Kalor Lewis on SaaS Pricing Strategy

Kalor Lewis Introduction

[00:00:00] Joe Garafalo: Hello, and welcome to another episode of The Role Forward. I’m Joe Garafalo, and this episode is brought to you by Mosaic, a strategic finance platform that transforms the way business gets done. Today, our guest is Kalor Lewis, Vice President of Finance at Fivetran. Kalor, thanks for joining me today.

[00:00:18] Kalor Lewis: Thanks for having me, Joe. Glad to be here. 

[00:00:20] Joe Garafalo: Super excited to see you again, it’s been awhile. To kick things off, can you give us a quick overview of your background and the company Fivetran?

[00:00:30] Kalor Lewis: Definitely. I’ll start with my background. So, as you know, spent about five years working with you and some of the Mosaic team over at Palantir Technologies, building out the strategic finance. Over the past three years or so, I’ve been building the finance function at Fivetran. Started as a, as the first finance hire there

[00:00:47] and I’ve just sort of built, built everything zero-to-one, and joined when we were a pre-series A, all the way to just our recently announced series D. So, a lot of action in that short time. Incredible growth there.[00:01:00] 

[00:01:00] It’s been a really interesting experience to say the least. A lot of change, some of this we’ll talk about throughout the session here, but yeah, it’s been fun. 

[00:01:07] Joe Garafalo: It’s awesome. We’re super excited. 

[00:01:09] Kalor Lewis: And, for those that don’t know, Fivetran is what I would call the leader in automated data integration. So, we automate data pipelines from your source SaaS applications or databases into data warehouses to accelerate data analytics. 

[00:01:21] Joe Garafalo: Huge fans of Fivetran, we’re power users ourselves internally, all the way back from the early days of, of when we started the company, we knew how important and how big Fivetran was, was going to become. Kalor, thanks again for being here. We’re super excited to dive in and chat. Last time you and I had a chance to connect we were, we were talking about how you are raising a unicorn and going from that pre-series A all the way to the most recent round that you guys just announced, I think earlier this week. So, congrats on the $565 million dollar series D value in the company of over 5 billion, and the recent acquisition of HVR.

The Decision to Switch Fivetran’s Pricing Model

[00:01:59] Back when we were [00:02:00] chatting about a year ago, one of the hot topics we were talking about was a transition that Fivetran was going through, moving from subscription-based pricing to more of a consumption-based model. Seems like from the recent news that something, something did work there and we’d love to kind of dig in and uncover how you thought about that switch from, you know, subscription-based pricing to consumption-based pricing.

[00:02:21] So, can you give us some background on the decision to switch?

[00:02:27] Kalor Lewis: Definitely. And, you’re right. Something did work. But, It, it didn’t come without some issues, so I’ll talk in a little bit. But, yeah, the number one reason for making the switch is that our old pricing and for context, we were on subscription pricing, we charged a fixed fee annually per connector sold, but that pricing was not aligned with the value that our customers were getting. It was as simple as that. We moved data, and we thought that measuring the data of the volume that we’re moving would be a much better measure of the utility that [00:03:00] some folks can, can lean into per user pricing that doesn’t apply to us. Some folks are just selling one software, and can charge off of that.

[00:03:10] Also doesn’t really apply to, and a couple of other considerations, our space just the, the cloud data interspace, whether it’s competitors or or, ancillary tools, this, this entire space people charge on data volume almost exclusively. And so, it just put us much better in with the market, and ultimately it was a better measure of, of how our customers were actually benefiting from 

[00:03:32] Fivetran.

[00:03:33] Joe Garafalo: Yeah, absolutely. So, it sounds like some clear advantages and disadvantages of the consumption-based pricing work to align the value that you guys were creating for your customers with the upside that, that you can share on the revenue side. What were some of the disadvantages in making the move?

[00:03:46] Kalor Lewis: Yeah. The disadvantages, there, there are a lot of operational hurdles. I’ll talk about those in a minute. From the customer perspective, there’s unpredictability, right? Customers don’t have a great sense for, or it’s [00:04:00] difficult to get, get a great sense for how much are we really going to spend.

[00:04:03] Sure, a lot of folks out there you resonate with that, and they’re hosting infrastructure bills, seem to be climbing month over month, right? And, and we run into a little bit of that problem as well, just with the optics and the predictability. 

Finance’s Role in SaaS Pricing Strategy

[00:04:17] Joe Garafalo: Absolutely. But I think, to be fair, you guys have put on a masterclass with the pricing structure and the transparency. It’s super easy to understand, so I would encourage anyone to go to your pricing page on Fivetran’s website, just to see how it all works, and it’s very clear once you’re kind of in the loop. But, but I think one of the topics I really want to dive into is most folks in finance don’t ever really get a seat at the table when it comes to pricing and packaging, but it sounds like you were pretty integral to the overall move from subscription to consumption. Can you talk about what, what the role finance was that you played? 

[00:04:54] Kalor Lewis: Yeah, and your point, I, I, I think it’s really important for finance to have a seat at the table. There are so many [00:05:00] different factors that our pricing affects, from our go-to-market sales motion to all of our financial modeling and our success as a business. But at the same time, just because it’s dollars and cents doesn’t mean that the other perspectives are not important, right? You have to consider the customer perspective, “How are we going to market this?” Even the product team has a big say in this, they’re building the infrastructure. But ultimately for us, we wanted to make sure that the new model was going to make sense. There was a lot of consideration and a lot of data that went into that: From just studying the market, what other folks do, understanding our customer behavior and how they use the product and how can we make a model that works for all customers. And there was, a lot of nuance to that, it was very tricky, to get a model that from a numbers perspective for everybody. The first iteration didn’t quite get there, but we’ve, been integrating to iterate, and, and finances is there all along the way.

Another pretty important factor is really just trying to understand what’s the end goal, what’s the financial going to be, you know. It’s, we went into this eyes wide open that, hey, we, [00:06:00] we believe there was going positive, our revenue, but it, it wasn’t going to be bumps in the road.

[00:06:04] Some customers were going to get smaller, some were going to get larger, and it was really important for the finance team to have a good understanding of that because it, it affected our, our planning and our numbers for quite a while. 

[00:06:14] Joe Garafalo: Yeah, that’s a really good point. I mean, how do you, when you think about financial model, one of the the most important things that we can do is drive predictability in our financial models, and when you move to a consumption-based model, you lose some of that predictability. So, how did you kind of adjust and account for that?

[00:06:31] Kalor Lewis: The predictability is all out the window. There are ways to accommodate for that and some consumption-based pricing models. Some folks can think about annual contract minimums or things like that. We didn’t do it that way. It was just pure consumption-based. And, but going into it we studied the data really hard, we tried to poke holes, see what could go wrong, do some sensitivity analysis to figure out how far, how could we miss here. But on [00:07:00] a go-forward basis, we’ve learned a lot. We have a lot more data. We have a lot of customers that we can lean into for understanding how customers use the product, and I recommend segmenting the data as much as possible based on customer size and for us it’s customer size or region or industry, what have you. All of these factors, at the end of the day, do correlate with how our customers are using the product and how they’re using it. The other thing a little more of bespoke to Fivetran or just the actual use cases that they have, the source data that they’re connecting through Fivetran, all of these can help educate us on, well, how are these customers going to grow and use the product in the future, and what is that going to mean in terms of our revenue. 

[00:07:39] Joe Garafalo: I love that segmentation, putting customers into different prototypes or buckets that behave a certain way or that you expect to behave a certain way, which, which kind of brings me to my next question around what kind of shifted in terms of the tools that you were using, going from subscription-based pricing and financial modeling to more of the consumption-based pricing? Was it, [00:08:00] new software? Was it existing software or your own internal software that helped?

[00:08:05] Kalor Lewis: Yeah, I’ll tell you Joe, this has been one of the most, the. The infrastructure required to move to a consumption-pricing model is very different than a traditional, you know, SaaS subscription model. For us, there were many things: our billing system needed change, our Salesforce and CPQ implementation got a major overhaul, our products and engineering teams have been very involved in actually measuring the consumption itself, so there’s a whole new element that you bring in with the product infrastructure. Yeah, and then we’re now a much more sort of self-service oriented business than used to be, so the payment and infrastructure all changes as well. So, anything you can think of will require an overhaul, and that’s actually one of the things to really plan for it, if you’re ever going to this change because you can’t mess up customer billing, right? It’s very important to have a smooth experience but it’s hard to execute when you move to consumption-based model. 

Challenges of Switching to a Usage-Based Pricing Model

[00:08:54] So, Kalor, when you were going through this transition from subscription-based pricing to [00:09:00] consumption-based pricing, what were some of the operational hurdles that you had to overcome to accommodate the process?

[00:09:06] Kalor Lewis: Yeah, well, there were a ton just across the business. I mean virtually every team is affected by this type of change. For the finance team in particular and our leadership it was really just trying to understand what was going to happen, so we did a lot to study the data, and our particular unit of measure that we were going to move to, we did not have much data on it. We had usage data, other types of it, and we had to make some aggressive assumptions on how’s this going to translate to our new model. And so, we did a lot of stress testing to just understand, you know, how, how customers might be pricing in this new model, and some of the changes were drastic. So, just thinking through all of the edge cases and everything else was, was particularly challenging. And, not only that, we were maybe a little too aggressive in some of the uplifts we were going to get from this. In this type of transition, you need to be conservative about how much increase in revenue you really, you might really [00:10:00] get.

[00:10:00] But, it was certainly helpful having a tool like Mosaic to help us do a lot of the scenario planning and just better understand the impact on our financials, and in these various things that we were trying to plan for. 

[00:10:12] Joe Garafalo: Yeah. I mean, I love to hear that. Obviously, customers being happy makes me happy. I think, to, to double click on some of the points that you just made there, so obviously if there was a customer that had a Salesforce connector and they had a million rows of data versus a customer that had a billion rows of data,

[00:10:28] the value that to the customer, you know, with a billion rows is, is, is now going to be much greater. So, it sounds like some of that may have been easy, but was there a good historical data to base those decisions off of to get that revenue off-foot (uplift)?

[00:10:42] Kalor Lewis: Yeah. Yes and no. Like I mentioned, the, the unit of measure we were moving to, if you look at our website, we use something called “monthly active rows” and there’s a particular definition on that that is advantageous to the customers, but it’s not something we tracked historically. So, we had raw usage, and depending on use cases that doesn’t [00:11:00] always align exactly to the, the measure we were moving to, so we had to do our best to understand a small amount of data, use that to extrapolate as best we could and to the impact we would have on particular customers. And, I’ll tell you that, that exact statement that you made is, is one of the major advantages for us in moving to this model, but for each customer, the pricing historically was a little bit inconsistent, to say the least, and some customers were going to be decreasing substantially in price, some are going to be increasing substantially in price, and there were, there were a lot of wild swings that we had to do a lot to accommodate both on the planning side, but also in the execution phase with, with our CS team and sales teams. So, certainly made for a lot of challenges, but well worth it. 

[00:11:48] Joe Garafalo: Yeah, for sure. Was translating that raw usage data that you had from the application originally to the monthly active rows, which was the new unit of measure for the consumption-based pricing, was that a finance activity or is that [00:12:00] more a product or end?

[00:12:02] Kalor Lewis: It was a collaboration, for sure, I think. When understanding the financial impact, certainly a finance activity, but a lot of it required going pretty in depth with, with our engineering teams. At the end of the day, that’s all, the product infrastructure and measuring our usage and how customers are using the product,

[00:12:18] and so again, it was highly collaborative. I would say that’s one of the major things throughout this entire process, and we talked about this earlier with, you know, and talking about who has a seat at the table, everybody needs a seat at the table. This type of shift is monumental for a business and can’t leave anybody out. 

[00:12:35] Joe Garafalo: Absolutely. I hear you. And, it feels like consumption-based pricing is more and more becoming the norm. I think one of the things that our audience should, should really know is that when you’re, when you’re dealing with these consumption-based pricing models, can you talk about the relationship between finance and engineering and product and how important it is to be in sync so that you can actually get the right level of transparency, those of [00:13:00] visibility, and understanding from the product that you need to do

[00:13:04] things like reporting and planning and modeling and understanding what the future may look like.

[00:13:09] Kalor Lewis: Yeah. Yeah. The synergies between those groups really accelerate in this type of model because like I mentioned, the, the product and engineering teams are really close to, well, how are we actually measuring the consumption, and it’s not always as simple as “count the number of rows of data.” It can be a little bit more complicated than that.

[00:13:27] So, when you think about entire pipeline from the customer using the product to measuring that, to getting that system rating that appropriately depending on, you know, volume, tiers, and discount levels, things like that, there are a lot of dependencies all throughout and those teams to be in lock step on side you needed to be, you know, talking about the requirements of getting this implemented. You have to get ahead of any potential changes that you’re going to be making, because again, things in sync, and once you move to this model, engineering, products, marketing, sales, [00:14:00] finance, they’re all forever entangled. 

[00:14:02] Joe Garafalo: Absolutely. What is, what is it, a world-class level of collaboration look like there? Is it weekly syncs, monthly syncs? Is it a piece of software that may help there?

[00:14:14] Kalor Lewis: Yeah, I think, um, you know, when you’re making the transition, it’s at least weekly, right? There, there’s a very detailed project plan that you need to put into place. Many different stakeholders are involved, many different opinions are involved, and unless you have a very detailed and clear plan, it’s going to be tough to execute. On a go-forward basis, so I think having something on a monthly basis is also really important just to talk about changes, challenges, what are customers seeing, what’s difficult on the engineering side, what’s difficult on the finance side. The project never really stops. I think that’s one thing that we learned and weren’t necessarily prepared for either is that the implementation took quite a long time and it’s still not really over. We’re still making tweaks. We’re still optimizing the systems involved in the infrastructure involved, I think some folks may feel like the pieces are just holding together, but I, I think a lot of companies in [00:15:00] this model will tell you that, and, it’s really important to just, to just know that you’re all one team going forward when it comes to managing a consumption-based model. But despite those challenges, it really works, you know, if that model is right for you, the upside is there and I think it’s really advantageous to the customers. 

Lessons Learned on Switching Pricing Strategies

[00:15:16] Joe Garafalo: Absolutely. And, I mean, pricing, it doesn’t really matter if there’s no value there, and it’s clear that, that you guys are creating tremendous value for your customers, which makes the whole process easy. What do you think it’s been about 18 months since the switch? What would you have gone back and done differently if you had to advise a customer kind of going through the same thing going forward?

[00:15:42] Kalor Lewis: I think we would’ve sought more external advice. We thought we had a really good handle on how other companies like us did pricing. We didn’t really think about the nuances–well, stepping back, we thought about the nuances of our business quite a lot, but we didn’t understand how those were [00:16:00] going to mesh with this type of model. So, I think seeking some external advice, whether it’s consultants or just getting a panel of advisors together folks, who have gone through this, I think would have helped. And, the other thing is probably just a little bit more scoping, particularly on the infrastructure side, we really wanted to rip the bandaid off and just get this done and market with it, but we didn’t allow ourselves enough time to get all our ducks in a row on the infrastructure side, and it created a lot of pain for teams internally. We made it work, but I think things could have been a little smoother and slowing down to speed up may have benefited us. 

[00:16:33] Joe Garafalo: The classic and that advice is, is all too real. It resonates with me at Mosaic and it’s, it’s always been the case working at, you know, high-growth-venture backed company. Totally. Last question for you on the topic of, you know, subscription-based to consumption-based pricing, how did you guys handle renewals with existing customers. Did you guys grandfather in, how did that process work?

[00:16:54] Kalor Lewis: Yeah, we thought about this lot ’cause we knew it would create friction, especially in a company [00:17:00] like us. We’ve been growing quickly. We’ve made pricing changes before, nothing as this, but we were sensitive to the fact that it wasn’t the best customer experience to dramatically change pricing.

[00:17:09] However, we knew this was going to be a foundational shift for us and it was really important for us to more or less rip the bandaid off, so when it came to renewals, we didn’t allow folks to stay on subscription-based pricing. We had everybody move to the new model. This did make us more flexible, when discounting was appropriate or extra discounting was appropriate, we were thoughtful about what customers were going through and what this transition meant for us. So with that, the customer success team was very closely involved and went deep with every single customer and they required more resourcing to get this done

[00:17:44] and their priorities to get this done. At the end of the day, again, we felt it was, it was much better for us to, to just make the transition, not try to operate two models for too long. It would’ve made, it would have really impeded any progress we could make in the future if we had done that. 

Finance Career Advice from Kalor Lewis

[00:17:59] Joe Garafalo: Cool. Well, it [00:18:00] sounds like it was a wild success, so congrats on all the recent milestones that you guys have, have kind of conquered. Excited for the future, especially with the new acquisition of the HBR that you guys just added to the squad to wrap things up here, one question that we always like to ask all of our guests, anyone that’s, you know, aspiring to be a CFO or VP Finance, what piece of career advice would you like to share that you wish you knew when you began?

[00:18:28] Kalor Lewis: That’s a good one. 

[00:18:29] Joe Garafalo: And, to take our viewers back, I’ll give you a second to think. So, Kalor and I, we actually met at a career fair when we were recruiting for Palantir and Kalor was an intern. I think he was going through a senior year and we picked him up that Palantir and he just excelled so quickly. I think it was pretty tremendous of him to go in and, and pick up some of these more technical programming languages like SQL and like Python because that’s, I think where the, where the spaces is headed, is so much more technical, so much data-intense, so much more about, you [00:19:00] know,

[00:19:00] things like Fivetran, ETL and Pipeline Driven to really be that, that next generation of CFO. So, props to you, Kalor, and it’s been a fun ride working together all of these years.

[00:19:12] Kalor Lewis: Well, thank you, Joe, I appreciate that, and, you know, I learned a lot from you and the entire team over there, so it was a lot of fun. But you gave one free of advice right there, I think for me, using that as a segway a little bit. Of course, being more technically savvy, more data-savvy was helpful, but ultimately it was just getting my hands dirty in as many workflows as I could, learning things bottom up, and wearing as many hats as I possibly could. Really helped with where I am today, able to build things and really understand how they work, understand dependencies through and through, it’s been a tremendous help just being able to speak the language of all the different finance functions. 

[00:19:50] Joe Garafalo: That’s so true. I mean, if, if you’re in the weeds in the beginning of your career and you’re sending invoices to customers, you understand what’s going on the invoices, which means you know how the [00:20:00] product is working, you’re seeing how customers pay and all of that, you know, snowballs into being able to build a consumption-based pricing model, segmented by customer to understand, you know, how that’s going to affect future growth.

[00:20:11] Totally resonates with me. Cool. Well, Kalor, thanks for joining. Really appreciated the insight. It’s a very hot topic. A lot of customers, Mosaic customers, are thinking about moving to consumption-based pricing, and I know that they’re going to, listening to all the insights that you shared today.

[00:20:25] Kalor Lewis: Great. Thank you, Joe. 

[00:20:26] Thanks for having me. 

[00:20:27] Joe Garafalo: Awesome. We’ll talk again soon, right? Bye.