Pricing is more of an art than a science for any early-stage B2B tech startup. Startup founders are in a situation where they can’t use known price points or analytics since there are none available from existing customer data, but they need to start testing their pricing hypothesis during their initial interactions with early customers.
During these interactions startup founders need to be able to interpret correctly customer feedback in regard with the perceived value of their product and the relevant price ranges the customer is willing to pay. Thus confirming their working hypothesis or adapting them accordingly.
Four common pricing mistakes of B2B startups that happen again and again:
- Prices are fabricated without customer feedback. Usually startup founders are stuck behind a computer screen doing a ton of research and numerous bench-marking exercises, but at the same time avoid having tough pricing conversations with their early leads and potential Founders need to get out of their office building and their personal comfort zones and meet as many early leads and potential customers as possible, since day one. The best way to do this is to structure in their daily schedule 3-5 customer interactions (meetings/ calls).
- Prices are set in stone. Startup founders fall into a common psychological trap by usually picking a price point and after initial positive feedback by colleagues, peers and maybe some early leads they conclude that this is the pricing for the go-to-market strategy. However, they fail to take into account how this price point evolves over time, their own company growth and the company’s increasing execution capabilities.
- Prices are too low. Even the most confident about their product startup founders, fail to understand the value-add to the potential customer, and thus price their product too low. Usually this is because it’s easier to price low than solicit potential customer feedback and understand what they are doing wrong and not closing deals and contracts. This behavior is an even larger hurdle if startup founders believe that it’s very hard to raise sales prices following the acquisition of their early customers, but very easy to lower them instead. The result is that if they have started from a relatively low price point and are reluctant to raise prices over time, they are effectively limiting their startups growth opportunities.
- Prices structure is over engineered. A new B2B product doesn’t necessarily mean that its pricing structure needs to be equally innovative or complex. If the industry vertical in which startup founders are operating in is most familiar with a specific pricing model trying to introduce a new one on top of an innovative product hinders adoption and complicates the startups’ sales processes by creating an even higher barrier for potential customers to understand and adapt.
Speaking to early customers about product pricing is a stressful experience for any startup founder, but not talking to them at all and trying to interpret what they have in their mind is even worse.
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Christos Lytras – Managing Partner