Blog Post by Sagy Gulianka
I love the unique perspective that pricing brings for new startups.
It provides a mirror on where they are in relation to where they want to be and it can show a path forward that aligns all vectors: customers, value, go to market, product, finance, competition and… pricing.
I have met with hundreds of startups and only in very rare occasions we start the discussion with the “how much?” questions.
We usually start by understanding the VALUE. A proper pricing process will take you through the most fundamental VALUE questions because without understanding the value creation and communication processes, we can’t put a value (price) on it.
So here are 7 of the most frequently asked questions by entrepreneurs
- How do we measure the value of our product?
The million-dollar question. There are few robust methods such as conjoint that requires significant budgets and closeness to the market. These are rarely available for startups.
The EVE method (Economic Value Estimation) is more practical for startups and normally help to quantify the amount of monetary value that is created by an offering for particular customers’ groups versus their next best alternative (in-house or direct competition).
- How to price our product without the reference of direct competition?
That’s a tough one for companies that are true innovators and have no direct reference (yet).
The alternative is to ask other questions that will provide indirect answer.
Questions about complementary, substitute and similar products will help you to find the existing boundaries you can operate within.
- We save time/man-days/etc. so why customers keep dismissing these values?
Well, simply because they don’t intend to fire anyone, just because they buy your product. It’s not that you should completely ignore those values, but you’ll be in a difficult selling position if those are your primary values
- Our technology is superior so why can’t we charge a premium on that?
Technology is sexy (well, for some of us geeks), but it means nothing by itself and normally it’s not a sustainable advantage for startups. Most of you will not be able to move fast and long enough to maintain such an advantage. What you should have is technology that sells, meaning that is translated to real value for customers
- How should we price our product in relation to the value we create?
Value is always associated with customer characteristics (who are they and how they may use our product) and this is why customer profiling is such an important step for pricing.
Various segments will yield different values and also may have different perceptions, competitive situation, etc. The answer to the question above will vary, but as rule of thumb pricing at 10-20% of the value should not create barriers for growth
- What product features can help us charge for premium price?
Probably none. I know it’s a harsh answer, but in most cases you will need to rely on the core values of the product. Additional features (non-core values) may help in many ways (ease of selling, customers experience, costs, etc.), but only in rare occasions you will be able to charge significant premium on that. If you can, you may have found another core value that can be packaged as additional product/module
- Can we increase/decrease our prices after the launch without significant risks?
Of course you can. Most Israelis startups are operating in a B2B environment, meaning prices are not published and can be corrected after a mistake. That’s not to say published SaaS prices can’t be modified. Price is usually a moving target (reflecting the dynamic changes in the market) and only in rare occasions it will stay constant for a long period. Many SaaS companies update their prices regularly and as long as it is done professionally, price changes should yield positive impact
Those questions and more, should be answered individually for startups since you are unique and have unique challenges. Rules of thumbs are educational, but words don’t teach. The real insights (and confidence) will come your way once you start answering some tough pricing questions.
Sagy Gulianka is the owner at TMsight, a pricing Guru with more than 20 years of experience and a mentor at the Junction