Ibbaka Pricing Planning Checklist

Ibbaka’s Pricing Planning Guide & Checklist for 2024 Ibbaka Performance Inc. [email protected] I www.ibbaka.com

INTRODUCTION 2 “If You Fail to Plan, You Are Planning to Fail” — Benjamin Franklin Ibbaka provides a so昀琀ware pla琀昀orm and consul琀椀ng services that help B2B SaaS companies op琀椀mize packaging and pricing. This checklist and guide will help product, revenue and customer success teams work together to plan 2024 pricing. Leadership will know what ques琀椀ons to ask about pricing. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

TABLE OF CONTENTS 3 Introduc琀椀on 2 Why care 4 Have pricing principles 5 Checklist - Short Form 6 Establish a baseline 6 Align Goals 7 Plan Pricing Ac琀椀ons 8 Explore Di昀昀erent Scenarios 9 Develop a Pricing Possibili琀椀es Scenario 11 What to Learn 12 The Pricing Planning Process 13 Establish a Baseline 14 Establish a Baseline - What are Your KPIs? 15 Establish a Baseline - Posi琀椀on Velocity Accelera琀椀on 16 Align on Goals 17 Use the Strategic Choice Cascade for Pricing 18 Choose Which Goals Ma琀琀er 19 Plan Pricing Ac琀椀ons - Basic Steps 20 Pricing Ac琀椀ons to Consider - Control Discoun琀椀ng 21 Pricing Ac琀椀ons to Consider - Increase or Decrease Prices 22 The key ques琀椀on to ask when changing prices 23 Pricing Ac琀椀ons to Consider - Add a Pricing Metric 24 Pricing Ac琀椀ons to Consider - Rebalance packages 25 Pricing Ac琀椀ons to Consider - Redesign packaging 26 27 Pricing Playbook 28 Consider Mul琀椀ple Scenarios Resources 31 About Ibbaka 31 Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

WHY CARE 4 Pricing is one of the most powerful levers you have to impact growth A 1% increase in price has more impact on pro昀椀t than a 1% increase in revenue or a 1% But pricing is o昀琀en an a昀琀erthought And most pricing moves are reac琀椀ve To use pricing to impact growth You need to plan Pricing is too important to leave to chance. Too o昀琀en, pricing is a guess based on costs or copies of a compe琀椀tor. Pricing needs to be based on a clear set of values, a coherent framework and an analysis of key data. Make planning part of the annual strategic planning process. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

HAVE PRICING PRINCIPLES 5 Is it clear how we set prices? Can we explain our pricing to ourselves? Can we explain our pricing to our customers? Is our website clear on how we price? Can sales communicate our pricing? Is our pricing unbiased? Do we treat all our customers in a way that respects their backgrounds and needs and does not take advantage of their situa琀椀on or weakness? Are we crea琀椀ng di昀昀eren琀椀ated value? Do we base our prices on the value we deliver to our customers (V2C)? Do we adjust prices based on the value we are crea琀椀ng? Are we sharing that value with our customers? Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

CHECKLIST - SHORT FORM 6 ESTABLISH A BASELINE We have iden琀椀昀椀ed the inputs that determine our pricing Baseline (most recent value) Trend (moving average) Change in Trend (change in moving average We have iden琀椀昀椀ed the outputs that pricing impacts Baseline (most recent value) Trend (moving average) Change in Trend (change in moving average We have chosen 2-3 of these metrics as KPIs These KPIs are aligned with larger Strategic goals Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

7 ALIGN GOALS What are the top 3-5 corporate goals for the year? What are the top 2-3 pricing goals? Map the pricing goals to the corporate goals PRICING BUSINESS GOAL GOAL PRICING BUSINESS GOAL GOAL PRICING BUSINESS GOAL GOAL Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

8 PLAN PRICING ACTIONS What are 昀椀ve things you would like to learn in the coming year? 1. 2. 3. 4. 5. What are 昀椀ve pricing ac琀椀ons you are considering in the coming year? 1. 2. 3. 4. 5. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

9 EXPLORE DIFFERENT SCENARIOS What are three cri琀椀cal uncertain琀椀es for the coming year? 1. Bad Outcome Good Outcome 2. Bad Outcome Good Outcome 3. Bad Outcome Good Outcome Combine Uncertainty 1 and 2, 1 and 3, 2 and 3. Which combina琀椀on makes you ask the most di昀케cult ques琀椀ons? This is best done as a group on a whiteboard. 1. 2. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

10 2. 3. 1. 3. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

11 DEVELOP A PRICING POSSIBILITIES SCENARIO Choose one of the three possibili琀椀es from the previous page and develop it. 1. How will we know how the cri琀椀cal uncertainty is resolving? 2. How will each scenario impact our business? 3. What pricing ac琀椀ons should we consider for each scenario? 1. SIGNS 1. SIGNS 2. IMPLICATIONS 2. IMPLICATIONS 3. ACTION 3. ACTION 1. SIGNS 1. SIGNS 2. IMPLICATIONS 2. IMPLICATIONS 3. ACTION 3. ACTION Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

WHAT TO LEARN 12 Every company needs its own list of what it needs to learn - developing this list is the 昀椀rst step in planning pricing ac琀椀ons for 2024 (you can only learn by taking ac琀椀on). Here are some possible ques琀椀ons to get you started, but you need your own list. None of these ques琀椀ons can be answered inside the walls of your own organiza琀椀on. How do your customers get value? How does a price change impact demand? How does a price change impact revenue? How does a price change rebalance demand for di昀昀erent packages? How do compe琀椀tors respond to a price change? Is our price fair, given the value we provide customers? What packages or func琀椀onality do our customers value most? … value least? Do we really need to discount? If so, how much? Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

THE PRICING PLANNING PROCESS 13 A simple four-step planning process to make sure that Pricing aligns with goals The goals will be achieved ESTABLISH ALIGN PLAN CONSIDER BASELINE GOALS ACTIONS SCENARIOS Metrics need to Plan ac琀椀ons for track goals each scenario Ac琀椀ons impact Metrics leading to Goal Achievement Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

ESTABLISH A BASELINE 14 E昀昀ec琀椀ve planning requires that we know the star琀椀ng point and the trends that led to that point. There are two things to consider 1. Things that impact pricing, such as • Discoun琀椀ng • Customer scale • Usage • Package mix • Segments targeted 2. Things that pricing impacts, such as • Pipeline metrics – Opportuni琀椀es – Conversion ra琀椀os – Velocity • Average Contract Value (ACV) • Net Revenue Reten琀椀on – Customer Reten琀椀on – Growth in Package/Shrinkage in Package – Upsell/Downsell – Crossell • Usage Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

ESTABLISH A BASELINE 15 WHAT ARE YOUR KPIs? What are the top 3-5 things that impact pricing? 1. 2. 3. 4. 5. What KPIs can be used to track these impacts? 1. 2. 3. 4. 5. Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

ESTABLISH A BASELINE 16 POSITION VELOCITY ACCELERATION KPI Value in Most Recent Period Moving Average (4 periods) Change In Moving Average (Last Three) KPI Value in Most Recent Period Moving Average (4 periods) Change In Moving Average (Last Three) KPI Value in Most Recent Period Moving Average (4 periods) Change In Moving Average (Last Three) Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

17 ALIGN ON GOALS Pricing does not drive the business, it supports the business and pricing goals needed to sup- port the company’s larger strategic goals. Map pricing goals to business goals and make the mechanism by which the pricing goal impacts the business goal clear. PRICING BUSINESS GOAL GOAL PRICING BUSINESS GOAL GOAL PRICING BUSINESS GOAL GOAL Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

USE THE STRATEGIC CHOICE CASCADE FOR PRICING 18 Be clear about how goals build from Winning Aspira琀椀ons to Where to Play to How to Win Choices. The Capabili琀椀es and Systems needed to support these choices can be covered as exe- cu琀椀on plans are put in place. WINNING ASPIRATIONS • Alignment with overall strategic goals • Pricing goals • Pricing Metrics and Targets WHERE TO PLAY INFORM CONSTRAIN HOW TO WIN CAPABILITIES SYSTEMS Acronyms The strategic choice cascade for pricing is a ARR Annual Recurring Revenue powerful framework for pricing governance MRR Monthly Recurring Revenue NDR Net Dollar Reten琀椀on It is adapted from Roger Martin’s Strategic LTV Life琀椀me Value of Customer Choice Cascade V2C Value to Customer VR Value Ra琀椀o (LTV / V2C) GtN Gross to Net CRM Customer Rela琀椀onship Management CPQ Con昀椀gure Price Quote Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

CHOOSE WHICH GOALS MATTER 19 SaaS is layered with metrics - consider having one key metric from each of these buckets. This will give a balanced approach to goal alignment. Category Goals PnL & B/S Goals Unit Economic Goals De昀椀ne value and pricing for a De昀椀ne value and pricing for a Average Selling Price (ASP) new category new category Recurring Revenue (MRR/ARR) Grow an exis琀椀ng category Grow an exis琀椀ng category Net Revenue Reten琀椀on (NRR) Win market share in an exis琀椀ng Win market share in an exis琀椀ng category category Number of customers Enter an established category Enter an established category Number of Users Capture more value across the Capture more value across the Value to Customer (V2C) value chain value chain Life琀椀me Customer Value (LTV) Customer Acquisi琀椀on Costs (CAC) V2C/LTV LTV/CAC Months to Recover CAC Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

20 PLAN PRICING ACTIONS - BASIC STEPS 1. Develop a por琀昀olio of ac琀椀ons that you could take a. Control discoun琀椀ng b. Increase or decrease prices c. Add a pricing metric d. Rebalance packages e. Redesign packages f. Redesign packaging 2. Have a pricing playbook so that you can take ac琀椀on quickly 3. Explore scenarios about what could happen and how you would respond Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING ACTIONS TO CONSIDER 21 CONTROL DISCOUNTING Diagnosis 1. Prepare a price dispersion graph, plot the Average Contract Value to the pricing metric and look for groups overpriced or underpriced 2. Dig into the these groups and understand why the groups are priced as they are 3. Document all the reasons given for providing discounts Price WHY HIGH? WHY LOW? Volume Treatment 1. Develop discoun琀椀ng guidance and rules, including both maximum discounts and target discounts 2. Document reasons for applying discounts (implement in Ibbaka Valio, your CRM or your CPQ) 3. Support sales with tools and training to help them use value rather than discounts as a way to close deals Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING ACTIONS TO CONSIDER 22 INCREASE OR DECREASE PRICES Before changing prices 1. Segment your customers by value you provide them and value you get from them 2. You need di昀昀erent strategies for each segment a. Top Le昀琀 - Enhance value before raising prices b. Bo琀琀om Right - Raise prices c. Bo琀琀om Le昀琀 - Enhance value 昀椀rst (where possible) then raise prices (some customers will churn out) d. Top Right - Enhance value and raise prices propor琀椀onately HIGH alue to Customer LOW V LOW HIGH Value to Vendor To change prices 1. Consider adding a new pricing metric rather than just increasing the price (see next page) 2 Consider rebalancing package fencing to guide buyers to a higher priced package 3. Connect price change to new or improved func琀椀onality that provides more value Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

23 The key ques琀椀on to ask when changing prices Price Increase: How much volume (unit sales) can I a昀昀ord to lose and s琀椀ll have the same revenue … gross pro昀椀t Price Decrease: How much volume (unit sales) do I need to win and s琀椀ll have the same revenue … gross pro昀椀t For SaaS businesses you need to ask these ques琀椀ons in the context of NRR • Impact on renewals • Upsell and downsell • Growth and shrinkage in package Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING ACTIONS TO CONSIDER 24 ADD A PRICING METRIC One of the most e昀昀ec琀椀ve ways to improve pricing is to add a pricing metric. Having two pricing metrics (hybrid pricing) makes it easier to design pricing that aligns with value (this is normally very di昀케cult with only one metric). Generally one combines a commitment based metric with a usage based metric. A commitment based metric that gives both par琀椀es predictability • This is o昀琀en the number of users or some other metric that can be known and commi琀琀ed to in advance A usage based metric that scales with usage • The metric should be designed so that it scales with value but • Does not discourage the use that drives the value Both metrics should track value such that the price paid re昀氀ects the value to the customer (V2C) Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING ACTIONS TO CONSIDER 25 REBALANCE PACKAGES Price x Volume = Revenue When you designed your GBB pricing you designed in expecta琀椀ons for the role and perfor- mance of each Package • How is each package performing? • Is it s琀椀ll playing its intended role? • What needs to be rebalanced (price, fences, scaling)? It is usually easier to adjust fences, then scaling and 昀椀nally price Fences are limita琀椀ons set for each package that lead buyers to upgrade. Scaling is how you increase the price for incremental values (such as the number of users) Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING ACTIONS TO CONSIDER 26 REDESIGN PACKAGES New func琀椀onality, new target markets, new customer needs may mean you need to repackage Modular package design will give you the 昀氀exibility you need to redesign your packaging New packaging implies new pricing Packaging patterns Modular operators Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

PRICING PLAYBOOK 27 With so many pricing ac琀椀ons possible it helps to have a pricing playbook. This document should cover the following Pricing principles (how you decide if a pricing design suits your company) Pricing RACI (Responsible Accountable Consulted Informed) Pricing methodology (how prices are designed and set) Discoun琀椀ng (guidelines, approval process) Pricing Communica琀椀ons (how pricing is communicated, how price changes are communicated) Revenue Recogni琀椀on (how pricing impacts revenue recogni琀椀on) Pricing Integra琀椀ons (what systems prices and packages need to be implemented with) Legal Guidance (what prices and pricing ac琀椀ons require legal approval) Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

28 CONSIDER MULTIPLE SCENARIOS The future is not determined - more than one future is possible - explore alternate future as you plan 2024 pricing Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

29 1. Iden琀椀fy cri琀椀cal uncertain琀椀es 2. Generate alterna琀椀ves 3. Select the most compelling 4. Brainstorm how you will package and price under each scenario Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023

30 Each company should have its own list of cri琀椀cal uncertain琀椀es. Here are some ideas to get you started. Customers will 昀椀nd ways to implement AI in ways that make your solu琀椀on irrelevant Compe琀椀tors will 昀椀nd ways to implement AI in ways that make your solu琀椀on irrelevant Costs increase (compu琀椀ng, storage, bandwidth, perhaps as a result of AI usage) A compe琀椀tor cuts prices A compe琀椀tor raises prices A new compe琀椀tor emerges with a di昀昀erent business model (maybe a mul琀椀-sided market) Government introduces new regula琀椀ons on data sharing across customers Ibbaka’s Pricing Planning Guide & Checklist for 2024 November 2023