Searing Fundamentals Of Better Pricing Strategies

As a startup, there are many variables that must be correct for it to grow. One of the most difficult of these is product pricing.

In 1998, we settled on a flat fee of $5000 per video server. In 2017, we priced our sales AI system at $1 per lead in their CRM. In 2022, we priced our AI for capital markets at $100,000 per year. In 2024, we priced our AI for banking and insurance at $60,000 per server.

The 1998 pricing worked well because it fell into a sweet spot that most small business owners could put on a credit card. It was also less than the cost of a typical analog system at the time. Once we transitioned to larger accounts, we added monthly services to increase revenue.

The 2017 pricing was a monthly fee based on the number of contacts our AI analyzed in their CRM. While we felt it was a good value, the problem was that the sales managers who purchased our solution had to get additional approval from the higher-ups. This slowed down the sales process and often kept us out of deals.

We stole Alex Hormozi's $100,000 pricing in 2022. We had experimented with multiple price points for a SaaS subscription. However, our target market was biased towards things not viewed as expensive. Once we offered the high price, it gave instant credibility to our product.

The 2024 pricing of $60,000 may have worked, but we failed to charge for the pilot and needed more buy-in from the decision-makers during the 30-day trial. Thus, when it came time to close, no one was involved who could approve a purchase.

Considerations

Before deciding on pricing, it is critical to first understand your target market—specifically, your decision-maker. For example, a middle manager usually has some amount of budget they can spend without seeking additional approval. Similarly, a small business owner most likely has access to a line of credit. Understanding how much this is will allow you to set a base price.

Pilots

Companies with more than 50 employees will most likely require some kind of pilot before deciding. For example, in 2023, we ran pilots for banks and NGOs.

Buy in

Pilots should have a cost for the user. At a minimum, this fee can be applied to the final purchase. This price should be based on what the decision-maker can pay without seeking further approval or additional credit. In most cases, that puts it under $5000. If they continue with the solution, anything paid during the pilot is credited. Otherwise, it is lost.

Commitments

Every successful pricing strategy includes a base cost with two levels of upscale. These can consist of services, users, and features that most will find beneficial. The pricing of these levels should correspond to additional commitments from the customers.

For example, a team manager can purchase a base-level subscription without further approval. At the same time, a middle tier requires a department manager, and the top tier needs a location manager to approve the expense.

Conclusion

Strategic pricing can make the sales process much more manageable. The amount charged dictates who you must talk to and how long the close will take. If you get it wrong, no amount of sales skills can close the deal. Hit the sweet spot; minimal effort is needed to get a check.

I hope this helps. Let me know if you need help.