Practical Pricing for Startups

Pricing

Lean Startup Circle Brussels

02/10/2012

@VladBlagi http://10step2.com

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