Pricing Is the GTM System, Not a Finance Line Item

Machine-generated transcript from the episode video. Speaker labels are not included and some names and product terms may be transcribed phonetically.

[0:00] that really aligns with how people are thinking, how people are feeling. Add on complimentary hardware to software. So I map where clarity exists and where it doesn't. Also wanting to take advantage of this massive opportunity. GTM Vault where enterprise GTM actually gets built. Welcome to GTM Vault. Trusted by over 25,000 founders and operators building real revenue systems. Today's guest is Rorowey Hart. Rowey is one of the few peoples in GTM who operates entirely at the system level. He's the senior pricing advisor and head of GTM expertise at willingness to pay where he's led over 150 pricing and GTM transformations across SAS companies from 1 million to over 1 billion in ARR.

[0:49] Before that, Rorowi led revenue architecture at winning by design, taught thousands of GTM leaders, and spent two decades inside sales, customer success, and enterprise GTM roles. In this episode, we're going to deep deep dive on why most GTM transformations break, why pricing is not a finance exercise, why sales engineers have become a core GTM role, and how to design a revenue system that compounds instead of leaking margin. If you're scaling SAS in the world of complex products, AIdriven costs, and longer buying cycles, this episode is a masterclass. Rowey, you said GTM transformations fail because teams are trying to rebuild the engine mid-flight.

[1:34] What actually breaks first when companies attempt GTM change? When you think of it, most GTM teams are actually siloed. It's not really a GTM system. It's not really a GTM team. It's the marketing team. It's a sales team. is the customer success team and most of the different teams operate in silos and when you tweak and change or modify one part of the go to market system it affects all the other teams. So if you're improving something in marketing, generating more leads, generating more more content, it affects the sales team. And when you go and fix and modify just one part of that system, this is where it breaks. And the number one thing is that I would recommend looking at as a complete system and trying to understand how we fix and adapt and change and looking at the entire go to market system and that's where usually companies get it wrong.

[2:32] Why do leadership teams underestimate the blast radius of GTM decisioning? Exactly. Because of that, let's say marketing has now decided to increase the number of campaigns and all of a sudden they double let's say for the sake of the example, they double double the number of leads that they're sending out to the to the sales team. All of a sudden the sales team needs to work on double the amount of leads that they're bringing in. So if marketing does that without understanding the the the effects on the sales team, this is where we get that misalignment and this is where all of a sudden the sales team doesn't understand which leads comes first where to prioritize what is the right qualification uh by having that and that's where usually it breaks. Now I just gave you one example between the sales and marketing but of course it goes to customer success and it goes between the different sales team and product team and and the commercial team and goes the different departments that adds to that complexity of that transformation.

[3:36] What's the difference between fixing GTM symptoms versus redesigning the system? Fixing is just a one-time thing. Let's we have a problem, we try to fix that and there are different common fixes like if it's a win rate problem, it's a pipeline problem. But redesigning usually goes when you do a root cause analysis. what actually generates the need to redesign the go to market system and that's from yeah from the the term itself root cause analysis requires a root cause and um and and redesigning where the problems start off and usually it might not be in that specific area. For example, if we're looking at win rates and we want to improve our win rates, in a lot of cases, we would redesign the sales process, we we might upskill our sales team to be better sellers. However, and if we do a root cause analysis, we might understand that the problem is starting off with we're

[4:40] not selling or approaching with the right ICP. So doesn't matter what we do in order to improve uh the sales process. The problem actually lies in the ICP and the target uh the target customers that we're uh addressing. And this is usually the difference between fixing and then going and doing a root cause analysis and redesigning the process. What's the earliest signal that a GTM transformation is already failing? the earliest signal on which which area some areas well usually you like to look at leading indicators and when you break down the leading to the uh let's say for example win rate win rate is a result of something leading indic indicators are maybe the sales cycles take too long and that's a leading indication of a problem that we have in the sales process we might have uh customers getting stuck in the pipeline we don't know um and so on.

[5:40] We like I'd like to differentiate between the leading indicators and lagging indicators. The results of those this is every area of the go to market might have different leading indicators. You're very explicit that pricing is not a finance problem. Why do companies keep treating pricing as a spreadsheet exercise? So first of all, most companies don't know how to do pricing and packaging. They don't do it correctly. And when you think of it, pricing, how to do pricing originates from B2C, from retail, right? What is a customer's willingness to to pay? Let's uh define the demand curve. But in B2B, it's completely different. And we need other tools and other methodologies and frameworks to use in order to come up with the right pricing and packaging for B2B. So when we adopt B2C retail kind of practices we do Excel sheets and you that usually falls under worst case it falls under finance best case product marketing. However when you think of pricing and packaging as the base of your monetization strategy which is the base of our go to market

[6:42] strategy. You need to treat that as a product as a sales as a marketing and as a finance type of exercise. And that means that we need to go outside of Excel in order to come up with the right pricing and packaging. What happens when pricing is disconnected from sales marketing and see yeah and it goes back to the point if we have pricing led by the finance team it usually is not connected to what is happening in the field. So we don't get that feedback. And whenever this happens, this is where we see companies growth stall. If we don't have the right pricing and packaging, it adds friction, slows down growth, slows down the sales process. And but on the on the opposite side, if we do have pricing and packaging that creates uh more uh growth through better conversation with prospects with better value selling, better sales icon, thereby better win rates.

[7:45] It sounds like when there's a pricing mistake, it compounds more aggressively than most GTM decisions. Yeah, when you think of it, if you for example price 10% lower than what you could have, that 10% uh applies the first year and the second year and the third year. So it it it adds on every year it adds on and when you think of a upselling opportunities also is hurt by the fact that you gave the initial price from the get-go. And that's why we consider that mistake as an ongoing mistakes that keeps on giving as you would say. What pricing decision looks reasonable in the boardroom but quietly destroys GTM execution say 6 months later?

[8:28] Yeah. Uh one of the the key challenge or problems that we see is the good better best type of way of doing pricing or or packaging actually. And the good, better, best example is where you have let's take 60% of our features put them under the good our basic plan and let's take another 30% put that under the better and the best only 10 most expensive features under that 10%. However, a more ad advanced or or the right way to do that is to focus how go to market how the sales team actually sells and they sell based on value and you might have different customers that are looking to extract different values from your product and that that in most cases not align with the different features of the product. So that value uh packaging is uh the right way and this is usually in a lot of cases overlooked by the board team.

[9:24] And at what stage does good enough pricing become a liability? So most companies start off with good enough, right? You don't have the knowledge, enough data points, enough information to actually create the ideal pricing model. So good enough, you start off with good enough and you start off with something and then you continue to iterate. At what point when you see that that becomes a that it slows down and and all the problems that I mentioned earlier, it slows down the sales process. It takes more time to close customers. As soon as you start having those indications or leading indicators, you might want to go back and improve your pricing and packaging.

[10:07] GTM engineers have become central across SAS. Why did go to market engineers emerge as a core GTM role? Yeah, so usually in the past we used to call them sales ops right and now they are called either rev ops or or go to market engineers and they are becoming more and more important because again from you when you look at it from a holistic point of view and you see the entire go to market system they are the only ones who have that visibility. When you think of it, you've got the chief marketing officer and their department, they look only at the awareness creation part in most cases. You've got the sales team run by a VP of sales, head of sales, CRO. They usually focus on acquisition part. And you've got the chief customer officer that takes care of everything that is post sale. And the GTM engineers are the only ones that you can see the entire customer engagement model. And that is why their importance from being tactical focusing on let's build a CRM platform or create reports on the of of the results. They are

[11:13] becoming more and more strategic focused and looking to improve the entire go to market system as a whole. Where do companies misuse or underlever GTM engineers today? Yeah, again uh looking from that technical point of view, creating um creating or adapting the CRM and creating reports instead of using their view on the entire system as as a strategic operators rather than that tactical level operators. And at what point would you say do GTM engineers become a crutch instead of a multiplier when they don't have the ability to align all the different stakeholders and that usually happens and what I see in a lot of cases that they serve just one department and not the entire team. So for example, traditionally again this role began as sales ops or maybe marketing ops and they are used to serving those departments and usually when they continue to serve only those

[12:16] departments and not the entire system. This is where it it becomes a liability and not have a position that actually supports the growth of the company. It sounds like organizational structure has a lot to do with it. Yes, there's a there's a bit of a misalignment here when you think of that. And again, we're I'm looking at the entire commercial org as one system that needs to work together cuz one output of one department is the input of the other department. And traditionally how these any company grew is you have different departments and each department has a head of a leader and each one operates in siloed and it stems from the fact that this is how the go to market teams are structured. However, and we all know that that the customer itself and their model is not structured on these departments, right? When they engage with a company, they engage with those all those departments, but it's they consider that as a one journey. So, it they don't care if one seller closed the

[13:20] deal and then customer success took over like it's one company in their eyes. It's one service provider or or software provider. So, this is it all comes back to how we're structured. Maybe down the road we will be from a horizontal organization into a vertical organization. So you have people supporting the entire engagement model customer journey rather than the specific parts of the customer journey. Now how does pricing clarity change the effectiveness of a GTM engineer? Yeah. So I wouldn't say it's only pricing, it's pricing and packaging. For example, coming back to my example earlier, if you package based on value, if you package based on a customer's job to be done, it makes the entire conversation with the prospects easier because we're packaged around value and not around features. So, the conversation themselves are around value and not features. That creates supports a much easier sales motion to uh to run.

[14:21] You've written that value shifts when products converge. When features stop differentiating, where does value actually move? Yeah. Packaging, our model, our moto is it's not how much you charge, it's how you charge. And we consider packaging much more important than the actual pricing number. And just to give you an example, I'm currently working with a client and a couple of weeks ago, they wanted to increase the price pair doesn't matter, but let's say user from 12 bucks to 14 bucks. And that came after a very long design process. When they in, you know, came back to me and said, "What do you think?" I said, "Fantastic. Let's do that." And they were kind of surprised. And one of the leaders um uh who brought me in took me aside and and said like how can you say that it seems like you don't really care if it's 14 or 12 like show us the numbers why it makes sense. Uh and I was like I see that as uh that's less important than everything else that we

[15:26] did until this point. how we package and how what are the right metrics and everything is much more important than if it's $12 or $14 per seat. And this comes to show that in in terms of importance, it's much more important to get the structure right and pricing it's secondary. Yeah. Isn't pricing experimental anyways? You need to test your hypothesis, get feedback, iterate. This is continuous process. Of course. But but again, like when you think about B2B, it's not retail, right? It's not like if I charge 12 rather than 14 or 14 rather than 12, they will go to my competition. 12 to 14 is just a matter of how do we position ourselves in the sales process? How do we articulate the value? And that $2 per seat is less important to the buyer as long as they see the value and they really believe that we can deliver the value that we're selling to them. When should teams organize around buyers instead of

[16:29] products? I would say all of the time. If we want to be customer centric, we probably want to build our teams around the specific segments and industries and personas that we're selling to. And it that means that we usually want to structure our sales team around the buyers and not around products. Have what we see in a lot of cases is that when you build your teams around products that creates a lot of friction. That means that whoever talks to the customer the prospects first tries to sell their product even if it's not the right product or they have another solution for them. And basically that is something that we want to avoid. Most teams obsess over CAC. You argue LTV is the real battlefield. Why does increasing LTV unlock more growth than lowering CA?

[17:20] Yeah. So, when you think of it, if we increase the amount of revenue each customer provides, we have more revenue. We have more cash to invest back into the customers and we have more revenue to invest in chasing the next deal. And all that means that we can grow much much faster lately around uh the efficiency and everything that was around cost and efficiency in the last 2 years really put an emphasis on CAC which is good. We don't want to spend money um uh that is not required. However, I would argue that we need to focus how we increase ACV that is more important than lowering the CAC. How does pricing and packaging expand who you can afford to sell to?

[18:11] I think it goes back to the previous point that I made. If we get pricing and packaging right and that means right, which means that we're around value, it increases the LTV, which thereby increases how much spend we have on acquisition. How much spend do we have to plug it back to the product? It's a virtual cycle, right? We charge more for our clients. We invest back into the clients which allows us to deliver more value. We deliver more value, we can charge more and this is like a a cycle that happens. What metrics should leaders track to understand true LTV by segment or GTM motion? This is ACV in general, average contract value. And we want to see the number of products that they're buying and the volume of what they're buying. So for example, volume means API calls, it could be seats, it could be documents, whatever we price on. And these are good indication of what is going to be the future of the LTV.

[19:14] AI is breaking traditional SAS economics. Why are historical gross margin assumptions no longer safe? In SAS, every new customer that you acquire, the cost is practically zero. That's the beauty of SAS. So every customer that you bring in is basically almost a net positive. Yeah. A complete net revenue because it doesn't cost us to serve that customer. However, in AI, we know that AI has real cost associated to that. So every new user that comes in, it costs us money. And we know that AI costs a lot. So numbers out there say for example, on average, the gross margin per SAS is 90%. And on AI it's around 50%. Now that is supposed to increase with the the cost of AI coming down but still it the gross margins are completely different and that completely changes how we need to look at go to market pricing and everything that is associated to it.

[20:17] What does good AI monetization design look like right now? Yeah. So good design is that the pricing grows with usage of AI and that means usage based pricing or credit based pricing that allows you to grow as the customer or the user uses more of your product and that's the gold standard right now for these kinds of services. Where are teams most at risk of pricing themselves into a corner? when you don't put the right guard rails uh right because we don't really know the cost of AI and we don't know how many tokens in a lot of cases I would say not everybody but most companies out there when they integrate AI capabilities they don't really know of what is going to be the usage take for example open AAI and chat GPT they price it at $20 a month per user in their pro account and they take into consideration that people would use it for their work between 9 to 5 and they have an assumption of how much

[21:20] tokens each user will use on a daily basis. But if I connect I don't know something to chatbt and I use it on an ongoing basis not and it exceeds it could exceed much more than what they predicted. This is where they could companies like chatt uh like open AI can put themselves in a corner and that means that we need to have the right guard rails in place which is usually on fair usage that will allow us to cap the usage where it costes too much for us to handle. Yeah, I recently read the the power users are about 10x uh the cost of a median user for most AI platforms. Right. I can see how that can be costly if not done right. You could be losing money there. You often ask whether growth is by design or by accident. What does GTM by design actually look like inside a company? So by accident usually happens when you have a great great product and product

[22:22] uh having a great product you don't yeah you don't really really need a system or a design of a go to market team and I want to give an example with the Israeli company uh they didn't have sales team but basically the product sold itself and the sales team couldn't keep up with the orders that were coming in and this is not by accident but it's by product growth by product and growth by design. Go to market by design is where you build a system to create that growth. There's a different aspects of what a system is, but basically it's creating that repeatability and scalability of our go to market functions. If a founder or CRO wanted to fix one thing first, where should they start?

[23:08] Well, it depends on the situation. But in general and without knowing a problem, I would say most of the time there's a a packaging problem that they have to solve. And this is what I see usually when I come in and work with customers that there is a lot of room to to improve their packaging pricing also, but packaging and that will um unleash a lot of potential growth. Yeah. Again, it's a very general situation, but if I would was to p to point at something, it's usually around packaging. And what single system decision creates the most downstream clarity across GTM?

[23:50] IC ICP getting defining the right ICP getting your ICP right and then aligning the entire team whether it's marketing sales or customer success around the ideal customer profile has a huge impact um the entire system like to move on to the rapid fire section of the pod now one GTM belief leaders need to delete I would say that we need to lower complexity and pricing complexity works in our favor when We want to segment different customers. So big customers, enterprise focused customers, you want to create that complexity. And if you're selling to B2 professionals, B2C, you want to have very simple. But complexity is a tool that we want to use. One pricing mistake that quietly kills growth.

[24:39] Pricing the wrong metrics or sticking with seatbased pricing, which is what used to be the standard baseline for SAS companies. One role most companies misdesign customer success. I still think that uh customers the entire industry hasn't really figured out the role of customer success and what their responsibility is. Is it revenue generating? Is it just to keep the client happy? And there's no standards out there. And a lot of cases it's uh it's a miss on how you define that. One metric that looks smart but misleads teams. Marketing qualified leads. One system every SAS company should own earlier. Yeah, I'm I'm doing one just now.

[25:23] Compensation modeling. Companies spend a lot of time doing this manually, and there are some fantastic products out there that does it really well. If the last decade rewarded brute force growth, this decade rewards design. Most companies aren't losing because they can't sell. They're losing because pricing decisions are compensating for GTM design flaws. After this episode, write down three places where pricing is being used to patch a broken GTM system. That's where your real leverage is. Rowey, thank you for showing why Thank you for showing why pricing GTM engineers and GTM can't be treated as separate conversations anymore. If this episode sharpened If this episode sharpened how you think about revenue, share it with one leader who's still trying to fix GTM in pieces.

[26:16] This is GTM Vault. Build systems, not chaos. The GTM operating system for teams building repeatable revenue.