Is your pricing bad marketing?

Pricing is marketing

The way you price broadcasts a lot about your company and product.

• Are you a cheap alternative, or a premium high-value product? Is it cheap because it does less or is it a better value because it does the same for less? Is it premium because it does more, or something special, or something niche?
• Are you easy to do business with or hard to do business with? Is pricing transparent and predictable? Or opaque and unpredictable? Does the price structure match the customer's procurement process and how they’re used to paying for things?
• Will your price make your champions look good or bad to their bosses?

What do you want the answer to these questions to be? That should play a key role in how you structure and communicate pricing.

Pricing has positioning power

If you sell a marketing automation product but meter and charge for usage—as opposed to database size x feature package—are you really selling a marketing automation product?

Pricing is a signal of what category a customer should put your product in. Not just in terms of being on the scale cheap commodity to expensive premium, but also in the sense of what your product should be compared to.

Pricing changes sales cycles

The higher the price, the more power needed to sign the deal. The more power needed to sign the deal, the more likely you are to need a sales team and the more work they will have to do to win every customer. More people will have to be convinced. More value will have to be created. More negotiations will happen around your terms and pricing. All of which adds up to a longer sales cycle.

On the flip side, the less you charge, the more likely it is that—if your product is even halfway good—it will spread like wildfire because everyone has the authority to pay nothing for something.

Pricing creates friction.

Pricing is not packaging

• Are there tiers? Do different customers get different versions of the product? Or different levels of service? How many variables are there?
• What is the unit of consumption? A metered amount? A seat? A time period?
• How does value scale? More users? More time? More data?
• Does the unit of consumption scale with value?

These are packaging questions.

The combination of pricing and packaging is a strategic decision that determines margins and how revenue scales for your business.

• Does your packaging scale price as value scales? At the same rate, lower, higher?
• How does your packaging scale price relative to your costs? At the same rate, lower, higher?

Pricing is hard to change

These decisions, once operationalized and built into your systems, are hard to change.

At the early stages, you're going to change them anyway and end up with cohorts of customers on different schemes. Some of them will not like this and you'll have to learn to manage that.

The longer you wait to automate sales process and embed a specific pricing scheme, the more freedom you will have to find an optimal price structure. This is not for the feint of heart. But a small optimization here will pay compounding dividends.

Pricing should not cause cognitive dissonance

Your pricing should complement your messaging, your design, the nature of the problem you solve, the power and seniority and budget authority of your buyers, the business value you create, the money you help people save, the money you help people make, the pain you take away, the sales experience your prospects have, the ease or difficulty of implementing your solution, the customer service you provide, etc.

When it doesn't, everyone will feel it.

Pricing is strategic

• Cost-plus pricing requires the least thought from you and from customers, assuming you know what your costs are.
• Value pricing requires the most thought and argument from everyone, but maximizes revenue per customer.
• Land and expand pricing gets you in the door with a lower price and/or smaller package in hopes of expansion later.
• Growth pricing, sometimes zero pricing, is a land grab to maximize usage and adoption, but you eventually have to turn that adoption into revenue.

Whatever you choose has significant go to market implications about how you market, who you target, and what sales can or should look like for your product.

Whatever you choose will also determine your viability as a business. If your revenue doesn't scale at least linearly with your costs, you need confidence that you will have so much growth that investors will give you money to keep going on the assumption that any percentage of monetization in the future will be massive. Or that something, like economies of scale, will change the equation.

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Good luck!