Orb’s CEO on Pricing Strategies for Modern SaaS: Unlock Revenue Secrets | E222 | #TheProductPodcast
“Pricing is just friction, and the question is how much friction do you want to project onto your users?”
In this edition of #TheProductPodcast newsletter, we delve into the world of product pricing with , co-founder and CEO of Orb, a flexible billing engine for modern pricing models in software. With experience as a software engineer at Asana and now leading a VC-backed startup, Álvaro shares valuable insights on pricing strategies, team management, and the impact of AI on product pricing. Alvaro Morales
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There are many incredible lessons to learn from Álvaro. Here are a few of the top ones:
➡️ The Evolution of Pricing Strategies
“At the beginning it kind of starts and goes by well-built customer intuition with an educated guess. The thing thats really interesting, though, is, as companies evolve, this becomes a lot more sophisticated and cross-functional.”
Álvaro emphasizes how pricing strategies evolve from initial founder decisions to more sophisticated, cross-functional approaches as companies grow. He highlights the importance of involving multiple perspectives, including product, marketing, sales, and finance, in pricing decisions.
➡️ The Psychology of Pricing
“Humans are not always the most rational when it comes to pricing and a lot of decisions are often based on feel or, say, a vibe check.”
Álvaro explains the importance of understanding the psychological aspects of pricing. He suggests that while scientific methods like willingness-to-pay surveys are valuable, talking directly to customers about their pricing perceptions can provide crucial insights.
➡️ Balancing Usage-Based Pricing
“Buyers really want predictability. If Im sitting in a procurement department or Im a CFO structuring a budget, I want to know how big is the check that Im signing.”
While discussing the trend towards usage-based pricing, Álvaro points out the need to balance customer desire for predictability with the benefits of aligning pricing to value. He stresses the importance of choosing the right value metric to incentivize desired customer behavior.
➡️ Iterating on Pricing
“Make sure that you’re being thoughtful about what risks are you taking. Notably, one of the best practices here is to try out your new pricing ideas with new users.”
Álvaro advises on how to iterate pricing strategies safely. He recommends testing new pricing models with new users rather than existing customers to minimize risk and gather fresh insights.
➡️ AI’s Impact on Pricing Strategies
“Were still trying to figure out what is our AI product strategy, but what is our AI pricing strategy? How should we evolve monetization?”
Addressing the challenges of pricing AI-powered products, Álvaro discusses the rapidly changing landscape of AI capabilities and costs. He suggests focusing on adoption and learning in the short term, while keeping pricing models simple and user-friendly.
➡️ Communicating Price Changes
“Being clear, proactive and direct is so important… Thinking about a phase rollout of your communication strategy is as important as thinking about a phase rollout of your pricing strategy.”
When it comes to price increases, Álvaro emphasizes the importance of clear, proactive, and direct communication. He advises against sudden changes and recommends a phased approach to both implementing and communicating pricing updates.
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