It would be an understatement to say that founders/teams don’t struggle with pricing their products. In fact, it can be the most overwhelming decision.
And it’s a never-ending process so you’ll have to keep visiting it from time to time. And face questions like, what if increased price goes all against? The fears are endless.
And then there are pricing models - should I offer a freemium, free or free trial or have different plans for different segment users? 🤷♀️
Pricing is a lot of times like a front-row seat of an award show. Helping us understand the worth, value and market share. How much does your product provide value to the users, how much would they pay to solve the problem and how much does this solution cost in the market? But that’s also true that most startups suck at product pricing just because there’s no one way of getting it right.
The core reasons for the product pricing failure:
Deciding which pricing model to go with can be overwhelming and you need to be extremely careful as it can make it or break your product. You can’t assume that following others’ strategies or asking fellow founders or just google about it will get you the best results.
The fast-changing trends are rapidly changing customer expectations and acquiring customers is getting harder and harder. Whether a company should focus on its core functionality and expand its growth or get into the hyper-growth stage by changing itself with trends, which isn’t possible for every company. That’s why having the right go-to-market strategy will not only help you be on the right front but also help you acquire customers fast.
It’s good to go for case studies but as the business model and customer segment is different, the way to price the product changes completely. What works for them won’t necessarily work for you. You need to have your own framework, strategy and understanding of customers to plan the pricing model - free-trial or freemium.
In the free trial model, the product is provided either completely or partially free of charge for a limited time period, say 7 days or 14 days. Whereas in the freemium model, you provide access to part of the software product free of charge without any time limit.
A lot of businesses prefer free trial but when you know your go-to-market strategy it will become much clearer which way to go.
Now one of the aspects of deciding which go-to-market approach to take is how quickly you want to grow. If you get the job done better and charge less you’ll win all types of customers because you’ll be dominating the market. Or charge more and win underserved customers. But that isn’t sometimes an option for early-stage startups as they might be competing with some established companies.
How big is your market? If you’re a very niche business then you wouldn’t want to give a freemium model to a very few users who might actually pay to use it.
Being in the specialized market will definitely help you take away some of the market shares, say you discovered an underserved niche in Airbnb, and now you can tailor the product for that audience and offer a free trial to them (and significantly charge more).
Offering free trials or free versions of the product can increase the value of the product in the eyes of the customers.
Questions to ask when deciding on this strategy:
To go for the freemium model, you need to have a disruptive growth strategy. For example, see Notion and Canva though they both have a huge list of competitors. But with such a big market they both build a much simpler product that solves a very specific pain point - getting things done at a faster and easy way.
Keeping costs low, solving problems fast and easy, for a very specific niche, scales the customer base fast.
Now, freemium also means that your investment in acquiring people needs to be very less. Can customer onboarding be completely self-service? One of the big things a SaaS struggles with pricing is defining Customer Acquisition Costs. They are like silent killers.
The majority of the customers want to use the product fast and by themselves. Offer great customer acquisition through a self-service option, where the prospect goes through the acquisition and adoption stages on its own without the help of a sales or marketing person. This makes the companies focus on “try and buy” the product and upscale after and making the freemium and free trial models more popular.
Quick questions to ask that will make you think:
It’s good to look at these things before making your final call:
Now, I’m really curious to know how and when did you decide what pricing plan works for you? Reply to the email or comment below.