Estd 4.22.2023
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Nosto delivers personalized shopping experiences for ecommerce brands. In this interview I spoke to Kevin Paiser, Global Head of Sales at Nosto about multiple pricing changes he has been a part of during his tenure at Nosto.
I joined Nosto six years ago and our story has been quite a roller coaster - in that the growth has been revolutionary. We do product recommendations on e-commerce websites, like those you see around Amazon. It’s all about automating for a merchant and personalizing it for consumers, based in particular on their behavior on the website. We tend to be more focused on mid-market clients.
When we started out, our go-to market commercial strategy was on a cost-per-acquisition model. Our client would use our software and only pay on sales that we helped them generate. We got paid a percentage for everyone who clicked on a product recommendation, and then converted within the same online session. In order to power this, we’d track events that happen on a website. If the customer ended up buying after clicking on something that was generated by our solution, we would basically charge clients a commission for that sale.
It was a great pricing model because it was ostensibly “risk-free”. Clients only paid on conversions. So, we got massive product adoption — and this model helped us to really grow.
And yet, the unpredictability of how much revenue we would make - was a risk for us, as a growing business. A client could have a bad month all of a sudden, and we don’t make a lot of sales because they don’t. Alternatively, you have a very big peak and you can make a lot of sales. If a client took the feature away on the website, we made no money. While being risk-free for the merchant, it was actually very risky for us.
This pay-on-performance model lasted for four or five years, since the start of the company in 2013.
We eventually changed into a monthly fee-fixed model by 2017-18, primarily because we expanded our product offerings. We began to realize that the newer products didn’t quite fit the pay-per-click/cost-per-acquisition model, and were more about consumer engagement. We needed to basically come up with a model that incentivizes clients to use more products, while keeping a fair pricing model.
We did a fixed monthly fee that was set, based on the revenue of the merchant. If a merchant got in $5 million on average, they would pay us based on the conversions we were getting before. We put together a rate card, saying, “Clients of X to Y revenue bands would be paying us A to B on average.” A pricing table was created based on this. Then, if one more product was added (by us or them), we charged a little bit more.
A lot of vendors in our space charge a license fee as well, but that is based on site traffic levels. We decided to stick to revenue as our main value metric, since it is the best measurement that gives the client a feeling that we’re there to grow with them. As they grow, we do, too.
That’s the main evolution we had; a fixed model to provide all products within a set plan.
We then introduced three levels of plans: Starter, Premium and Enterprise.
Once we made this change, we saw some clients say they didn’t want specific products in their plan. We packaged it all basically believing that they would adopt everything. But clients came back wanting to remove certain products and reduce the fees accordingly.
Again, we moved to modular pricing. Instead of three plans, we just kept a ‘Build Your Own’ plan option.
Now, when someone wants to access Nosto, they first pay a flat license fee based on revenue. Then, we ask them what modules they want, each costing X or Y based on their size.
In addition, we’ve also started charging for services. When you do a lot of things for free at the beginning and when you change that internally, there is massive reservation, say from the sales team.
But when we started doing it, we realized that clients didn’t question it, because they expected to pay those fees! So now, we charge fees for implementation, onboarding and training, or other things that were previously usually done for free. This has become another good revenue stream for us.
In our initial paid-on-performance model, our pricing strategy was explained only on our website. There were no contracts signed. Once we made our initial pricing change, we began to sign contracts. We had to get educated on the process of creating contracts, negotiating on them and the terms that people come back with when you sign 12-month contracts. A big part has also been educating sales representatives on how to handle objections, because they were used to a very easy sales pitch earlier, “Use it and if you don’t make any sales, you don’t pay.” But, the license model change was very different.
Now with the third evolution of our pricing, we make sure that the reps are prepared. Here’s how we do it:
Putting proposals together has been another struggle, like how best to insert a nice slide that looks at the proposal of pricing, but does not confuse clients. At the beginning, a lot of salespeople thought they could send ahead three or four options. But clients would see too many numbers on the slide and get confused. So, we focused on making nice, presentable pricing that didn’t feel chaotic, and was easy for the client to comprehend.
Another thing that comes with pricing is a set of the rules of engagement regarding discount approvals. With every client, there’s negotiation — but you also want to give some freedom for a salesperson to provide some discount levels, and know how and where to ask for certain approvals. We’ve had to create quite a few processes on how to do these approvals, and determine who can give out the next level of discount.
Kevin Summarizes the Outcomes
The main shift that helped our kind of business was obviously predictability, but we’ve also now been able to add new products to increase our average deal size significantly. We've managed to create modules that we would have struggled to sell before. So, we’ve allowed our average deal size value to increase considerably, and created the possibility for the Customer Success team to upsell more proactively - throughout the lifetime of the customer. Finally, we’ve added a services revenue stream that didn’t exist earlier, based on this pricing change.