Estd 4.22.2023
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Context: This is a summary of the "Epic Price Revamps & Wars” podcast where Ajit Ghuman had the incredible opportunity to sit down with Scott Williamson, the former Chief Product Officer at GitLab from 2019 to 2022 and a pricing strategy turnaround at GitLab.
As of writing this piece, Gitlab is at almost $700m in ARR, growing 33%, with 129% NRR, and 22% free-cash margin.
What is more interesting is that NRR is consistently high and Free Cash Flow (FCF) is also improving.
"When I stepped into the role, GitLab operated a multi-tiered pricing structure aimed at accommodating everyone from individual developers to large enterprises," Scott mentioned.
However, this broad approach led to significant overlap and confusion, especially between the closely priced yet feature-divergent tiers. Scott painted a vivid picture of GitLab's initial pricing setup, highlighting the confusion inherent in the old model: "We had a multi-tier system designed to cater to everyone from solo developers to large enterprises. However, this broad approach led to significant overlap between the offerings of adjacent tiers, particularly between the $4 Bronze and the $19 Silver tiers," Scott explained.
The image below illustrates the 2019 GitLab pricing tiers. This visual representation highlights the feature overlap and closely priced tiers that Scott criticized for causing market confusion.
Dynamics of the 2019 Pricing Tiers
Data Integrity & Analysis
Upon reviewing GitLab's pricing, Scott faced the formidable challenge of integrating disparate types of data—financial and product usage. This integration was crucial to form a reliable basis for any pricing decisions. Financial metrics alone could depict revenue trends and customer acquisition costs, but without aligning this with detailed product usage data, the pricing model revisions would lack the necessary depth and accuracy.
The team undertook extensive data manipulation to merge these different streams, ensuring the merged data set was robust enough to inform strategic decision-making. Scott emphasized the importance of not only gathering this comprehensive data but also ensuring its accuracy and reliability. This meticulous process was essential to avoid making strategic missteps that could alienate customers or negatively impact GitLab’s revenue.
Scott detailed, "We looked at user progression, feature utilization rates, and churn data. The turning point came when we analyzed engagement and revenue data across tiers and realized that the Bronze tier was actually inhibiting growth. The tough decision to eliminate this popular tier was necessary for long-term sustainability."
Scott stressed the importance of clear communication about the value of each tier. He aimed to set clear expectations to build user understanding and trust, key for encouraging users to upgrade.
Scott further explained that pricing at GitLab was integrated as part of the product offering: “Pricing is almost a feature of the product itself. It flows from what the product does and what it offers.”
Under Scott’s guidance, GitLab restructured its pricing tiers to align seamlessly with the functionalities and benefits provided at each level. He explained, "By embedding the pricing structure directly into the product experience, we ensure that each tier offers distinct and perceivable value to specific user groups." This strategic alignment made the transition between tiers feel more natural and justified, encouraging users to upgrade based on clear value additions.
This approach also highlighted the synergy between product development and pricing, ensuring that pricing decisions were made with a deep understanding of how users interacted with the product. "It’s about aligning our capabilities with the users’ needs at each stage of their journey, making sure that the pricing tiers reflect the evolving value we provide," Scott added.
A note on executive alignment: The pricing strategy overhaul required not only internal consensus but also external validation. Scott brought in third-party consultants to ensure objectivity: “We brought in external experts to provide a new perspective and validate our approach against the market and competitors. They helped us overcome internal biases and align our leadership around a data-driven vision.”
These consultants played a crucial role in building consensus among GitLab’s leadership, ensuring the pricing strategy was supported by empirical evidence and strategically sound.
"Their expertise was invaluable in helping us frame our pricing not just competitively but also strategically, ensuring we were positioning ourselves effectively in a rapidly evolving market," Scott reflected. This strategic decision-making was supported by comprehensive market analyses and competitive benchmarking provided by the consultants, which were crucial for validating the new pricing models.
By eliminating the Bronze tier and enhancing the Free and Premium tiers, GitLab has simplified the decision-making process for users, making it easier to start with robust features for free and upgrade when advanced capabilities are needed. Each tier now more clearly targets specific user groups, Free for individual developers and small teams, Premium for professional teams requiring advanced tools, and Ultimate for large enterprises needing extensive security and compliance features.
Scott and his team started by merging financial data with user engagement metrics to create a comprehensive view of each tier's performance. They organized workshops to gain cross-functional consensus and held several strategy sessions across departments to discuss their findings and plan their approach.
Implementing GitLab’s new strategy was the hardest part and demanded careful planning. To minimize disruption and maintain trust, Scott and his team devised a customer-centric migration plan. This plan included specific offers that allowed existing customers to transition smoothly to the new model:
Scott emphasized the importance of communication during the phase-out of the Starter tier. "We knew this change could disrupt our current user base, so we planned an extensive communication strategy to ensure transparency and maintain trust."
"We openly shared our plans and timelines, ensuring our users were well-informed about upcoming changes. To soften the impact, we offered existing Starter tier customers special upgrade incentives, allowing them a smooth transition to higher tiers. Feedback loops were crucial. We continually adjusted our approach based on real-time user feedback to improve the experience and address any concerns."
"The decision to streamline our pricing tiers brought significant improvements in how customers interacted with our product suite," Scott reflected. It simplified decision-making for upgrades and increased overall satisfaction. It also brought long term impact on Gitlab’s revamped pricing strategy in regards to
The win wasn't small, but it was definitely a stepping stone towards great improvements and better impact. The shift at GitLab mirrors a growing trend in the SaaS market where companies focus on delivering and communicating clear value at each pricing tier.
Concluding our conversation, Scott left me with enduring advice: "Pricing strategy is a continuous journey. It requires a deep understanding of your customers, a willingness to make tough decisions, and the agility to adapt based on market feedback. Always keep the customer’s perceived value at the forefront of your pricing decisions."