I have met hundreds of them of founders over the years, and most, especially early-stage founders, share a common problem in the marketplace: pricing.
For enterprise software, traditional pricing methods such as per seat models are often easier to understand for hyper-specific products, especially those used by people in essentially the same way, such as Zoom or Slack. However, it’s a different ball game for startups that offer more complex services or products.
Most startups struggle with a seat-based model because their products, unlike Zoom and Slack, are used in so many ways. Salesforce, for example, uses headquarters licenses and regular admin licenses – customers can opt for lower prices for solutions that have low usage parts – while other products are priced based on negotiation. as part of annual renewals.
You can have a strong champion in an CIO that you sell to or a very nice person handling the purchasing, but that won’t matter if the prices can’t be easily explained and understood. Complicated or unclear pricing adds more friction.
Initial discussions about pricing should center on the buyer’s perspective and the value that the product creates for them. It’s important that founders think about bottom line and bottom line, and a number that they can reasonably advocate with customers in the future. Of course, self-assessment is difficult, especially when you’re asking someone else to pay you for something you’ve created.
This process will take time, so here are three tips to make driving easier.
The prize is a trip
Pricing is not a fixed year. The business software industry involves many intangibles, and the perceived value, quality, and user experience of a software product can vary widely.
The pricing journey is long, and despite what some founders might think, going head-first into customer acquisition isn’t the first step. Instead, the first step is to make sure you have a full-fledged product.
If you’re a late-seed or Series A seed business, your focus is on getting those first 10-20 clients and building up the earnings to showcase in your investor and board deck. But when you grow your organization to the point where the CEO isn’t the only person selling, you’ll want your position in the market determined.
Many startups fall into the trap of thinking, “We need to figure out what the pricing looks like, so let’s ask 50 hypothetical customers how much they would pay for a solution like ours. “I do not agree with this approach because the product has not yet been finalized. Haven’t found the product-to-market fit or product message yet and want to spend a lot of time and energy on pricing? Of course, revenue is important, but you need to focus on finding the way forward to generate income rather than a strict pricing model.