In a recent YouTube video titled "Expensive CT Scans and the pitfalls of top tier SaaS pricing consultants," Ajit, the founder and CEO of Monetizely, draws a compelling parallel between unnecessary medical testing and overpriced, ineffective pricing consultancy work in the SaaS industry. He highlights how well-known consultancies often recommend complex methodologies that may not serve the actual needs of enterprise software companies.
The Healthcare Parallel to SaaS Pricing Consultancy
When you visit a prestigious hospital versus a small medical practice, have you noticed the difference in approach? Ajit points out this stark contrast as a foundation for understanding what happens in the pricing consultancy world.
"Here in the west as well as in a lot of other countries, if you go to a big-name hospital when you have any problem versus if you go to a small doctor, what is this big name hospital doctor incentive to do? Order up a lot of tests, blood work, CT scan, send you down the chain, takes you many weeks, gets all of this done just to be sure, just to be on the safe side," he explains.
This scenario creates a situation where costs pile up unnecessarily, often due to an abundance of caution rather than genuine medical necessity. According to Ajit, this same pattern appears in the pricing consultancy space for SaaS companies.
The Conjoint Analysis Problem
One specific methodology that Ajit criticizes is conjoint analysis—a market research technique often recommended by premier pricing consultants despite its questionable applicability to enterprise software pricing.
"There will be unsuspecting enterprise companies who work with premier brand name pricing consultants who will immediately recommend hardcore testing approaches such as conjoint analysis, which really were invented more for, let's say, FMCG sort of products, not really, don't really easily fit into the enterprise software setting," Ajit states.
The consequences of this misalignment can be severe for companies that follow such advice:
"We've had a bunch of customers now who spent 100 to 200k or more sometimes money on conjoint analysis where these projects have not gone anywhere. Never they have not given actionable results to these companies, and they've been frustrated and completely turned off of consultants as a result."
Understanding Consultant Incentives
Why do consultants recommend such complex methodologies even when they might not be appropriate? Ajit suggests that it comes down to basic business economics.
"When you go to a big brand name hospital or consultant, they have mouths to feed. They have a high cost burden. Therefore, their projects need to be at a certain size, let's say 300K, 200-300K or more, and if their projects are not on this side, it doesn't work for them."
This creates a natural incentive for consultants to recommend complex, expensive approaches regardless of whether they're the right fit for a client's specific situation. Even when these approaches are data-driven, they may not necessarily translate to useful outcomes in every business context.
"Even if it is a data-backed approach, it doesn't mean that that data-backed approach will work in your case. In many cases, it may backfire, waste months of your time, not to mention the money," warns Ajit.
How to Choose the Right Pricing Consultant
So, how should SaaS executives approach pricing consultancy to avoid these pitfalls? Ajit offers straightforward advice:
"I recommend whenever you are shopping to get some help and consulting done, to understand the behind-the-scenes biases of this consultant. Do they win when you win, or are your incentives different?"
This alignment of incentives is crucial. When selecting a pricing consultant, it's important to find one whose success is tied to your actual business outcomes, not just to completing an expensive methodology regardless of its results.
Conclusion
The parallel between unnecessary medical testing and ineffective pricing consultancy reveals an important truth about professional services: complexity and high cost don't always translate to better results. For SaaS executives looking to optimize their pricing strategy, understanding this dynamic is essential.
Before investing in expensive pricing consultancy services, consider whether the recommended approach truly matches your specific business needs and whether the consultant's incentives align with your success metrics. As Ajit's experience shows, the most expensive option is not always the most effective one, especially when it comes to the nuanced world of enterprise SaaS pricing.