How to master startup pricing
One of the most important factors for your startup’s success is pricing, but it’s also one of the hardest to get right.
Pricing directly affects your revenue, and what’s great is that you don’t need to change your product or operations to see a difference. When launching something new, you have to understand how the adoption curve works—how people shift from the old way of doing things to your new solution. This shift influences how they think about price and make decisions.
Early on, you’ll be selling to early adopters, the people who are the first to try new things. Your goal at this stage isn’t to maximise profit but to turn interest into sales. The pricing model you start with will evolve as your product matures and you begin selling to a broader market. Early on, you might use pilot projects, but once you reach the mainstream, your pricing needs to focus on maximizing conversion—getting as many people as possible to buy.
To do that, you’ll need to consider two main constraints: customer constraint and market constraint.
Customer constraint is about how much your customers can afford to spend, especially in the early stages of a new product. Market constraint is about price elasticity, or how much demand will change if you raise or lower the price.
Pricing Design
Pricing design is about knowing your product category and your target audience. Are they sensitive to price changes, or are they willing to pay more for what you’re offering? How you price will influence sales volume and profitability.
Several factors affect how responsive people will be to your prices: the type of product, how much money your customers have, the state of the economy, what competitors are charging, and whether there are alternatives. One of the goals for many startups is to move their product from being highly price-sensitive to less so, by differentiating it in ways that make customers less likely to switch when prices change.
Offering multiple price points can help maximize conversions by letting customers choose what fits their budget. That way, you can capture more customers at different price levels and boost overall revenue.
Startup Pricing Models
Here are a few pricing models that work well for startups:
Subscription Model: This is great for recurring revenue. It works best for products that customers will use regularly.
Value or Usage-Based Model: Here, you price based on how much value customers get from using your product. It’s common in SaaS and performance-based models.
Dynamic Pricing: Prices fluctuate based on demand and supply. This works in markets where volume changes a lot.
Market-Based Pricing: Here, you let the market determine the price, often through auctions or supply-demand gaps.
Freemium Model: You offer a free version to get people using the product, then upsell them on paid features.
After you design your pricing, make sure it works in the real world by checking your unit economics, contribution margin, and whether you can scale. It’s not just about getting customers; you need to make sure the math works out, too.
Final Thoughts
Pricing is a powerful lever for any startup, and it can have a huge impact on your revenue without changing the product itself. As your startup grows, your pricing strategy will need to evolve, too.
The key is to understand your customers and the market, and to adjust your pricing as you move through the adoption curve. Get this right, and your startup will be positioned for both growth and profitability.
Josephine Too
Josephine Too is a seasoned strategist and certified agile growth coach with over 25 years of experience in strategy consulting, executive management and scaling tech driven (NASDAQ) companies across APAC & Europe. She brings clarity and confidence to growth-oriented CEOs and their Leadership team to design and achieve Category Leadership. Josephine is passionate about building and scaling healthy companies, sustainably; inspiring and empowering leaders, and identifying new sustainable ways to solve problems for a better enriched future. She is the Resident Strategy Coach for many Investor’s Portfolio Companies.*
