The Real Power of Pricing with Ajit Ghuman, co-founder of Monetizely

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Rebecca Calogeris: Hello, um, and welcome to the Pragmatic Product Chat series where we tackle the biggest challenges facing today's product management, product marketing and other market and data driven professionals with some of the best minds in the industry. I'm Rebecca Calogeris for Pragmatic Institute and your host for this episode today. I'm very pleased to have on the show Ajit Guman, co founder of Monetizely, uh, which he started after a career in product management and product marketing and pricing at a variety of, uh, San Francisco tech companies. So he's been on all sides of this. We're excited to have him. Welcome.

Ajit Ghuman: Thank you so much. Uh, and uh, I remember that I started my career taking some Pragmatic courses, uh, a long time ago. So I'm excited to close the loop today.

Rebecca Calogeris: Excellent. Well, we always like to hear that. All right. I always like to start sort of with your origin story, right. How did you get where you are today? Why are you so passionate about pricing? Especially coming from a product marketing background, what really drew you to pricing?

Ajit Ghuman: I think, um, product marketing is still, I would say, my home ground. This is where I learned everything about tech. It gave me a good vantage point to understand company strategy, understand positioning, understand the market, but also understand features, product management, sales. So it kind of stood in the center. So I think it's a good start. It was a good start for me and I think it will be a good start for many folks in the profession. But for me, when I was doing product marketing for a while and I started to get bored of it, and especially the way it was done in some companies that become tactical. When I first got my large pricing project back around 2019, 2020, uh, that's when I started to get really excited about pricing specifically because as opposed to general product marketing work. Now here was something where I had tangible impact on the company. I changed the pricing model for the whole company or for let's say part of the segmentation. And that had measurable tangible impact on ARR. Uh, that had a change in how the sales people were selling everything Right. And I remember back in Covid when there was a market drawdown and things were looking uncertain for a bit, we never had a drawdown in revenue at that point because we had just made a cut over to the new pricing I had implemented. And while the number of deals we sold were lower because I changed pricing, we made, uh, you know, almost the same or more amount of money than the previous quarter. And then I realized, look, I have something on my hands that is something I can uniquely do as a PMM because I have to understand the product and position it and package it. But then now I can have a financial impact. And that made me very excited. And then, you know, since then I have been majoring in pricing and to the extent that a, uh, couple years ago I quit working for companies and then I went off on my own.

Rebecca Calogeris: Right. I love that too because I often think as a person whose background is in product marketing and is also a, uh, big fan of and student of pricing, I think too many people don't see the connection between the two. Right. I can see where it's at, uh, where you kind of, it was a growth path, but there also is a connection like product marketing should care about pricing. Product marketing should inform pricing. Right. Because pricing is based on the value you deliver. Right. And so that's what we do in product marketing is talk about it. Right. We are about communicating the value. And your price is another way that you communicate your value. Right. How much you charge, but also what you're, what you're charging for, all of those things are part of sort of the messaging of your product. So they're, they're both really connected. And to your point, this is also a place that if you're listening product marketing and you're not influencing pricing, you are missing out on a place where you can make very measurable impact. We can all have this, like, how much revenue can I do? The leads go to marketing and they go to sales and like, there's always an ROI discussion and pain point in product marketing. Uh, but the closer you are to pricing, the, the, the, the bigger the impact, the faster the impact and the more measurable it is for sure.

Ajit Ghuman: Um, let me share, quick example. I just came back from a three week long Europe vacation and um, I went on one day, I was, I took the train to Khan's and you know, there are all these places you hear a lot about and somebody on a YouTube channel said you should, you should have coffee or you know, whatever, ice cream at the Giorgio Armani cafe. And I remember ordering a €13 affogato, uh, which had a third of a scoop. I'd never received a third of the scoop.

Rebecca Calogeris: It's like a little, a little teaser there. Yeah, exactly.

Ajit Ghuman: And you know, one of the people were in their icp, right. These are the people wearing branded clothes. There was a dad and the son wearing branded clothes side by side. And I understood the concept that price is a signal of positioning. For George German, they're not going to price anything for cheap. Right. And that is the type of people they attract. So this isn't a, uh, you know, you can say it's a pricing case study, but as you. It's a positioning case study in a branding case study that led to a certain business model and a certain price point and luxury and so on. And you realize that you have so much. Like, this is why product marketing has so much ability to change price because you influence, you create the premium brand eventually and that commands the value. So, uh, and this is why it is helpful for a person who does pricing to have this background rather than. There are a lot of people in the pricing community who come from a statistical background. Uh, I do not think they really understand how much leverage that they can generate unless you have a marketing background.

Rebecca Calogeris: That's a really great point. And it's a great example too, right? Like they are specifically pricing for their brand and for their market. Their market. Right. They, they, there is, there's lots of people who will not go and spend, uh, 13 for a third of a scoop or 13 years for a third of a scoop of ice cream. But that. They don't, they don't care. Right. Like that is not what it's about.

Ajit Ghuman: Yeah.

Rebecca Calogeris: And I think we forget that sometimes it's about finding the ones who value what we're offering and really focusing on that. Which is another, again, big piece of product marketing and pricing is that segmentation piece. And when you really understand who you're solving problems for the most, that's the willingness to pay you need to look at. There'll be a bunch of other people, but their willingness to pay doesn't really matter. And I think what you're talking there, that segmentation, again, it is fundamental to both product marketing and pricing, but often not seen that way. Yeah, yeah, interesting. Um, and I know you do a lot of work with, uh, SaaS pricing, right. Which I always think is a really, it's a great example of a place, uh, for pricing for many reasons. Uh, you've got more ability to adjust pricing than the traditional models. Right. Where you like buy it once or manufacturing. Um, and also because there's pricing and lifetime value in the way that those connect in a SaaS environment. And so when you're working with clients on sort of SaaS pricing, are there specific how does that product marketing and pricing lens, uh, combine in the SaaS world in particular?

Ajit Ghuman: Yeah, so the SaaS has a very unique set of economics that is changing now. But what it has been historically has been a very high gross margin activity. Many products have 90 plus percent gross margin. Right. So uh, when you're trying to create pricing for this, it allows you to be much more creative and bring much more of the marketing into the SaaS pricing. So what really then happens is that therefore as a consequence of this, most of pricing and packaging in SaaS is actually packaging rather than actually pricing. Right. So executives come from all shapes and companies, but an executive who comes from a Netflix will think about pricing as uh, hey, is it $12 or $13 or $14. Right. A SaaS person who does SaaS pricing shouldn't really care about the price point at all because they're going to make money on how well they package the same thing to the enterprise buyer, to the Fortune 500 client, and the same thing to the mid market client. And that same Software goes from 20,000 per year to 2 to $5 million per year. Now you may add some, some widgets to this, some gimmicks, some services, but that is the amount that software scales and has historically scaled. Uh, and for to capture that money from the market, you have to do very good packaging and you have to create the right offers in the market. Again, marketing, right, you have to create packaging and the right offers so that those people, when they see the packaging they're like, yeah, I see that you've created this for me. Makes sense, I'm going to buy this. And it is only later about the price, price point. So the design of the right offer is the price. That's how you monetize. So this is what we do when we go into clients, we say, listen, you have a packaging problem. Most clients, once you know they're evolving through company stages, either they're leaving money on the table because they were small and they now are, uh, big and they need to diversify packaging to actually capture the money or they become the, you know, the zones of the world. And once you become the zoom of the world, you can't have complex pricing. You have to have simple packaging so that you sell fast. And at no point in these conversations Is the price point, the key discussion. It's always the packaging or the pricing metric that's always going to be the key discussion for these projects. So that's how they're unique and that's how they fit with the skill set as well.

Rebecca Calogeris: I think that that's a really great point. Right. Because the, the packaging is how you get the buyers to identify themselves in your offering. For one thing, like this is how I know it goes and then again it matches up with the segments of what their needs are. So. And I can see that getting that right and helping make sure that the um, the packaging to the marketing and sales, all of those is focused on getting the right people into the right one also gives you pricing power. Right. Because if I have a solution that feels like it really fits me, then, then, um, it gives you flexibility later on because it's not, um, because it's. Well, there's a lot of value being delivered.

Ajit Ghuman: Yeah.

Rebecca Calogeris: And it's interesting when you talk about SaaS pricing too, because another thing that I know you've been thinking a lot about recently is AI pricing. And then there's, there's some ways where I think it's right because, um, you know, in the day when SaaS was early, which I am old enough to remember, you know, it was a selling point, right. That this was a hosted solution and it was something that was a feature you would talk about. It is not anymore. Right. Nobody buys something because it is SaaS. It's sort of accepted. AI may get there, but right now people still think of it as a feature. But unlike SaaS, there are some hotels, hard costs. Right. With AI, uh, that is a little bit different than when we think about the margins in there. So similarities between the SaaS movement and the AI movement, but also some differences. And I would love to get your thinking about AI pricing.

Ajit Ghuman: Yeah, yeah. So a bunch of things are at play right now. Uh, and some of these are crosswinds, but some of these are short term trends, some of these are long term trends. So yes, a SaaS product or a software product with AI is going to have lower gross margins today, perhaps 50%, perhaps 40%. A lot of the companies in the market right now are trying to get a lot of distribution, so they may have even lesser margins. A company like Cursor, right. They're making tons of money. Uh, I question her what margin they're at because we had a lot of margin and they've changed pricing recently just so that they stop losing money. Everybody's doing that throttling throttling, how much they're providing because it's expensive to offer what they're offering because it is, because they're trying to acquire a lot of people very fast. They're trying to be high growth, but it's not easy to be high growth for a company. That is the main learning. SaaS could have high growth because the cost was inconsequential. But in AI the costs are not inconsequential. So the big, so there's a big market clamor for distribution. But at some point when somebody becomes the major players and they are winners, they're going to clamp down and there there's going to be more monetization happen. So that is one tick On a more longer term take, however, a few data points over the last two years the GPT 3.5 and GPT 4 type of models have the inference costs have reduced 99.7%. So that is much more than even Moore's Law. Right? This is per Mary Meeker's uh, recent AI Trends report. So AI how cheap AI is becoming is beating Moore's Law and it is becoming more more powerful. So it becomes more expensive because people are wanting the more powerful things. So the margin issue remains for an AI company. However, what it is doing is it is deflating software. Basic AI is becoming free with things like deep seq, uh and historically if I gave you the BLS data for the US economy over the last 20, 30 years, the number one deflating, there are a couple of deflating categories but one of the top deflating categories is software. Techs inflates, software deflates. And so now a nuclear bomb has been set off on software with AI where it has made software cheap. So we live in interesting times where the companies that are very AI heavy are going to still have this new dynamic where they're going to have low margins and they're going to work differently. But the companies that are not AI specific that were the older SaaS companies are in an existential crisis mode because they are free now. Like whatever they are doing is free, close to free. And so the old world does not exist soon going to go away where there were high margins. There are going to be few of these new world players that where the margins is lower and overall software is going to be free. So this is going to now create a dynamic where services becomes more important or other things get more important. There are going to be some winners, but those are going to be outsized winners and everybody else actually we now again Go back to a place where the human input becomes more valued. So it's a very interesting play of events that is happening right now. But one thing is certain that the last 20 years that started with Salesforce sort of companies saying hey, you're going to have this on cloud offering and all of these IPOs happened, high growth rate that is almost core. Like it's um, it's not going, that regime has ended.

Rebecca Calogeris: Interesting. When you say services are going to be more important, talk to me a little bit about that.

Ajit Ghuman: So I recently had a client for which their core software subscription fee per year was about 30k. But their services which is did not have that big of an attach rate but when they did send services was close to half a million per customer. Uh so the software becomes the commodity, but they already have the distribution advantage, so they are the winners in that distribution advantage. The software is still treated as a commodity, but what the buyer is valuing is hey, you're going to have these all uh, specialized people who are like these security analysts or whatever and I cannot strap for them. So then I'm going to pay you for the services ability and that's how they're going to make money. Now services of course is going to have lower margins but, but this is how things are changing because what are you going to do as a technology provider when your software becomes free almost or open sourced and the expectation is that software is cheaper. A traditional software business model starts to fail and then you have two ways to go. Either you become more services heavy or you become like a new sort of AI company which is, I don't, I think most people are going to become fail at becoming an AI company.

Rebecca Calogeris: Yeah.

Ajit Ghuman: Because very fewer winners are going to be in that market.

Rebecca Calogeris: It's interesting too when you were talking about uh, a lot of AI companies are sort of in the land grab spot, right. Where they're trying to get lots and lots of users. But to your point, uh, unlike SaaS where it was like, I don't know, let's get lots of people in because every incremental user doesn't really cost us a lot. Right. So we can do a lot of the pieces that is different when there are the true hard costs even as they come down, they're not inconsequential as you said. Um, and so I wonder too if what we'll see, and then what we're starting to see too is, is um, closer segmentation, more products versus platforms. Right. Like ChatGPT, Claude, they're big but they're like big in the everything for anybody kind of thing versus a more focused solution that is more tailored would give you some differential and maybe some pricing power there.

Ajit Ghuman: I agree. And even they are trying to verticalize because they cannot have margin on their foundation layer. The foundation layer has no margin. The margin is in the unique application. But yes, I agree that the more niche the function is, the more you can justify the premium for your expertise and domain knowledge and skill set and services. And the more generalized you are, the, the more commoditized you're going to get.

Rebecca Calogeris: It is, it's, it is super interesting too when we think about software. Software is these uh, days. It's more powerful than it has ever been and yet we are uh, we take it for granted. And to your point, we start to value it less. Right. We see some of these AI things, we talk about code, you know, and vibe code like. And we start to think of it as less. The, the magic special layer.

Ajit Ghuman: Yeah.

Rebecca Calogeris: And, and so even though it is more and more powerful, that race isn't what's going to make it more and more valued.

Narrator: Yeah.

Rebecca Calogeris: And I think that is, uh, as to your point in state, it can potentially be a big turning point for tech companies to realize that.

Ajit Ghuman: Yeah, yeah. Similar to airlines. Right. Airlines are super powerful and they get us where we need to go. But they let like the airline feels like a commodity.

Narrator: Right.

Ajit Ghuman: They're just fighting for the last set.

Rebecca Calogeris: Yes, yes. Every bag at a time there. Um, uh, I, uh, also think with that switch, again, full circle in the conversation. It is about when you think about services and segmentation and the value add you bring. That is again marketing. It's positioning. It's uh, not the technology that is making it different. It is how and who it's positioned for and how it's communicated.

Ajit Ghuman: Completely complete.

Rebecca Calogeris: So what other uh, trends are you seeing in terms of pricing with this switch of AI or the switch of AI, but the continued advent and increase.

Ajit Ghuman: I, you know, uh, we are at monetizing. We see a lot of trends, we see a lot of buzzwords. They are very buzzword agnostic buzzwords like usage based pricing, outcome based pricing.

Rebecca Calogeris: Yep. That's a big one.

Ajit Ghuman: Creating companies based on these buzzwords. And our opinion is, hey, there's just one decision that you're going to make. It's the pricing metric decision and these are the factors. Now you may make a decision and say this is outcome based pricing or this is whatever based pricing, but at the end of the day we are just like, you're just making that decision make it the best first principles decision. So what I'm going to say is not about trends. I'm going to say anti trend. We are very anti trend at monetized. We are like the principles are never going to change. I don't think the principles were different 4,000 years ago in the Silk Road when India was selling silks to Roman, to the Roman Empire, right? The trend, trends are the trends. But the principle of pricing is not going to change. And it is simple. Marketers stay away from pricing because they think it's going to be hard. CEO stay away. Uh, there's a mental block, but it's actually very simple. And it's confused by the trends. The trend buzzwords are confusing everybody, but it is not very confusing. In fact when we consult for companies like everything that we are going to do is in the book that we have written. And this book is also not rocket science. And it is also just simplified from whatever everything is out there. Now we know you have an attention deficit problem and we have ah, solved this a lot. We are like doctors, but this is even less complex than doctors. I think that is a point that I'd like to make that people are getting confused a lot. They see AI, they think things are very different. A lot is changing. Uh, there are things that are changing, there are things that are different. But the principles of marketing, the principles of pricing are not changing. I think that is definitely the case. Um, making the right. So yes, we talked about market and segmentation. The other thing is market and segmentation is also downstream of the economy. It is downstream of company strategy. And what we find is that as things are changing, companies are not realizing that they are playing in a new regime. The AI regime is new. Uh, we have gone from a high growth regime to a high margin regime where who gets rewarded, uh, in the markets at least in the public market sells companies with free cash flow, companies with margin. And that's not going to change. We're going to see stagflation in the economy. So this whole high growth company idea that existed for a long time in our opinion is going away for most companies except for some trailblazing AI companies. And then how you price is going to be then different. You have to be more guarded, more conservative. You will start to hear more. The upsell motion becomes more important. Making sure that you're charging that yearly, seeing threes becomes more important. Uh, again like in the airline industry, right, You've got to charge for that extra bag. There's no more free bags anymore. Um, and we're going to have to be able to be very meticulous in pricing and getting that free cash flow and understanding that pricing decisions are not a fad. Like usage based pricing could mean that you get cash later, three months later, versus the upfront cash that you were going to get. It could mean that it affects sales forecasting, it could mean that it affects your next valuation ground. So I've been in large companies where the, you know, the hot shot executive from Amazon said, yeah, everything should be usage based pricing, but they have no idea of uh, how many things it disturbs inside a company. And if you know that you're going to design for a high margin regime, then you have to be careful about what pricing you implement because it has kept real cash flow, margin. All of these implications, uh, which I think people, people miss the forest from the trees.

Rebecca Calogeris: M. No, I think it's a really, it's an excellent point because we were talking about pricing and marketing, but the impact that company strategy has, like we talk about whether the land grab, I mean that is a strategic decision, if we want to do that or not. Right. But also the greater economic macro trends I uh, think have uh, strategic influence. We're not saying like you should like follow the winds of the world, but it is important to understand, um, from a valuation perspective and a profitability perspective. Um, and I know you touched on any of, on some of those macro trends. Is there any others that you, or are there certain areas that you would tell people that they should watch, like keep your eyes on these kinds of things as it impacts the overall strategy.

Ajit Ghuman: I just think that not enough people have recognized that the high growth era of SAS is gone, uh, that the economy is now a different economy, that high interest rates are unlikely. Uh, even if the Fed changes interest rates, the bond yields are not necessarily going to change. The American debt is at crisis levels. And uh, people have been making noise about that for the last five, six years. We could very well have another 2008 sort of event. And that's what I'm, you know, I'm presenting on this topic, uh, week after next at a conference. And so how can you prepare? Like some. Maybe it's not even easy to prepare for such an event, but at the very minimum you have to realize that if your VC is telling you to go do growth at all cost, you need to stop listening to your vc.

Rebecca Calogeris: M. Mhm. Yes, but if you have a PE firm, they are not telling you that

Ajit Ghuman: PE firms might have outside returns in this environment now actually, yeah, yeah.

Rebecca Calogeris: Excellent. All right, this was great. We talked about lots of different things. Uh, if you were going to have listeners do two things differently tomorrow based on what we talked about today, what would that be?

Ajit Ghuman: Um, don't follow the her. Don't follow trends. Like get. Like, try to do your pricing from first principles. I think you'll be much more successful. And we have a book out on that. It's called Price to Scale. Uh, there are two editions, but get the second edition, it's not very expensive, uh, on Amazon. And uh, yeah, you can find me on LinkedIn. I'm happy to provide some guidance, uh, before. No charge. Happy to connect.

Rebecca Calogeris: Excellent. All right, so it's Price to Scale on Amazon. Uh, okay. Thank you so much for coming on. It was really enjoyable talking for you. And I'm thinking about a third of a scoop of ice cream.

Ajit Ghuman: Awesome.

Rebecca Calogeris: All right, that does it for today's episode. Thank you everyone for listening. And don't forget to join us next week when we tackle another great topic designed to help you elevate your product, your company and your career.

Ajit Ghuman: Mhm.