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One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product p

One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product provides. If someone gets $100 of value per seat and you charge $15/seat, that's great. If you charge $15/seat for a product that creates value per gigabyte, people start gaming the system. E.g. they'll buy one seat for their company and ask that person to be the proxy user for your product. Or if you charge $10/GB and people get $20/GB of value of the first few gigabytes and then $5/GB of value after that, you're going to run into problems. So figure out how users perceive and quantify your value to themselves, and then try to come up with a simple pricing scheme that captures 10-25% of that value. That way every time someone pays you $1, they get $4-$10 of value, and that's a no brainer purchase. Getting pricing right has a huge ROI across the board. Good pricing improves margins, reduces sales friction, and creates happier customers. The best book that I've read on pricing is Monetizing Innovation: https://www.amazon.com/Monetizing-Innovation-Companies-Design-Product-ebook/dp/B01F4DYY1I https://www.amazon.com/Monetizing-Innovation-Companies-Desig...

bobbyz 6y ago
I just spent my last audible token 5 minutes ago D:
- dolguldur 6y ago
  Guess what, you can get 3 tokens for around $35, so one token will be cheaper than the average prices (anchors) you'd otherwise pay.
tyre 6y ago
A related thing is knowing when pricing is no longer the issue. If the pricing correlates enough with value and you can't close deals, I've seen too many companies think pricing will solve that.
ultrasounder 6y ago
Also worth noting that Leo Polovets also is one of the early engineers at LinkedIn and is still very much hands-on. https://www.google.com/amp/s/www.forbes.com/sites/quora/2013/12/19/which-is-the-best-programming-algorithm-that-you-have-ever-created/amp/ https://www.google.com/amp/s/www.forbes.com/sites/quora/2013...
skmurphy 6y ago
The First Round post “Madhavan Ramanujam–It’s Price Before Product. Period” captures about 80% of the value for startups so I would start there. Its at https://firstround.com/review/its-price-before-product-period/ https://firstround.com/review/its-price-before-product-perio... I reviewed the book when it came out and extracted "9 Rules for Monetizing Innovation" at https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-monetizing-innovation/ https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-mon... There are better books on pricing: for a straight up analysis of product pricing "The Strategy and Tactics of Pricing” by Thomas Nagle is the best book that I have read. It's on Amazon at http://www.amazon.com/Strategy-Tactics-Pricing-Profitable-Decision/dp/013026248X http://www.amazon.com/Strategy-Tactics-Pricing-Profitable-De...
- clairity 6y ago
  that nagle book was taught in my MBA pricing class. small but surprisingly dense and thorough. there's a lot more to pricing than just value pricing vs. cost-plus.
- laurex 6y ago
  I've been working on a pricing project using a methodology largely influenced by Nagle's work. The premise is that it's possible to learn what customers value before pricing something and for the price to be optimized around customer value, and perceived value. It feels much more promising than other pricing projects I've been involved with. This podcast gives an overview of some of the thinking here: https://impactpricing.com/podcast/ep46-alan-albert-why-much-of-what-you-know-about-your-customers-is-wrong/ https://impactpricing.com/podcast/ep46-alan-albert-why-much-...
  - skmurphy 6y ago
    Mark Stiving at Impact Pricing does a very good job at exploring and analyzing pricing issues.
profile53 6y ago
This doesn’t just apply to tech. Take healthcare, where the value created is per patient healed (oversimplified) but the pricing is per item/staff time used. Once again, people game the system, in this case by doing excess charges (see any itemized hospital bill to a private party). The U.S. government’s Center for Medicare has been trying to align the pricing model with the value created by paying flat rates for each type of surgery or illness treated. It seems to work pretty well. Aligning value with payment is critical to success in any business.
ramraj07 6y ago
I am slightly ashamed to say that I was one of those people who gamed Dropboxs packrat feature to store close to 10 TB of data on a 1 TB premium plan. I'll concede that they grandfathered that feature for longer than I thought they would, and am still a (somewhat) happy Dropbox subscriber, but those were good times indeed.
formercoder 6y ago
If someone gets $100 of value per seat, and you charge $15, why is that great? Are you leaving money on the table or facing competition? And shouldn’t you react strategically to either situation?
- hammock 6y ago
  It's not about the numbers. The point is being made about the metric (per seat vs per GB, etc)

bobbyz 6y ago

I just spent my last audible token 5 minutes ago D:

dolguldur 6y ago
Guess what, you can get 3 tokens for around $35, so one token will be cheaper than the average prices (anchors) you'd otherwise pay.

tyre 6y ago

A related thing is knowing when pricing is no longer the issue. If the pricing correlates enough with value and you can't close deals, I've seen too many companies think pricing will solve that.

ultrasounder 6y ago

Also worth noting that Leo Polovets also is one of the early engineers at LinkedIn and is still very much hands-on. https://www.google.com/amp/s/www.forbes.com/sites/quora/2013/12/19/which-is-the-best-programming-algorithm-that-you-have-ever-created/amp/ https://www.google.com/amp/s/www.forbes.com/sites/quora/2013...

skmurphy 6y ago

The First Round post “Madhavan Ramanujam–It’s Price Before Product. Period” captures about 80% of the value for startups so I would start there. Its at https://firstround.com/review/its-price-before-product-period/ https://firstround.com/review/its-price-before-product-perio... I reviewed the book when it came out and extracted "9 Rules for Monetizing Innovation" at https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-monetizing-innovation/ https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-mon... There are better books on pricing: for a straight up analysis of product pricing "The Strategy and Tactics of Pricing” by Thomas Nagle is the best book that I have read. It's on Amazon at http://www.amazon.com/Strategy-Tactics-Pricing-Profitable-Decision/dp/013026248X http://www.amazon.com/Strategy-Tactics-Pricing-Profitable-De...

clairity 6y ago
that nagle book was taught in my MBA pricing class. small but surprisingly dense and thorough. there's a lot more to pricing than just value pricing vs. cost-plus.
laurex 6y ago
I've been working on a pricing project using a methodology largely influenced by Nagle's work. The premise is that it's possible to learn what customers value before pricing something and for the price to be optimized around customer value, and perceived value. It feels much more promising than other pricing projects I've been involved with. This podcast gives an overview of some of the thinking here: https://impactpricing.com/podcast/ep46-alan-albert-why-much-of-what-you-know-about-your-customers-is-wrong/ https://impactpricing.com/podcast/ep46-alan-albert-why-much-...
- skmurphy 6y ago
  Mark Stiving at Impact Pricing does a very good job at exploring and analyzing pricing issues.

profile53 6y ago

This doesn’t just apply to tech. Take healthcare, where the value created is per patient healed (oversimplified) but the pricing is per item/staff time used. Once again, people game the system, in this case by doing excess charges (see any itemized hospital bill to a private party). The U.S. government’s Center for Medicare has been trying to align the pricing model with the value created by paying flat rates for each type of surgery or illness treated. It seems to work pretty well. Aligning value with payment is critical to success in any business.

ramraj07 6y ago

I am slightly ashamed to say that I was one of those people who gamed Dropboxs packrat feature to store close to 10 TB of data on a 1 TB premium plan. I'll concede that they grandfathered that feature for longer than I thought they would, and am still a (somewhat) happy Dropbox subscriber, but those were good times indeed.

formercoder 6y ago

If someone gets $100 of value per seat, and you charge $15, why is that great? Are you leaving money on the table or facing competition? And shouldn’t you react strategically to either situation?

hammock 6y ago
It's not about the numbers. The point is being made about the metric (per seat vs per GB, etc)