Thread by @rebootdude

1/ Pricing Models for startups and founders

Lecture notes from pricing for founders sessions this morning at @TheNestiO

How should we think about pricing our products and services as a startups or founder?

Simpler and cleaner is better than busy and cluttered

2/ There are three pricing schools

a) Cost plus - factor in all costs. Charge a multiple

b) Value - estimate perceived value for a customer. Charge a fraction

c) Paying capacity - charge whatever you can or get away with

3/ In competitive markets without a unique, differentiated product, cost plus is the likely option.

To charge premium or move into value, need traction, credibility, customer testimonials and history.

For most startups, executing on value pricing right at start is difficult.

4/ The pricing model you use is a function of:

a) Startup life cycle stage
b) Product
c) Customer
d) Positioning
e) Competition

Together these factors determine if you do cost plus or value

5/ The primary challenge with cost plus is that as founders we often ignore the most obvious of expenses.

a) Founder salary, compensation or time costs
b) Cost of resources that are free for now, but will be charged later
c) Overheads, supervision, R&D, contingencies

6/ The primary issue with value is that you can only charge a fraction of perceived value delivered to a customer.

We need to educate customers before our and their estimates of value reconcile.

Need a steady relationship in place before value is viable.

7/ For cost plus the multiple of costs that you can charge range from 2 to 6. 2 is common, 6 is rare.

For perceived value you can get away with charging as much as 30% of perceived value.

8/ The charge whatever you can get away with model is a short term model.

Not really viable long term since it erodes trust and doesn't help or focus with building relationships.

9/ Each market has its own challenges. Noisy markets favor cost plus. Minimum cost and overheads wins.

High value premium product / service, discerning customers, work better with value, high touch and relationship based selling.

10/ Two things you can do to help yourself.

a) Model and itemize your cost base. Throw in everything you use, need or plan on using.

b) Understand your customers and their rationale for purchase. If you understand customer pain, you understand perceived value.

11/ You also need to model liquidity, collections and cashflows. What happens when life doesn't flow as planned?

Will clients pay on time? Are deliverables clear or ambiguous? Scope creep? How do we cover expenses in case of delayed payments or customer defaults? Litigation?

12/ No pricing model is set in stone.

Pricing needs to be responsive to markets and customer responses. Your models change as you grow and evolve as a business, as target segment and operating environment shift.

But simpler is always better.