Product Marketing: 8 Budget Realties to Keep in Mind When Pricing

The way buyers buy should be factored into how products or services are priced.

Over the course of my career my budget responsibilities have continued to mature. From having nearly no visibility into the budgeting process, to contributing to the development of the budget, owning the responsibility of accounting for budget, and more recently in the past four years or so complete spending autonomy over how approved budget is utilized. I value the experience because it helps in understanding some of the nuance and art to pricing products and services from the perspective of the buyer.

Too frequently there are some realties of the way corporate dollars flow that are completely ignored in pricing exercises.

Here are 8 budget management realities to consider when developing a price plan for a product or service:

• Performance analysis: Budgets are rarely evaluated on a monthly basis. This
  is why there is a budget. It is the spending roadmap for the year and there is an expectation that you’ll stay on course. Quarterly analysis allows for evaluation and course correction.
• Approval Thresholds: Every company of nearly every size has spending thresholds that are used to determine who can spend what budget. From the small partnership who agrees that both partners will agree before X is spent to the global conglomerate who establishes specific criteria of spending at varying levels of management.
• Approval Process: When spending requires multiple approvals complexity is increased. Most would rather avoid the complexity.
• Service Levels Matter: Owners of budget want to know that their cost is clearly defined with no ‘hidden’ expense. Therefore regardless of the service or product there is an expectation of a specific degree of service level that is either implicitly or explicitly defined.
• Maximizing Value: Budget owners want the most for their money. Sounds like a no brainer, but there are elements to every product or service that help the consumer fix incremental value to what is being paid for above and beyond the product or service itself.
• Negotiation is Critical: Even in today’s cloud computing low cost subscription world everything must remain negotiable. It is part of maximizing value. There is some negotiable element to the agreement that will matter. Sometimes it could be increased service level agreement another, length of contract. The point is that there must be room to make the product or service fit specific needs.
• Length of Term: If quality and service levels are committed to then there is a greater likelihood that budget owners will agree to a longer term.
• Categories are Defined: Budget is typically bucketed against a certain percentage of specific expenses and a certain percentage of categorical expense. If the expense does not fit either then the product or service is poorly aligned to need

What budget realities affect how you purchase products or services?

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