Practical Pricing for Startups

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  • 1. PricingLean Startup Circle Brussels 02/10/2012 @VladBlagi http://10step2.com
  • 2. Thanks to the sponsors!
  • 3. PRICING IS COMPLEXLots of parameters and options
  • 4. Many Pricing OptionsSubscription AdsPer usage B2B2C (free for C, paid byUpfront fee B)Pricing plan BiddingCommission FreemiumSuccess fee Free trialTiered pricing Money back guaranteeDynamic pricing (think:airline) …Pay what you wantVirtual economies And combinations of theUp-sell services above Interesting resource (collection of pricing pages of web apps): http://leanstartup.pbworks.com/w/page/15765232/Pricing%20pages
  • 5. The Basics: Factor in the costShould go without saying price > cost
  • 6. Costs are often UnderestimatedThink about • Marketing costs (Google, Facebook ads) • Affiliate cost • Support costs • Infrastructure • Admin, accountancy, legal • Taxes • …Fixed vs variable Is there “economies of scale” effect?
  • 7. 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 planhttp://www.slideshare.net/FinanceCoach24/120417-workshopfinancialplan
  • 8. BUT DON’T BASE YOUR PRICING STRATEGY SOLELY ON COST
  • 9. 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?
  • 10. Ask your customersLearn what your market really valuesE.g. “Give me 3 compelling reasonswhy my product is a good fit for you”And get you marketing copy for free 
  • 11. Look at the CompetitorsCheck the price of top 3 competitorsBut 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
  • 12. WHAT HAPPENS WHEN YOU SET A LOW PRICE? Thanks Linda M. Lopeke http://www.smartstartcoach.com/
  • 13. YOU DILUTE YOUR BRANDYou just told your prospect: “Im not your best option (and Iknow it)”Pricing is an essential part of your product and marketing.Sometimes raising the price can result in more sales
  • 14. YOU TURN OFF HIGH QUALITY CLIENTS And get stuck with “clients from hell”
  • 15. YOU RISK LOSING MONEY Always more costs than you thinkAnd if you do well, you can lose serious money
  • 16. IT TAKES LONG TIME TO MAKE MONEY Low margins Same time & effort to sell high and low
  • 17. HOW TO DIFFUSE PRICE OBJECTIONS Thanks to Neil Patelhttp://www.quicksprout.com/2012/10/01/how-to-handle-pricing-objections/
  • 18. Explain the value and Free trial or moneylist what they get back guarantee• show $ made or saved • Crazy Egg free trial hadDetailed case studies 59% higher conversion rate than 30 day money• exactly what you back guarantee provided & the results• testimonials with photo, Payment plans company name, their • 4 payments of $67 ($268) name and title converted 52% better than $197Show how you arebetter than competition Offer bonusesExplain – people want (early stage) Explainto pay what’s fair. that you had to quitDon’t want to be work / work part timescrewed over
  • 19. Or segmenthttp://www.slideshare.net/twilio/twilio-monetizing-saas-jeff-lawson-cloudstock-december-2010
  • 20. But don’t make it too complex!Hmmm… maybe I should go for mayo
  • 21. PRICE TESTING Thanks to Twilio!http://www.slideshare.net/twilio/twilio-monetizing-saas-jeff- lawson-cloudstock-december-2010
  • 22. Steps1. Figure out value generated2. Determine your costs3. Determine your competitor’s prices4. 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