How to Develop Pricing Strategies

We reached $4M ARR, then cut pricing ~40% to prioritize retention over short term revenue. Pricing can separate a nice $5M biz and a breakout. If launching a product, here's the tactical way to set pricing, based on your goals: 1. Recognize that pricing strategy is VERY different depending on if you're VC backed or bootstrapped. VC backed can undercut competitors with subsidized low pricing, grab market share, then increase prices over time (see: Uber, Doordash). Bootstrapped companies have no such luxury: they need to make a profit on every customer from day 1 - you need the cash, yesterday. *this post focuses on finding right pricing in a bootstrapped environment* 2. First, figure out the lowest possible price you can breakeven at. Consider all costs involved from bringing on and servicing a customer - from sales and AM, to variable product costs. This is now your absolute minimum pricing. 3. Take 50 calls, get 10 customers, as fast as you can, at whatever cost you can, (above min. pricing). Your first 10 customers aren't about making money, they are about gathering data. Every call is an opportunity to triangulate what people are willing to pay. Try min. pricing, try 3x min. pricing. Try 2x min. pricing for month to month, but say that you can drop that by 30% for 3 month commit. Keep pushing up price until people tell you that is ridiculous. Triangulate towards a price people will pay. 4. Classify these calls by customer type. One type of business might think pricing is ridiculous, whereas another finds it cheap. Make sure you are not letting all of this data get mixed in together. Half of pricing discovery is figuring out who your core customer is. 5. Sign 3 month deals, not annuals (to start). Eventually, you want annuals. But at first, annuals are dangerous. You're looking for data on retention, and locking someone into an annual prevents you from gathering that data. Signing 3 month deals forces the conversation earlier.... are people getting value for the price? 6. Revise. Assuming you care about retention, take note of who is staying on. Be honest that you're trying to find a price that works for them. People like honesty and this will get you more information then beating around the bush. Ask "what pricing would make this a no brainer to commit for the next year?" 7. Get real about what you are prioritizing - short term revenue, or long term retention? There is no singular right answer to this. So many factors come in to play: your end game, how big your market is, how easy/hard it is to attract new customers, and much more. But understand that price/margin and customer retention are opposing forces. Be intentional about what you are prioritizing for. (note: this can change at different times in company lifecycle). In short: - Take 50 calls, throw out wildly diverse pricing to gather feedback - Sign 3 month deals to rapidly understand value to price/retention - Be intentional about what your pricing will drive (margin v NDR)

During my career I helped price 10+ SaaS products that have generated over $3B in revenues. Recently my CEO Adam Robinson and I discussed how to price our new B2B product. Here's a breakdown of our thinking: BACKGROUND: We are launching a new identity-resolution product that is arguably superior to other substitutes in the market. The market we operate in has organized itself into two tiers: High and lower priced solutions. Here’s a pricing wisdom that I have developed over time : 1. If you want to increase revenue incrementally, increase price  2. If you want to increase revenue exponentially, decrease price 3. If you want to dominate your space, give it away for free and charge later When pricing, it’s important to understand your motivation:   - Are you trying to capture more revenues? - Are you trying to compete more effectively? - Do you want to switch market segment or increase TAM? - Do you want to comfortably win or completely dominate the space? Once there’s clarity, it becomes easy to use pricing as a lever to navigate the business towards the desired outcome. We are fortunate to have a profitable business that’s generating $22M+ in ARR. This allows us to go slow on monetization. From our initial discussions, it was clear we needed to optimize our pricing and GTM for rapid market adoption and not short term revenues. Largest growth always happens at the latter end of the curve, but for that we need to have a bulk of the market already using us. We will try and get 250K+ domains (including free signups) in the next 2 years.  Once we decided we wanted to go freemium, it made sense to double down on self serve motion. This also gave us some direction to the kind of GTM team we want to build. We also knew backend data costs had to be fixed with zero marginal cost to support freemium pricing. To increase our likelihood of capturing a significant TAM, it only makes sense to decrease all friction to adoption - including pricing. Most of the competitors are charging on traffic volume. To change the game, we took volume out of the picture. Given we can provide this solution at no marginal cost, we will resolve unlimited traffic (fair usage) for the same price. We are instead charging on integrations. The lowest priced plan requires users to work with excel files. Whereas the other more expensive solutions provide additional integrations. We think disruption happens at the low end of an established market. So we have a laser sharp focus at the SMB/lower MM users to drive our signup numbers. We ended up with: Plan 1: Perpetually Free, but no download Plan 2: $295/mo, csv download, slack integration Plan 3: $495/mo, Sales Integrations Plan 4: $995/mo, Sales + Marketing Integrations (no annual deals, only M2M) Remember: Pricing is an iterative exercise. We will watch the impact of our initial assumptions and recalibrate.

Price isn't just about a number—it's about the mental model that supports it. 🧠 When OpenStore approached us about OpenDesk—their AI customer support tool for eCommerce brands—they faced a classic behavioral challenge: pricing doesn’t exist in a vacuum. The behavioral POV on value is that it’s subjective and created in the moment. That was true here, too. It wasn't actually the price point that was holding them back. It was the invisible mental accounting happening in customers' heads. 😬 Merchants mentally categorized support tools as expenses, not investments. This mental accounting created a pricing perception problem. When something falls into your "expense" bucket, your goal is to minimize it. When it's in your "investment" bucket, you evaluate ROI instead. 💡 When we reframe the value proposition, willingness to pay changes. Instead of "better customer support," we positioned OpenDesk as a "customer retention driver" – shifting its category from cost center to revenue generator. With this new mental model established, we designed pricing strategies that reinforced this investment framing: 💲 A hybrid model combining subscription + per-ticket charges that balanced predictability with value 🔢 A usage-based option with an interactive calculator that made total costs transparent—similar to how merchants evaluate ROI on other investments 👥 A per-seat model that simplified budgeting while aligning costs with team structure Curious to see where they landed, or to get ideas on optimizing product positioning or pricing strategy? 👇 Check out the case study in the comments. #BehavioralDesign #AIStrategy #ProductPricing

One learning from AWS days: Product Managers who don’t own pricing are project managers with PM ego's. Without digging into the pricing, you’re just managing projects—not driving strategy. GenAI applications, however, aren’t your typical SaaS products. Pricing them requires a AI specific knowledge, centered on three critical questions: 1. What are your costs? 2. How do you reward users through pricing? 3. How do you balance commodity versus specialty pricing? Here are some hard-earned lessons on pricing GenAI products, with insights. 💲 Know Your Costs Pricing strategy starts with understanding your costs—not just infrastructure , but the often-overlooked evaluation, training, and assurance expenses. Key Insights: 1️⃣ Evaluation Costs: It costs 10x more to evaluate a GenAI app than to build it. Human evaluation is crucial for quality, but it’s slow and expensive. 2️⃣ Training Costs: Fine-tuning models is tempting but risky. The ROI is usually poor, and it’s rarely worth the effort. 3️⃣ Assurance Costs: To handle high demand, you’ll need resources to avoid latency issues tied to Token Per Minute (TPM) and Request Per Minute (RPM) limits. Costs to get dedicated TPM/RPM are 100X more. 🏆 Reward Usage Early and Wisely Freemium models are common in GenAI apps, but conversion rates are often disappointing. For instance, ChatGPT’s freemium-to-premium conversion rate is just 0.5%—far below the SaaS average of 2-5%. 1️⃣ Move from Freemium to Paid Quickly: Offer low-cost subscriptions early. For example, after 5 free uses, charge $9.99 for 50. Use this to calculate ROI early. 2️⃣ Introduce Tiered Pricing: Create sliding-scale plans to encourage adoption. The next 50-500 uses could cost $19.99 at a reduced per-use rate. 3️⃣ Focus on Performance Tiers: Offer improved service instead of just more usage. For example, premium tiers could guarantee response times under 1 second for $19.99 per 50 queries. 🫅 Commodity vs. Specialty Pricing With tools like ChatGPT and Gemini offering more capability in each release, differentiation is key. But pricing that differentiation effectively can be tricky. 1️⃣ Plan for On-Premise Offerings: Some customers will demand localized models or data control. Be ready with a premium-priced on-prem solution. 2️⃣ Discount Future Pricing: AI API costs are dropping rapidly (100x every three months). Offer locked-in discounts for long-term commitments to create pricing moats. 3️⃣ Outcome-Based Pricing: Move from subscriptions to charging for results. For example, instead of selling a tool to write emails, charge $10 for every qualified lead it generates. The biggest lesson? Own your pricing strategy. Let’s connect! 👇 Join our community where we meet every Saturday and learn together for FREE :  https://lnkd.in/gSk8gs3k Check out the #1 only 5 star rated course that goes in details of pricing and much more : https://lnkd.in/gWzDSMJp 

"You're too cheap to be good." A lost client's final words before ghosting. That feedback blew my mind at first, but then I realized The brain sees low prices as danger signals I lost 80% of deals by pricing too low. Then brain science fixed it. What your brain needs to know about pricing psychology: Most think higher prices scare clients away. Science says the opposite is true. Your brain actually devalues what comes cheap. 7 Psychological Pricing Secrets of High Earners (use without being manipulative) 1/ Status Activation Cheap prices trigger survival mode. Premium prices activate achievement centers. Do This: ↳ Price slightly above market average ↳ Highlight exclusivity over accessibility 2/ Anchoring Effect First number sets the brain's reference point. This doubled my close rate instantly. Do This: ↳ Show premium tier first ↳ Compare to higher-cost alternatives 3/ Pain-Pleasure Switch Price resistance is really fear in disguise. Understanding this tripled my revenue. Do This: ↳ Address money fears directly ↳ Frame price as investment, not cost 4/ Value Stacking Multiple benefits beat single features. This turned my $2K offer into $20K program. Do This: ↳ Bundle complementary services ↳ Show combined value before individual pieces 5/ Scarcity Signals Limited spots trigger loss aversion. This works because brains hate missing out. Do This: ↳ Cap enrollment numbers clearly ↳ Set authentic registration deadlines 6/ Choice Architecture Too many options paralyze decision making This simplified my offers and boosted sales. Do This: ↳ Offer exactly three tiers ↳ Make middle option most attractive 7/ Risk Reversal Safety signals unlock the buying brain. I use this to remove final resistance. Do This: ↳ Offer strong but simple guarantees ↳ Show proof before they ask Smart Tips: ↳ Test one trigger weekly ↳ Track client objections ↳ Let pricing evolve naturally Truth is: Pricing isn't about the number. It's about the value story your brain tells. Master this, and you'll never discount again. P.S. Which pricing trigger resonates most with you? Let me know in the comments ⬇️ ➡️ Master the psychology of pricing here --> https://lnkd.in/gMcXA2-Y ------------------------------------------------- ♻️ Share to help others price with confidence. ➕ Follow Shannon for more brain-based biz growth.

Uncomfortable Truth for Pricing Strategy: Customer value isn't guesswork. Think pricing is all about costs? Think again. Online value research reveals what customers truly value and are willing to pay for. Here's what happens when companies embrace value-based pricing: → True Value Discovery A vending machine company discovered untapped value in their premium service and better-quality product. Result? $40M additional annual revenue with no loss in sales. → Customer Understanding One dashcam manufacturer found that women had completely different value drivers than men and were willing to pay 25-30% more. Understanding this doubled their projected sales. → Market Segmentation By matching prices to different market segments' willingness to pay, a corporate training provider drove 40% revenue growth. → Consistent Results Our client successes show the power of value-based pricing: - SaaS company raised prices 41% without losing customers - Streaming service doubled revenue through strategic pricing - Industrial components manufacturer grew sales 20% while raising prices 15% The truth? When you understand true customer value, pricing becomes your most powerful growth lever. Are you ready to let data drive your pricing decisions? #PricingStrategy #BusinessGrowth #ValueBasedPricing

After leading/supporting pricing projects at unicorn devtool companies like Vercel, Domino Data Lab, and Neo4j (and now WIP at Hypermode), I have five rules for pricing: 1. Pricing won’t be perfect. Get over it. Don’t get stuck just because you can’t get to “perfect.” It’s not as final as you fear. At Vercel, we tweaked the pricing in major ways 6+ times in my four years. 2. Save your innovation for the product. Imagine two gas stations: one is “$3.99 per gallon” and the other is “$0.658 per pound”. Which are you filling up at? Pricing would be so distracting that you can’t evaluate if one is better quality. Choose metrics that are familiar to your buyer. Pricing is a large part of how buyers understand your product. When in doubt, just copy. 3. Don’t break PLG. Pricing is all tradeoffs. You have to gate most of your product with a price, but you remove friction on one important thing: Netflix doesn’t charge you more for each movie you watch. Twilio doesn’t charge you for your first texts. Airbnb doesn’t charge you to list your property In SaaS, the tradeoff is usually seats vs usage, so do you want buyers to optimize for users or usage? Be thoughtful about what drives your viral loop. 4. Ensure your pricing doesn’t “break” by default Per the last rule, did removing friction just break your margins? Moviepass and WeWork are examples of this mistake and are now bankrupt. People love these companies, but their pricing models aren’t viable. Do your Excel homework and be ready to iterate pricing as your buyers find exploits and edge cases you missed. 5. You can’t scale self-serve to large enterprises. Big buyers (like Fortune 500s) want RFPs, bake-offs, custom legal terms, procurement processes, and other stuff startups are allergic to. You need a sales team to make this repeatable. And if your product doesn’t have a tier that starts at $30k per year, you can’t afford a sales team.

Think raising your prices will scare clients away? What if the opposite is true? On the latest episode of Stop the Noise, I spoke with Per Sjofors, founder of Sjöfors & Partners and author of The Price Whisperer. With over 750 client engagements under his belt, Per has helped businesses double their growth rates and boost margins by as much as 40%. He joined me to break down one of the trickiest parts of consulting: pricing your services. Per believes pricing isn’t just numbers—it’s a message. And if your prices don’t reflect your value, your clients will notice. Here are a few highlights from our conversation: ➡️Stop Selling Hours Charging hourly invites comparisons and can even penalize you for being efficient. Per argues that value-based pricing shifts the focus from time to tangible results. ➡️Presentation Matters A strong proposal builds confidence. By the time you reveal your price, your client should already see the value. ➡️Anchor High Per’s "Best, Better, Good" framework sets expectations by showing your top-tier offer first. ➡️Test Your Pricing with Two Key Questions Ask 25 potential clients: > What price feels too low to trust? > What price feels too high to afford? The goal isn’t just to charge more—it’s to build trust and position yourself as a premium choice. Curious to dive deeper into these strategies? Listen to the full episode here: https://lnkd.in/gsH7aHnp There’s already too much noise about chasing clients with low fees. The real win? Owning your worth and showing clients why you’re worth it.

Most startups play defense when discussing pricing with customers. They dance between asking for too little, leaving money on the table, and asking for too much, only to lose the customer’s interest. The very best companies lead their customers in that dance. They use pricing as an offensive tool to reinforce their product’s value and underscore the company’s core marketing message. For many founding teams, pricing is one of the most difficult and complex decisions for the business. Startups operate in newer markets where pricing standards haven’t been set. In addition, these new markets evolve very quickly, and consequently, so must pricing. But throughout this turmoil, startups must adopt a process to craft a good pricing strategy, and re-evaluate prices periodically, at least once per year. The Three Core Pricing Strategies There are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming. They prioritize revenue growth, market share and profit maximization differently. Maximization (Revenue Growth) - maximize revenue growth in the short term. Startups should pursue maximization when there are no clear differences in customer segments’ willingness to pay, and when the optimal short term and long term prices are equal. Many mid-market software companies price with the goal of revenue maximization, negotiating for the highest possible price in each sale. Penetration (Market Share) - price the product at a low price to win dominant market share. A bottoms-up strategy lends itself to penetration pricing. Price low to minimize adoption friction, grow quickly, and then move up-market after developing broad adoption. Penetration pricing leads to land-and-expand sales tactics. Expensify, Netsuite, New Relic, Slack follow this model. Penetration prioritizes market share. Skimming (Profit Maximization) - start with a high price and systematically broaden the product offering to address more of the customer base at lower prices. Skimming is widespread in consumer hardware. Apple sells the latest iPhones at the highest prices, and repackages older models at lower prices to address different customer segments. As Madhavan Ramanujam tells it, Steve Jobs was both a product genius and pricing genius. By pairing the two skills, he led Apple to record-breaking profits quarter after quarter. Skimming is less common in the software world because few startups develop a product at launch that will be accepted by the most sophisticated customers (and those willing to pay prices that generate the greatest margin). There are exceptions: Oracle’s database, Tanium’s security product, Workday’s human capital management software. Read the full post here : https://lnkd.in/g-mxQiV9

Is Your Tier-Pricing Mean? Or is it above average? (Pardon the stats pun) 🤣 Normal Distribution Curve can guide Data-led changes in pricing tiers. Pricing of products and services is directly Associated with the revenues & profits That your business earns over time. If you are in an industry with a lot of competitors, You should follow the accepted market pricing When you launch your product early on. However, if your product is unique, you will see That you might be leaving money on the table By following the market-driven tiered-prices. So, how do you pivot or adjust your pricing? Start by looking at your revenue data. Revenue per user is what we need. Find the mean X-bar and std. dev. s. As an example, let X-bar = 30 & s = 5. Normal distribution curve shows that: * 68% of customers fall in (25, 35) range. --> This is the middle tier or Standard Plan. --> Shown in orange in the graphic. --> Priced between $25-$35 per user. * 14% of customers will fall in (35, 40) range. --> This is the upper tier or Premium Plan. --> Shown in blue in the graphic. --> Priced between $35-$40 per user. * 14% of customers will fall in (20, 25) range. --> This is the lower tier or Basic Plan. --> Shown in green in graphic. --> Priced between $20-$25 per user. * 2% lower outliers in the (0, 20) range. --> This is not an actual tier per se. --> Represents unwilling-to-pay users. --> Shown in pink in graphic on the left. * 2% upper outliers in the >40 range. --> This is a custom tier for bigger clients. --> Willing to pay on a larger scale. --> Shown in pink in graphic on the right. Actionable Insights: 1. Get clear data on expected revenue per user. 2. Identify Mean, std. dev., and chart them. 3. Apply Normal Distribution principles. 4. Give the best value in middle tier. 5. Offer incentives for low outliers. 6. Differentiate tier experiences. 7. Seek feedback from users. 8. Hire experts as needed. Shifting pricing constantly is bad business practice. However, if you discover that your product is In high demand, it is okay to adjust prices. It helps you to cut out unnecessary costs, And eliminate the lowest value users Who might use more resources. Follow Dr. Kruti Lehenbauer & Analytics TX, LLC for #PostitStatistics #DataScience #AI #Economics tips To improve top and bottom lines in SMBs! P.S.: Which tier do you buy a product at, when purchasing? Would love to hear your thoughts in the comments!