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How NOT to Introduce a New Revenue Model

Managing Expectations
Product

28 April, 2021

Blaine Holt, Head of Product at HATCH, speaks of his failing to introduce a new revenue model as planned, as he shares some persuasive lessons.

Problem

In the early days of my career, I was asked by the business to generate a new revenue stream through our existing products. Moreover, I had to find an opportunity to move us away from what was an all-encompassing price model which was glued to hardware. What we were hoping to come with was a software-model model better suited to our needs.
 

Actions taken

I did a comprehensive research on different SaaS models looking for everything that we could easily pick up. I came up with a new form of billing that shortly proved to be unsatisfactory. The problem was that our sales team was commissioned on selling hardware and our internal systems and business processes around it were not set up to accommodate for the new form of billing.
 

The reverse route or What I didn’t do

I didn’t consider how strong was the incentive nature for sales. I was not able to incentivize the new product and how it was priced to be incorporated day-to-day. When I came up with my proposal, I didn’t put myself in other people’s shoes to understand how it would impact both different teams across the organizations as well as customers. I didn’t put enough effort into understanding internal users and how my proposal would create additional work for the sales operational team. My primary focus was business as a whole, and the revenue the new product would be bringing. However, the big picture made me completely forget about people and processes.
 

What I tried to do was to push for a pay-as-you-use model with our customers, who were not used to that. Learning about their reluctance, we tried to iterate on the model, which could not go seamlessly when applied to one-year contracts. What I should have done would be to experiment more and test it with every single iteration. It would make it evident that it should be implemented in such a way that the form of billing wouldn’t be affecting contracts. If I was listening more closely to customers I would be able to come up with a proposal that would be seen as an addition to the existing model. For example, if someone would sign up for a trial -- which was neither permanent nor binding -- they would be introduced to the form of billing.
 

Lessons learned

  • A big mistake on my part was to introduce the new billing model without exploring its possibilities and impact through trial. Pursuing a more iterative approach and listening more to what customers wanted, should have been the right approach in those circumstances. In hindsight, I should have proposed a solution that was not binding for customers as long as we would iterate on the approach.
  • When you want to introduce a new way of payments, stay away from contract negotiations. Introducing any financial changes is much harder when there was an agreement on how your customers should pay for your product.

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