Packaging & Pricing Design: 10x ARPU and 45% quarterly growth for Scaleup
Contractbook.com delivers a contract management platform to the SMB and Enterprise market that handles contracts from legal setup, through negotiation, signing and subsequent filing, access and management.
Contractbook had had a lot of initial traction with their product which led to raising a €3.5m seed round from a syndicate led by Gradient Ventures, Google’s AI Fund, together with Nordic VC-fund byFounders and a group of key angel investors. The immediate goal post-close was to ramp up sales over the next 1-2 years aiming for a Series A funding round.
It was clear, however, that the current packaging and pricing model would not support the ambitions to scale: the sales cycle was slow and costly at 30 days as the customer had to buy a combination of user types (admin-user, pro-user and basic-user) to create their setup. The ARPA was also far too low in the SMB segment at only €228 annually, as customers were afraid to ‘over purchase’ users they wouldn’t need.
Furthermore Contractbook had onboarded a few customers who had used their API together with a Zapier setup to create automated contract workflows processing 1000’s of contracts a month – often with only a minimal purchase of a single Admin User. It was clear that the contract automation had the potential to be monetized far better.
“We had one sales model, one pricing model, centering on one feature pack, which was not scalable. And we were not charging enough for our products” – Viktor Heide, COO & Co-founder.
What we did:
A design-sprint with the CEO, COO and CPO to re-package the value propositions to the SMB segment, redesigning the pricing model and spinning out several of the value-adds such as automations.
We also sketched out a validation and implementation process to test the new packaging and pricing in live-sales before a full scale roll-out – including forcing legacy customers to adopt the new product and pricing scheme.
The COO, Viktor Heide, had a direct line to me for 3 months after the sprint to support validation and implementation.
“We came out from the design sprint with something, everyone was very wildly excited about. We had already identified our challenges. Now we had the necessary tools to work with those challenges. We completely redefined pricing and opened our eyes to a different way to look at packaging.” – Viktor Heide, COO & Co-founder.
The new packaging created a tiered pricing structure along some clear demand-centred use-cases: Basic contract management, Collaboration in larger teams and, finally, Integration into business systems. The pricing still centered on a price-per-user, but was now sold in brackets with 5 users as a minimum to minimize micro-optimization by the customer and API pricing was priced separately.
The new product and Pricing model had several key impacts:
45% growth per quarter with a tripling of ARR in the 12 months after implementation.
Sales cycle reduced by 30% and an increased conversion rate as product was easier to explain and customers felt no need to optimize their purchase.
1000% price increase with new ARPU of €1500+ annually on the same customer segment.
“The most visible result is that we are growing. We have experienced a 45% growth for the past two quarters, our revenue will triple within the year, and a big part of that we can trace back directly to the collaboration with Ulrik and Behavioural Strategy." – Viktor Heide, COO & Co-Founder.
The new pricing model enabled Contractbook to hit their targets for a Series A round 18 months early.
“We are now selling more to the same market with a 1000% price increase. After this process and seeing what it has done for us I’d recommend startups within the industry to look at an investment in pricing the same way as they would look at an investment in organic traffic.” – Viktor Heide, COO & Co-Founder.
Dirk Kooreman, Partner Development Manager – “Build With” ISV, Microsoft
“Ulrik is the only one we have found, who can make the bridge between all these new technologies and cost structures and turn it into a profitable business.”
“We initially entered in contact with Behavioural Strategy, because we had a mission to complete within Microsoft”, tells Partner Development Manager, Dirk Kooreman. “In our team we work with software houses, and our customers can be anyone who develop software to sell to their customers. Our division is here to help software houses make the digital transformation shift to cloud technologies.”
Dirk elaborates that although the cloud technologies makes it possible to develop even better software, software houses have the difficulty that in most cases they are not aware of the possibilities that are in the cloud.
Microsoft started to work with Behavioural Strategy in 2015 to ease the transition for the ISVs. Dirk explains that it is a very difficult exercise for the software houses that have been developing software solutions for many years to transfer to the cloud technologies, partly due to the flexible pricing models, that the technology presents.
Dirk explains further that when using the cloud technologies the software companies pay Microsoft the same way, as you would pay for electricity. They pay for what they use, and so the invoice varies depending on that aspect. The challenge that they face is the difficulty of predicting how much their customers will then use their software and hence the cloud, and then charge them a price, they are willing to pay.
Dirk elaborates further that more often than not, the ISVs will face uncertainties in regards to how they can make a profitable business model for their customers, when they can not predict their customers’ use of the cloud. If they do not know, what the costs to Microsoft will be, because it depends on the usage of the cloud, how can they then set a price for their customers?
That is when the Microsoft division brings in the expertise from Behavioural Strategy. “Ulrik adds that very specific opponent. He has the capacity to make the translation between pricing and usage, based on his experiences and his studies. He helps us coach the software houses to transfer the uncertainties of flexible prices into simple pricing structures, so they and also their customers understand it and say 'ok I can start working with this'. That is what Ulrik is the only one we have found who can do.”
The Microsoft Division has an ongoing collaboration with Behavioural Strategy, and Dirk explains that is an ongoing process that can take several months, which is one of the things, Ulrik has a good eye for.
When asked what the ISVs get from working with Behavioural Strategy, Dirk says:
“Ulrik makes sure that everyone in the company is involved and knows the advantages, risks and difficulties on the way to the best possible pricing strategy. To make sure that we translate the market opportunities, Ulrik and the ISVs, work together to find the right strategy. The knowledge, the experience, the results and that he always scores good point and receives great feedback, when he is working with our software companies, makes it a pleasure to work with him.”
Tommy, Managing Partner, byFounders - early stage venture fund.
See more at byfounders.vc
"As a venture fund we often experience that the companies we invest in struggle with pricing. What are their customers willing to pay? Where do they position themselves in the market? That is when we bring in Behavioural Strategy as sort of a value-add ‘SWAT-team’.
Behavioural Strategy excels at quickly understanding what the business is, what market it operates in, how the competition dynamics work and using all of this to create good pricing. They bring that necessary 'outside in' viewpoint and have deep experience with applying pricing strategies."
4) Scalepoint Technologies A/S
"The most important outcome is that we now have a hands on pricing tool, which our customers understand."
Company: Scalepoint Technologies A/S
Stage: Growth Company
ARR: ≈ €100M
Scalepoint provides software services to Europe´s leading insurers, cloud solutions that digitize and automate claims processes and furthermore drastically reduce claim-related costs while keeping the insured customers in focus.
Scalepoint is a well established company, which has been on the market the last 10-12 years, working with some of the biggest European insurance companies.
Scalepoint reached out to us in 2019 due to the complexity of their business model, meaning that they were dealing with interests from different stakeholders, leading to them not charging nearly enough for their products to make it a profitable business.
“We mainly communicate with the claims department, but the profit from our software solution falls in the hands of the IT department. Our solutions are highly profitable for the IT departments, but it was the claims departments paying for it.” explains Sune Dyrlund Aagaard, Vice President of Sales.
Besides dealing with different stakeholders, the nature of services, Scalepoint offers, also meant that the usage of their software would vary in such a way, that it would make the pricing process very complex.
“Scalepoint is handling everything, related to the claims. Before entering in contact with Ulrik we had a fixed price per claim, and sometimes this fixed price would have to cover unlimited storage of for instance photos from x-rays."
“In collaboration with Ulrik we made a review of our costs, visualized the added value in a way that would make sense for the head of the claims department and ensured the legal framework of our contracts, so we would not have to renegotiate every time we had to adjust the prices.”
“It was important with a process that would underpin our collaboration with existing customers. At the same time it was equally important to ensure that the use of our software became and remained profitable, which meant raising our prices with 50% and setting up a pricing model, which could meet the development of future services."
“The most important outcome is that we now have a hands on pricing tool, which our customers understand. We now have a profitable business, and we have the foundation and the framework to adjust the prices and a pricing strategy to implement on new services.”
“Initially we were hesitating to pull in external forces - 'how hard can it be to set a price?' - but there is a lot to gain by adding the ‘outside-in’ perspective from an expert like Ulrik. The expert knowledge, which he possesses, is something you do not meet very often. At the same time he is extremely fast at adapting and understanding the business in depth.” – Sune Aagaard, Vice President of Sales