The renewal date is yours too

Frédérique Joos does not do pricing for a living. He is a partner at Cambrian, an Antwerp law firm for technology companies, and he heads their technology team, so his days go to commercial and technology contracts. That is why I wanted him in Tentacles of Pricing. I spend my days on the number and the model, he spends his on what happens to that number once it is signed, and that is the part of pricing most founders stop looking at after the handshake.

Day one is the easy part

My first question was whether a founder should talk to legal before thinking about pricing. Yes, he said, on two levels. The first one every founder knows: how do I get what I sold on a PowerPoint into a contract. The second one he calls the biggest challenge in pricing and contracting: “how are we going to address pricing through time?”

Day one is clear. But you want a commitment of two, three, four, five years, and your product keeps evolving for two, three, four, five years (that is a lot of releases for the same invoice). So how does the price move with it? Procurement departments have thought about this longer than you have. They want the pricing fixed on day one and every freedom to push it down afterwards.

Functionality is your lever

What you have that a procurement template does not is an evolving product. His advice: do not promise future functionality inside the same price. Then every new module is a new thing to sell, and a new reason to reopen the price. Ideal in his view is a long commitment from the customer, with a roadmap in your head, not in the contract, of how product and pricing evolve together.

I like that one. It turns a demand into an offer. You do not come back asking more money for the same thing, you come back with something new.

Two slides in, 150 pages out

The pattern he sees over and over. You start with two or three slides: a price, a term, a handshake and then the translation starts. Procurement agreements of 150 pages, or a contract with 17 annexes and 140 pages, and somewhere in there the customer’s commitment gets hollowed out while yours gets firmer. They can walk away, they can demand better pricing, at the aggressive end they add most favoured nation clauses. You are locked into the term and the price. In older industries he even sees clauses that ask a supplier to pass on falling raw material prices. Try translating that to software.

That is a very asymmetric situation, and it gets built during the translation, page by page. So his advice for that phase is not a legal one, it is about attention: keep founder and legal close, keep the eye on the deal, and keep asking two questions, what are we giving and what are we demanding. It can be tiresome for a founder, he knows. Go in with your three slides still in your head and “you might end up with a different deal at the end when you sign.”

You can still walk away

I asked him whether he is even at the table at that point, or whether that only goes for the first clients. Depends on the sector, he says, some clients bring him in for the first customer already. And the first customer contracts he sees in due diligence are “not run-of-the-mill”. You went the extra mile to get that customer in, and it shows.

His distinction is the useful part. Bad terms come in two kinds. The first kind stays between you and that one customer: terms on the technology you still have to build, on the price, even on the mechanism. Contained like that, it is a bad deal you can live with. The second kind spills over. A first customer who weighs in on your development, demands functionality, and on top of that wants most favoured nation, best terms and best price for as long as you exist. That kind reaches your other customers and your future investors, and those are the terms you walk away from. “You always can walk away.” Founders, he sees, are often too afraid to.

The renewal date is yours too

This is the part that became the clip. I brought him a case from my side: a company whose contracts end every year, customers have to recommit every year, because that gives them full flexibility. His answer was double. A customer who has been burnt by vendor lock-in reads an annual reset as a threat. And you do not need it, because the clause you already have is probably mutual (read it again). Annual contracts renew tacitly unless someone stops them, say three months in advance. “Founders often forget that they have the same right.”

So four months before renewal you go to your customer: this no longer works for us, here is the new price, we agree or we stop next month. Not every year, he adds, but if you never documented which modules you were selling and you feel you are shipping a much broader product for the same old price, it is your way back to the table. Another case from my side. One of my clients does it the blunt way: product on one side, services on the other, and when the software contract no longer suits him, he raises his services prices tenfold to force a negotiation. Frédérique’s reaction: that is exactly what makes procurement fixate every pricing element you have, and a confident startup should trust that its technology is good enough for customers not to walk away over a small pricing adjustment. Weaponizing one element of your pricing to squeeze another is not his style. My reply: if the other one is blocked, it could be a weapon. His: that could be.

Procurement is not the enemy

Is procurement so bad? No, it has a role, thousands of suppliers to manage, and it comes with a template written for Microsoft or Oracle (they did not write it for you). Steer the discussion to what matters to you and to what you cannot do, and swallow the rest. One thing you cannot steer around: the moment real business data or personal data enters your system, the security standard applies, small deal or large deal. A proof of concept on dummy data is off the hook. Land and expand through services works right up to that threshold, then the exhibits arrive: IT security, data privacy, ESG. In pharma or chemical there is no way around it, so get used to it early.

AI on the invoice

I asked him about AI, because that market is quicksand for anyone pricing a product today. “It’s quicksand and everybody’s struggling currently”, his own clients included. On the product side it is manageable, the AI sits under the hood and you know what you use. The struggle is on the customer side: the business wants AI, the IT security and privacy people hold it back. And nobody signing a three-year deal today wants to commit to what AI usage will cost in year three.

His answer: be transparent and keep the variability in the contract, which contractually is fine. Treat AI as a raw material you buy and sell on, give the customer visibility on it, and the price stays variable where the cost is variable. How much you reveal about which AI you use is another question. Pretending the cost is fixed is the one thing he would not do.

Cambrian has this discussion with more than one client. Their technology team hosts a roundtable on it, how do you deal with variable AI costs in your business and contracts, on Tuesday 8 September, 9 to 11, small group. Details and registration at cambrian.be/ai-pricing.

It’s just scoping

Last question, what is so obvious to him that founders should know. Founders sell the number, and the customer wants to hear the number. But what is the number linked to, which scope, which term, and what happens at the end of the year? “As legal, the whole framework around that is super important.” A year in, none of the pricing disputes he sees is about the number. It is about how the number translates into new functionality, a new year, a new scope. Or in three of his words: “It’s just scoping.”

The full conversation with Frédérique Joos is on YouTube, in the Tentacles of Pricing series.