Value: the foundation of ideal prices
October 12, 2022
Pricing is a tricky topic, particularly for young SaaS companies: price too high and adoption will lag. Price too low, and you leave money on the table, creating a challenge to raise prices later. And of course, unlike hardware-centric solutions, what exactly to charge for is wide open. While this freedom is ultimately powerful, it makes it hard for most companies to know where to start as they package their solutions and design the price architecture.
Where to begin? From my experience working with over B2B startup and scale-ups, I recommend a simple step-by-step, “land and expand” approach.
Define an “ideal customer”
These should be companies where you have the best chance to win because you provide a clearly better solution than their other options. You can define this quite narrowly to start with: What problem are they facing that you address? How large are they? Where are they located? What’s the company culture? What other solutions do they operate?
Define an “ideal offer”
What solution are you going to sell them? In addition to the software, what services will they buy? You don’t need to get this exactly right, but being concrete helps to drive the process along.
Identify the customer’s “Next Best Alternative (NBA)”
For innovative solutions it’s often easiest to start with the “As-Is” situation, but a competing solution may be appropriate, or often-times it’s adapting some other element of the solution.
Brainstorm on the value you create versus the customer’s NBA
What’s value? We’ll cover that in the next blog in a few days.
Being super targeted on which customers will receive value from your solution in the early phase helps with defining the value, and eliminated the endless “what about” discussions that can otherwise slow decision-making. And once you have one segment covered, it gets easier to extend this to other customers and solutions.