How To Price Your Product at Seed

Jun 26, 2024
How To Price Your Product at Seed
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As Seed-stage enterprise software investors, go-to-market is the #1 thing we work with our portfolio on day in and day out. Early-stage founders often dedicate significant time to the development of their company, such as product roadmap development, achieving product-market fit, and defining sales motions. However, there is one crucial area much less talked about, despite its impact on a company's future: pricing.

Pricing a product can often feel like a “finger in the air” exercise, filled with guesswork for founders. To address this challenge, we recently hosted an Enterprise Masterclass with repeat founder Rob Bailey. He shared his proven framework and tested methods for strategic product pricing, drawing from real-world examples.

Whether you’re trying to nail a first price point or further in your journey needing to iterate on pricing, these tactics help refine a product's pricing strategy and gain a competitive edge in the market.

See the full masterclass slides and webinar recording here. We’ve also outlined a few of Rob’s biggest takeaways below:

Understand where you are in the life-cycle of your market. Aka are you a red sea opportunity (with brutal competition) or a blue sea opportunity (a category creator)?

#2: Understand the buyer(s) and how the buying process will work. Aka are your buyers minnows (other startups), tunas (scaleup tech companies), or whales (Fortune 500 enterprises)?

  • 🌶️ Hot Take: Focus on tunas and middle out sales. Given each stage values different levels of data security, compliance, etc. a middle out approach will allow you to easily close minnows (which tend to be quick and small wins), while better preparing you to close whales (slower customers with significantly higher ACV).

#3: Understand competitor pricing and what buyers think about it. As an example, Rob described how most customers hated Zendesk’s pricing structure, finding it complicated with a lot of hidden back end costs. So Rob’s company at the time, Kustomer, set out to capitalize on that, launching with only a few product tiers and extremely simple pricing with no hidden costs.

#4: Understand the underlying economics of your product. This includes building out an internal pricing worksheet that helps calculate the threshold to maintain constant margins, and ultimately combat customers fighting for lower pricing.

  • 🌶️ Hot Take: Rob couldn't think of a single time where a customer bought his product as a result of seeing an ROI model. Customers typically think it's bullshit anyway.

#5: Use your pricing page to frame the conversation and what you are good at. As examples:

Price Blocks Features Block

#6: Calculate your LTV/CAC. 

  • 🌶️ Hot Take: While some people think this calculation is outdated, Rob believes seeing the long-term value of a customer, how much revenue they generate, and how long they will typically stay on with you before they churn and what that customer acquisition cost would be can be helpful internally.

#7: Price for “Land & Expand” with discounts and price anchoring.

#8: In pricing, fast iteration speed is much better than being smart. Pricing should be fluid and dynamic, with constant iteration.

#9: Use trial periods instead of POCs wherever you can.

  • 🌶️ Hot Take: Rob hates pilots, believing anything that is a standalone agreement (especially ones with whales), essentially means you have to close a sale to the same customer twice. He prefers “auto-flip,” which typically refers to a contractual arrangement that automatically triggers an updated, paid contract.

#10: Never underestimate what your customers will pay once they trust you.

If you’re an early-stage enterprise founder or operator — connect with us directly to chat about anything GTM or check out our events page to stay in the loop on all things happening in the Work-Bench community.