and more depth to the pricing. Now we serve enterprise customers with complex, programmatic localization, and we've iterated the pricing to packages—a combination of platform technology bundled with localization services that combined drive usage or consumption. The original pricing was a cost-plus test to the market that worked well as a starting point. Your pricing will evolve organically as you learn and grow.
How can entrepreneurs determine the pricing model for their offerings, and how might this differ based on each type of business?
There are many pricing models and GTM pricing strategies/models, including price skimming (high to low), penetration (low to high), competitive, value-based (premium), and many others. Let's compare two of these.
First, the cost-plus model I just mentioned—this is based on the buy rate + margin = sell rate. The second is top-down, value-based pricing.
The difference between cost-plus and value-based pricing is that the cost of your product/service (material, labor, and overhead) serves as the baseline upon which the profit margin is added to indicate the sell rate.
In contrast, value-based pricing is centered on the perceived value of your product or service, with a compelling value-cost ratio. As a result, value-based can drive much healthier profit margins and can facilitate different commercial benefits like cost-savings models because you're selling/positioning to value.
What steps should entrepreneurs take to determine the price they charge for their offerings and why?
"Data drives revenue." Data points I've used include customer input/feedback, market, historical, operational, inventory or offerings, machine learning, lifetime value, and churn.
For example, to determine to price, I've worked with starting prices and margin performance, which were transactional. Over time, it shifted from transactional pricing and uncommitted engagement to a combination of cost-plus and value-based to committed engagement (i.e., recurring revenue). This has been bundled with the reward of a cost-savings program (the equivalent of a discount or promo).
Customers can engage in annual commitments, which provide forcastability, renewals, lowered revenue and customer churn, and more normalized inputs toward cost-to-serve.
How should a business' competitors' prices be considered for a comparable offering, and why?
Leveraging my learnings from Amazon, we're aware of the competition (and their pricing trends), but we're not chasing competition. This awareness keeps us competitive with what the general market is willing/able to bear, but the guiding tenet is customer obsession.
We listened to our customers and structured a package to simplify pricing, purchasing, consumption, and renewal. What we've come up with is customer-friendly and has exponentially increased our committed revenue or ARR by 3X.
How should prices be adjusted over time, and why?
Like other businesses and industries, BLEND is subject to the same macroeconomic and inflationary conditions that have impacted unit economics with higher production costs. As a result, we've had to adjust our pricing, which isn't the most manageable conversation/situation for a customer to digest. Nevertheless, the strength of our customer relationships, the transparency about the business reasons for the adjustment, and the commitment to maintaining service levels have helped us cross the bridge with our customers.
Generally, pricing and price adjustment strategies come back to data and the scenario. For example, suppose we're launching a new [premium] product/offering and want to attract early adopters. In that case, we may initially launch at a higher price point, then gradually lower it over time. Conversely, if we're entering a more commoditized or crowded space, we may enter at a lower price point and progressively increase as sales gain traction/offering evolves.
What are your thoughts on a freemium pricing model? When is it appropriate, what are the potential downsides, and why?
Freemium is a powerful method to scale the initial user base while providing an accelerated path through trial-pilot-scale upgrades.
In contrast with the friction that comes with taking a customer from "I've never tried your product, and I have to pay to use it," Freemium allows a user to easily and quickly try a base version. Ideally, they start to love it and naturally want more advanced features. As a result, this channel provides critical leading indicators and helps drive conversion to paid usage/MAUs far faster and organically.
Is there anything else you would like to share?
For me, pricing has always been a collaboration between sales, marketing, finance, and product. Across the multiple business types, sizes, and industries I've worked in over the years, pricing and price optimization takes a village. Calibrating that ideal balance between value and volume drives growth and profitability as much as CSAT, renewals, upgrades, churn, etc. One of my biggest recommendations, where possible, is simplicity: make it simple for your customers to decide to buy what you’re offering.