practical pricing for startups
DESCRIPTION
TRANSCRIPT
Thanks to the sponsors!
PRICING IS COMPLEX
Lots of parameters and options
Many Pricing Options
Subscription
Per usage
Upfront fee
Pricing plan
Commission
Success fee
Tiered pricing
Dynamic pricing (think: airline)
Pay what you want
Virtual economies
Up-sell services
Ads
B2B2C (free for C, paid by B)
Bidding
Freemium
Free trial
Money back guarantee
…
And combinations of the above
Interesting resource (collection of pricing pages of web apps): http://leanstartup.pbworks.com/w/page/15765232/Pricing%20pages
The Basics: Factor in the cost
Should go without saying
price > cost
Costs are often Underestimated
Think about • Marketing costs (Google, Facebook ads)
• Affiliate cost
• Support costs
• Infrastructure
• Admin, accountancy, legal
• Taxes
• …
Fixed vs variable Is there “economies of scale” effect?
Viable Business Case?
Not only about the cost
# potential customers / projects /
licenses?
Calculate potential revenue & profit
• At what price do you have a viable business
• With halved assumptions?
Create a simple financial plan http://www.slideshare.net/FinanceCoach24/120417-
workshopfinancialplan
BUT DON’T BASE YOUR PRICING
STRATEGY SOLELY ON COST
What Type of Value are you
Delivering?
Help customers make money?
Help them save money?
Reduce their risk?
Help them save time?
Provide them non-monetary benefit?
Ask your customers
Learn what your market really values
E.g. “Give me 3 compelling reasons why my product is a good fit for you”
And get you marketing copy for free
Look at the Competitors
Check the price of top 3 competitors
But also
• How much competition?
• How do you differentiate?
• How much transparency?
Internet makes it very easy for prospective
customers to compare you to others that they
can buy from
Less transparency => less price sensitivity
WHAT HAPPENS WHEN YOU SET A
LOW PRICE?
Thanks Linda M. Lopeke http://www.smartstartcoach.com/
YOU DILUTE YOUR BRAND
You just told your prospect: “I'm not your best option (and I
know it)”
Pricing is an essential part of your product and marketing.
Sometimes raising the price can result in more sales
YOU TURN OFF HIGH QUALITY CLIENTS
And get stuck with “clients from hell”
YOU RISK LOSING MONEY
Always more costs than you think
And if you do well, you can lose serious money
IT TAKES LONG TIME TO MAKE MONEY
Low margins
Same time & effort to sell high and low
HOW TO DIFFUSE PRICE OBJECTIONS
Thanks to Neil Patel
http://www.quicksprout.com/2012/10/01/how-to-handle-pricing-objections/
Explain the value and
list what they get
• show $ made or saved
Detailed case studies
• exactly what you
provided & the results
• testimonials with photo,
company name, their
name and title
Show how you are
better than competition
Explain – people want
to pay what’s fair.
Don’t want to be
screwed over
Free trial or money
back guarantee
• Crazy Egg free trial had
59% higher conversion
rate than 30 day money
back guarantee
Payment plans
• 4 payments of $67 ($268)
converted 52% better
than $197
Offer bonuses
(early stage) Explain
that you had to quit
work / work part time
Or segment
http://www.slideshare.net/twilio/twilio-monetizing-saas-jeff-lawson-cloudstock-december-2010
But don’t make it too complex!
Hmmm… maybe I should go for mayo
PRICE TESTING
Thanks to Twilio!
http://www.slideshare.net/twilio/twilio-monetizing-saas-jeff-
lawson-cloudstock-december-2010
Steps
1. Figure out value generated
2. Determine your costs
3. Determine your competitor’s prices
4. Calculate minimum and maximum • Min: cost + 1
• Max: 25% of money made; 20% of money saved;
• Competitor +/- 20%
5. Consider other pricing strategies • But keep it simple!
6. Test with potential customers • Before launch (e.g. free private beta) • Start high, increments 10%
7. Segment