In a detailed YouTube video titled "Unlocking Pricing Power Post Private Equity Acquisition: A Playbook," the pricing experts at Monetizely explain how even minor pricing adjustments can dramatically increase valuation for PE-owned SaaS companies. The presentation walks through a systematic approach to revamping pricing strategies after acquisition, highlighting the often-overlooked power of pricing as a growth lever.
Why Pricing Power Matters for PE-Owned SaaS Companies
Pricing is perhaps the most underutilized yet powerful lever for SaaS growth after a private equity acquisition. As explained in the video, "Pricing is the fastest profit multiplier in SaaS. Private equity investors like Thomas Bravo know this. They often zero in on pricing as one of the first few key levers to drive value in a portfolio company."
The impact is direct and significant: every dollar of ARR added through better pricing gets multiplied by SaaS valuation metrics on exit. Yet many SaaS founders set pricing early and rarely revisit it, creating an opportunity for PE firms to unlock substantial value.
The presenter emphasizes this point clearly: "By the time a PE firm comes in, the product has evolved and delivered more value, but the monetization hasn't kept up." This disconnect between value delivery and value capture represents a significant opportunity.
The Six-Step Pricing Transformation Playbook
The video outlines a comprehensive methodology for unlocking pricing power post-acquisition:
Step 1: Conduct a Pricing Audit
The process begins with a thorough examination of current pricing practices. This audit should evaluate:
- Customer segments
- Discounting patterns
- Pricing processes
- Competitive positioning
"Are similar customers paying wildly different prices due to ad hoc discounting? Is the product underpriced relative to competitors or the value that it provides?" These questions help identify immediate opportunities and long-term value drivers.
A pricing audit helps build the case for change by revealing where money is being left on the table. The presenter mentions their Aligner tool, which helps identify internal alignment (or misalignment) on pricing strategy.
Step 2: Resegment Your Customers
Most companies experience what the presenter calls "ICP Drift" - where their actual customer base has evolved beyond their originally defined ideal customer profile.
"At a certain point in the past, the company would have decided upon its customer segments. But then things happen. New customers come on board, new sellers arrive, new segments are found," explains the presenter. When this segmentation becomes outdated but packaging remains static, it creates pressure for discounting and hurts net retention rates.
Resegmenting immediately after acquisition provides a clear picture of who you're actually selling to, creating the foundation for all subsequent pricing decisions.
Step 3: Revamp Packaging
Packaging is described as the equivalent of creating "first class, business class and economy class sections in your airline" - it's how you implement price discrimination effectively. In enterprise sales, the difference between what different customer segments will pay can be enormous.
"In an enterprise company, it is possible that an enterprise may pay you 5 million and a mid-market customer may pay you $50,000 for roughly the same product," the presenter notes.
The video cautions against dogmatic approaches like automatically implementing "Good, Better, Best" tiers, citing Gainsight as a cautionary tale:
"At a certain time in its growth, Gainsight implemented Good, Better, Best. But it turned out that all of its mid-market customers gravitated to the middle tier. Even enterprise deals were being sold with the middle tier and the top tier features were largely left unused, leading to a lot of shelfware."
Instead, packaging should be tailored specifically to the needs of your identified segments.
Step 4: Choose the Right Pricing Metric
The pricing metric is "the unit of value that your price is based on." This could be API calls, gigabytes of data, active users, or any other measure. The key is ensuring alignment between how you charge and the value customers receive.
"Post acquisition, you should ask, are we charging in a way that aligns with customer success? And are we making money when they are successful?" explains the presenter.
The speaker offers an example of misalignment: "A SaaS analytics tool that charges per data point stored, as a customer's usage grows more and more data is collected, the bill may keep rising. But if the data isn't directly translating to business outcome, the customer may feel punished for using the product."
The video also advocates for considering hybrid models that combine subscription and usage-based components: "A common pattern is a platform fee plus a variable fee for heavy usage."
Step 5: Setting the Price Point
With segments, packaging, and metrics established, the next step is determining actual price points. This involves balancing:
- Historical sales data
- Competitive benchmarks
- Customer willingness to pay
- Your value proposition
"You might find, for example, that 80% of deals closed at a 40% discount to list price. This is indicating that discounting was rampant and policies were not being adhered to," notes the presenter.
The video recommends using methodologies like the Van Westendorp price sensitivity analysis to validate pricing decisions. Most importantly, it suggests that companies shouldn't fear raising prices when the value supports it: "Many times, companies tend to underprice and especially if pricing has not been revised in a year or two, you can bet that so much value has been added that it begets a price point increase."
Step 6: Operationalizing the Pricing Model
The final step focuses on implementation and is "where many pricing strategies succeed or fail." This involves:
- Systems and tools: Updating billing systems, CPQ, and potentially the product itself to support new pricing.
- Sales enablement: Training the team and providing tools to sell the new pricing effectively."Without enablement, reps might resort to old habits, deep discounting or selling outdated packages, which can sabotage the strategy," the presenter warns.
- Policy and governance: Establishing clear discounting guidelines and approval workflows."A common mistake is to design new pricing but not adjust or change discounting policy. So then sales giving too much latitude to sales is not a good idea."
- Customer communication and change management: Planning careful communication for existing customers, including potential grandfathering strategies.
Common Pitfalls to Avoid
The video highlights several pitfalls that can derail pricing transformations:
- Misaligned stakeholders: "If your executive team isn't on the same page about who you're targeting and what you're trying to achieve… your pricing project will run into constant friction."
- One-size-fits-all packaging: Trying to use the same packages for different segments leads to shelfware or missed opportunities.
- Sudden or unearned price hikes: "If the same product and features are available for a lower price somewhere else, they will move. And software, as you should understand, is the most highly deflating market, not inflating market."
- Poor execution and rollout: Technical glitches, untrained sales teams, or outdated materials can undermine even the best pricing strategy.
The Bottom Line for PE Firms
For private equity firms that have acquired SaaS companies, pricing represents an immediate opportunity to drive substantial value creation. As summarized in the video:
"Pricing is critical because it directly drives revenue, profitability and market value, all while maximizing the value of the product that you've invested in."
The compounding effect of pricing changes makes early action particularly valuable: "Pricing power compounds over your holding period. So the earlier you start, the better."
By following this structured approach to pricing transformation, PE firms can unlock significant growth and profitability in their portfolio companies, potentially turning small pricing tweaks into major valuation boosts.