XT Lens: What’s Driving VC Decisions

Part 1: Pricing

We’re excited to launch a new series of posts, focusing on what VCs consider when deciding whether to invest in a startup.

In today’s post, we’ll unpack the tricky topic of pricing.

Striking an optimal balance between competitive pricing and profitability is a challenge many startups face at various stages. When it comes to pricing, VCs want to ensure the product not only meets the target audience's needs but also drives growth and profitability.

Here are several essential tactics we’ve seen the best-performing startups apply:

??? Segmenting packages

Instead of a "one-size-fits-all" approach, creating packages that address specific customer requirements and willingness to pay.

??Identifying core value features

Identifying the key features in the product that drive customer decisions. These features should be the primary draw for the customers. Structuring the pricing around these core features, complemented by additional, less critical features enhances value perception and customer satisfaction.

??Aligning pricing with value

Choosing metrics that grow with the product's usage and impact. As such, for example, traditional seat-based pricing may not always be optimal.

??Applying a structured discounting system

Empowering the sales team with a clear discounting strategy, but ensuring the discounts are profitable and in exchange for long-term commitments or upfront payments.

??Aligning with a strategic product roadmap

Integrating product development and pricing strategies. When releasing new features, evaluate if they justify a price increase. This ensures that the pricing evolves with the product's added value.

??Understanding how sensitive customers are to price changes

This can be done through formulas such as Price Elasticity of Demand, calculating the?% Change in Quantity Demanded / % Change in Price.

By aligning price with value, understanding customer needs, and maintaining a strategic roadmap, the best startups effectively navigate the complexities of SaaS pricing. They strike an optimal balance, showcasing both growth and customer buy-in.