Many products today are delivered as a service, with a tiered pricing model based on access to the service ("seats"), a measure of consumption of some aspect of the service ("metering"), or some combination of these.
The 5 Pillars of PriceOps define a methodology for pricing model definition and implementation that supports iteration, safety, and organizational alignment.
Who Should Read This Document
Everyone involved in the architecture and design of SaaS applications would benefit from adopting this methodology, but especially: engineering and product leaders, and founders of companies starting or re-evaluating their monetization journey.
What PriceOps Is (and Is Not)
PriceOps is a methodology that enables iteration and flexibility. It describes a set of implementation properties that facilitate pricing model exploration by effectively managing inherent complexity. Think of this as a set of architecture blueprints and best practices, which can assist in the ongoing development and refinement of your pricing infrastructure.
PriceOps is not a prescriptive guideline about how any particular product should be priced, or how such a price should be determined. Rather, it is a guideline for how a pricing model must be implemented to maximize flexibility and stability.
PriceOps is how to operate the pricing.
Pricing is a critical component of a product, touching all parts of the organization. The price incentivizes some user behavior and expectations, and discourages others. Support and sales often need to adjust prices for specific customers. Engineering must enable or disable features based on customer tiers and current usage. The pricing model positions a product among its competitors, vital for product marketing. Pricing models are critical for tracking and forecasting the financial performance of a company.
Like most aspects of a product, it is difficult to know in advance the ideal price structure for a product. Even friendly potential customers will misjudge their own future behavior and preferences, so the problem is low-information until engaging with the market. As the landscape evolves and the organization learns from interactions with the market, the pricing structure of a product must evolve.
It is unlikely that a product's optimal pricing will be arrived at without direct contact with the market, and even more unlikely that the optimal pricing today will remain so for long. Therefore, a pricing implementation must facilitate responsive iteration.
Poorly managed pricing is a common and costly problem. Once implemented, a pricing model quickly comes to be enmeshed in multiple interdependent aspects of the organization. Pricing changes introduce engineering instability, and distract engineering teams from improvements to the product itself. Product and marketing teams beg for resources and are unable to use the single most powerful tool to reposition packaging. Sales and support end up with a sprawling list of out-of-band adjustments to close deals and keep customers happy, which introduces further instability.
Changes in any area require changes across the organization, introducing instability. Each change to the pricing model tends to increase this instability, exponentially increasing the cost of iteration.
The Shape of a Solution
- A single source of truth programmatically drives the customer purchase flow, billing, and feature delivery.
- Separation of Ownership: changes in one area do not require tightly-coupled changes in any other area.
- Pricing plans can be added without changing application code, or affecting existing customers.
Many organizations have come to solutions similar to the 5 Pillars of PriceOps, often at the end of a long and costly process. There are several tools available to address parts of this problem, which can work well together. If built from the ground up according to the 5 Pillars of PriceOps, a SaaS product has a much higher chance of success.
The 5 Pillars
1. Pricing Model Definition
The pricing model is an append-only collection of versioned plans. Specific plan versions are immutable, so that adding new plan definitions will not affect existing users.
2. Customer Schedule
A "Customer" in the PriceOps architecture has a schedule of plans in effect at certain times, along with feature usage amounts. The plan in effect at any given time determines the price applied to the features used within that period.
As customers use features within the application, their usage is reported to a central data store. Usage can be tracked at the moment of consumption, or reported later, as appropriate. All features which might potentially be monetized are reported, even if they are currently free or unlimited.
4. Entitlement Checking
Entitlement to a given feature is always determined by reference to the single source of truth about the customer's schedule and the pricing model. Application code remains agnostic as to the names or versions of plans within the pricing model.
5. PriceOps Tooling
All actions to modify the pricing model, adjust a customer's plan or billing, or select plans to display on a pricing page, are done using tools that work directly with the single source of truth in a disciplined manner.