From a reader: “Mark, I love your daily LinkedIn posts. Thanks for sharing. I find pricing to be a fascinating topic. Question: In your opinion, who should and who usually drives pricing within (tech) growth companies? Most companies I’ve spoken to, it’s all over the place. I feel like it should be a product management function (with inputs from all the relevant stakeholders). What’s your experience?”
You are absolutely right, it is all over the place. Here is what happens. When a company is first started, the founder/CEO is heavily involved in pricing. It’s part of the initial business plan. As the company grows, the CEO is way too busy doing other things so pricing gets moved elsewhere.
Part of the problem is that there is no obvious place to put it. Sales wants to control it. Product management may be writing business cases for new products, which should include pricing. Product marketing should be watching what’s happening in the marketplace to have their pulse on competitive offerings. Oh, and don’t forget finance. They want to control the margins.
Another part of the problem is pricing seems like a relatively small job. You put a price on it and you’re done. Pricing should not require a person dedicated to that function. Or at least that’s the thinking.
Another part of the problem is that very few people actually understand pricing. What does it mean? How many different pricing decisions have to be made inside the company? It should be easy: Figure out our costs, add a margin and you’re done. Ugh.
Where does pricing belong in startups? In my order of preference:
- Whoever owns P&L. Pricing is a crucial driver of profit. Whoever is motivated to maximize profit has the right incentive to get pricing right.
- Product management. Owning pricing makes them seriously take price into consideration when they are defining the next products. Building products with value is the easiest way to win at higher prices.
- Product marketing. They should be closely monitoring who’s buying, who’s not and why. They should understand the competitive landscape (as should product management) so they can price accordingly.
That’s it. Sales should not own pricing. They have too much incentive to drop prices too much. Finance should not own pricing. They don’t understand the value of the product.