4 ms·

If you're new and don't really know what you're doing, price it just below what alternatives are charging. Make it a non-issue, learn as you go and adjust. Don'

by pbreit 10y ago

If you're new and don't really know what you're doing, price it just below what alternatives are charging. Make it a non-issue, learn as you go and adjust. Don't get too fancy. If you are able to attract & delight customers you will have nearly unlimited flexibility to adjust pricing. If you are experienced and have a strong vision on the service you are offering and how it should be priced, you can think about premium or non-traditional pricing schemes.

tptacek 10y ago
This is probably not great advice. Prices do more than determine how much money you'll make from a given group of customers; they also select which customers you'll be servicing. The two most important pricing lessons startup founders need to learn are segmentation and qualification. You should select a market segment that's attractive, and your pricing scheme should in part serve to ensure that you're not wasting time being responsive to the demands of people outside that segment. The list of things you can do to repackage your product to go after different market segments is very long and very few of the bullets on the list involve changing code. I think the most important thing to do is to select a group of customer prospects deliberately and then make something those people want, rather than making something for the whole world and trying to optimize the number of people who buy through prices. You can cost yourself customers/clients by pricing too low.
- morisy 10y ago
  Yes. Running a boostrapped organization for 7 years now, I always wish we had priced higher. The few times where we've priced offerings too high, it was always easier coming down in cost rather than going up, and we learned a lot from those early customers who would pay a premium.
  - tptacek 10y ago
    That's another great point. If you're going to make money from long relationships based on recurring payments, it's good to know that it's extraordinarily difficult to raise prices on an existing customer. If you sell to large companies, you'll find they have entire departments dedicated to ensuring that never happens.
    - pbreit 10y ago
      I've had several experiences raising prices. It's not that hard. On new customers it's trivial.
  - sjclemmy 10y ago
    Service based but somewhat related. I've recently decided in my consulting efforts; if the customer doesn't try to negotiate the price I'm way too cheap. Supported anecdotally by two interactions with the same customer - a colleague of mine from another company went in at a price for some work that I considered way too low. The response from the customer was "when can you start?" I recently quoted what I considered to be a perfectly reasonable rate for some work and that was the start of the negotiation. We had a good exchange of analogies to support our differing positions!
- fnbr 10y ago
  I agree with this. We've been looking at pricing services suggested in this thread, and we've been self-selecting away from the extremely expensive services (e.g. Price Intelligently [1]), as that indicates that the service is targeted towards large enterprises, and not small SaaS companies. Conversely, if the services were priced lower, that would probably scare off large enterprises. [1]: http://www.priceintelligently.com/ http://www.priceintelligently.com/
  - ghaff 10y ago
    Large enterprises also tend to require more sales and support effort, longer sales cycles, chasing after receivables, etc. All other things being equal, you have to charge more per unit for enterprises. (This has changed somewhat with lines of business just putting some things on credit cards but it's still a reasonable rule of thumb.)
    - fnbr 10y ago
      That's absolutely true, but you can serve both. Look at Github- they have Github, which is low cost and self serve, and Github enterprise.
      - ghaff 10y ago
        Absolutely. And that's one model. It has its challenges. You have to find the right differentiation. Will anyone pay the premium for the enterprise version? And where are your development efforts going? It's not straightforward but it's certainly a valid approach.
eps 10y ago
Dangerous advise as you may end up painting yourself into a corner. There are lots and lots of cases where competitors have been in a niche for a long time and they now use aggressive discounting to experiment with (what's left of) customer acquisition. You price below them, you will die starving. Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.
- gingerlime 10y ago
  > Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do. It depends on your perspective. When you're small and growing it's actually the opposite. If you grandfather your existing customers (ideally, indefinitely), then it's quite easy to raise prices. Assuming there is still demand at a higher price range, which in many cases there will be, since your product gains traction and improves over time (so you can also justify charging more). As your customer base grows, it's also harder to lower prices. Would you cut the cost of all your existing customer base? That immediately cuts into your recurring revenue, and you don't know if it's going to bring more customers to balance out over time.
- pbreit 10y ago
  Incumbents tend to spend the rest of their lives raising prices.

by pbreit 10y ago

tptacek 10y ago

This is probably not great advice. Prices do more than determine how much money you'll make from a given group of customers; they also select which customers you'll be servicing. The two most important pricing lessons startup founders need to learn are segmentation and qualification. You should select a market segment that's attractive, and your pricing scheme should in part serve to ensure that you're not wasting time being responsive to the demands of people outside that segment. The list of things you can do to repackage your product to go after different market segments is very long and very few of the bullets on the list involve changing code. I think the most important thing to do is to select a group of customer prospects deliberately and then make something those people want, rather than making something for the whole world and trying to optimize the number of people who buy through prices. You can cost yourself customers/clients by pricing too low.

morisy 10y ago
Yes. Running a boostrapped organization for 7 years now, I always wish we had priced higher. The few times where we've priced offerings too high, it was always easier coming down in cost rather than going up, and we learned a lot from those early customers who would pay a premium.
- tptacek 10y ago
  That's another great point. If you're going to make money from long relationships based on recurring payments, it's good to know that it's extraordinarily difficult to raise prices on an existing customer. If you sell to large companies, you'll find they have entire departments dedicated to ensuring that never happens.
  - pbreit 10y ago
    I've had several experiences raising prices. It's not that hard. On new customers it's trivial.
- sjclemmy 10y ago
  Service based but somewhat related. I've recently decided in my consulting efforts; if the customer doesn't try to negotiate the price I'm way too cheap. Supported anecdotally by two interactions with the same customer - a colleague of mine from another company went in at a price for some work that I considered way too low. The response from the customer was "when can you start?" I recently quoted what I considered to be a perfectly reasonable rate for some work and that was the start of the negotiation. We had a good exchange of analogies to support our differing positions!
fnbr 10y ago
I agree with this. We've been looking at pricing services suggested in this thread, and we've been self-selecting away from the extremely expensive services (e.g. Price Intelligently [1]), as that indicates that the service is targeted towards large enterprises, and not small SaaS companies. Conversely, if the services were priced lower, that would probably scare off large enterprises. [1]: http://www.priceintelligently.com/ http://www.priceintelligently.com/
- ghaff 10y ago
  Large enterprises also tend to require more sales and support effort, longer sales cycles, chasing after receivables, etc. All other things being equal, you have to charge more per unit for enterprises. (This has changed somewhat with lines of business just putting some things on credit cards but it's still a reasonable rule of thumb.)
  - fnbr 10y ago
    That's absolutely true, but you can serve both. Look at Github- they have Github, which is low cost and self serve, and Github enterprise.
    - ghaff 10y ago
      Absolutely. And that's one model. It has its challenges. You have to find the right differentiation. Will anyone pay the premium for the enterprise version? And where are your development efforts going? It's not straightforward but it's certainly a valid approach.

eps 10y ago

Dangerous advise as you may end up painting yourself into a corner. There are lots and lots of cases where competitors have been in a niche for a long time and they now use aggressive discounting to experiment with (what's left of) customer acquisition. You price below them, you will die starving. Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.

gingerlime 10y ago
> Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do. It depends on your perspective. When you're small and growing it's actually the opposite. If you grandfather your existing customers (ideally, indefinitely), then it's quite easy to raise prices. Assuming there is still demand at a higher price range, which in many cases there will be, since your product gains traction and improves over time (so you can also justify charging more). As your customer base grows, it's also harder to lower prices. Would you cut the cost of all your existing customer base? That immediately cuts into your recurring revenue, and you don't know if it's going to bring more customers to balance out over time.
pbreit 10y ago
Incumbents tend to spend the rest of their lives raising prices.