Pricing 101 for startups
Martin Reichenbach
Mail: martin.reichenbach@gmail.com
Phone: +49 176 / 8035 4738
02-Dec-14 ma...
About Martin
• beActive München, Founder – www.beActive-karte.de
• becoacht, CMO
• Simon-Kucher, Senior Consultant – ww...
What is pricing?
02-Dec-14 martin.reichenbach@gmail.com 3
Why is pricing important?
As is
Ceteris paribus
worsening by
New profit (change)
Volume 1m
10%
2.5m (-17%)
Price 1...
Pricing depend on market situation
- 5 -
Market penetration
Time
Mostly used by startups
Goal: Gain market
share: Ad...
Pricing basics – Which model to pick?
Startup-related monetization models
Monetization Model Example User Value Product ...
Pricing basics – How to determine price?
Cost-plus
• Price = (Fixed cost + variable cost) * (1 + Markup)
• Very often u...
Tips for getting your pricing right
Early stage Later stage
- Choose your strategy wisely
• Apply a premium strategy if...
Further reading
http://leanstartup.pbworks.com/w/page/15765232/Examples%20of%20Pricing%20Pages
http://www.startupdonut.c...
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Pricing 101 for Startups

- Overview of pricing basics - Explanation of relevant monetization models - Tips for getting to the right price in an early-stage market
Published on: Mar 4, 2016
Published in: Marketing      
Source: www.slideshare.net


Transcripts - Pricing 101 for Startups

  • 1. Pricing 101 for startups Martin Reichenbach Mail: martin.reichenbach@gmail.com Phone: +49 176 / 8035 4738 02-Dec-14 martin.reichenbach@gmail.com 1
  • 2. About Martin • beActive München, Founder – www.beActive-karte.de • becoacht, CMO • Simon-Kucher, Senior Consultant – www.simon-kucher.com • University of Munich, Computer Science Diploma • Various Agencies, Online- and Email-Marketing Manager 02-Dec-14 martin.reichenbach@gmail.com 2
  • 3. What is pricing? 02-Dec-14 martin.reichenbach@gmail.com 3
  • 4. Why is pricing important? As is Ceteris paribus worsening by New profit (change) Volume 1m 10% 2.5m (-17%) Price 10 2m (-33%) Variable cost 5 2.5m (-17%) Fixed cost 2m 2.8m (-7%) Profit 3m Profit ( Price Variable costs ) Volume Fixed costs TAKE AWAY: Price decrease have a way more serious impact than changes on any other lever! Current situation in professional B2B • 50% price too low • 30% price correctly • 20% price too high Startups are worse! Explanation: By worsening/increasing your fixed cost by 10%, the profit margin drops by 7% 02-Dec-14 martin.reichenbach@gmail.com 4
  • 5. Pricing depend on market situation - 5 - Market penetration Time Mostly used by startups Goal: Gain market share: Additional propositions, aggressive price Goal: Critical mass: Simple proposition, aggressive price Goal: Increase market reach: Stronger differentiation Goal: Keep customers, monetize customer base: High differentiation, multi-brands, smart pricing, loyalty models ... Goal: Get early adopters: High prices 02-Dec-14 martin.reichenbach@gmail.com
  • 6. Pricing basics – Which model to pick? Startup-related monetization models Monetization Model Example User Value Product Complexity End User buys Subscription model Freemium: LinkedIn Limited Free Trial: Netflix Increases with time Simple to Complex Yes or No One-off monetization One-off-monetization: iTunes Immediate Simple Yes One-off monetization Money-Back-Guarantee: SEOmoz Immediate Complex Yes Advertising-based monetization (Product or service is free, revenue from ads and critical mass) Facebook Increases with time Simple No Product is free, but you pay for services (Engineering as Marketing) Linux distributions for Enterprises Increases with time Complex Yes or No Razor blade model Printer vs. Ink, Razors vs. Razorblades Increases with time Simple to Complex Yes Portfolio / Product line pricing Large product portfolio, e.g. e-commerce Stores Immediate Simple Yes Feature / Menu-based pricing (Monetization mainly through add-ons) Automotive, Enterprise Software Increases with time Complex Yes 02-Dec-14 martin.reichenbach@gmail.com 6
  • 7. Pricing basics – How to determine price? Cost-plus • Price = (Fixed cost + variable cost) * (1 + Markup) • Very often used by startups selling physical goods • Retail examples: Fridges: cost plus 25 per cent / Branded clothing: cost plus 135 per cent / Jewelry: cost plus 250 per cent or more Competition-based pricing: • Prices are based on the current competition, e.g. average across competition • Often used for service pricing in startups and established companies Value-based pricing • Prices are based on perceived value by the user • Rarely used in a relevant fashion by any company • Factors for Value based pricing (among others): Convenience, Brand, Fashion & Trends, Monopolies and cartels, Pure perceived value Supply and demand Apply discount schemes: • Volume tiers • Cumulative discount • Off-season/clearance discounts • Cash-Payment discounts vs. payment mark-ups Ideally you will combine these three data sources in order to come up with a meaningful price 02-Dec-14 martin.reichenbach@gmail.com 7
  • 8. Tips for getting your pricing right Early stage Later stage - Choose your strategy wisely • Apply a premium strategy if early in the market and can monetize early • Apply a low price strategy to penetrate the market - Aim high • Reducing prices is easier than increasing • To users low prices often equal low quality or service • Avoid shocking prospects by applying new metrics e.g. price per week • Competitive prices are rather relevant for large corporations - Apply pricing psychology rules: • Set up a simple portfolio: • Silver / Gold / Platinum • Most users are overestimating their usage, e.g. download size • Use odd prices to stay under certain thresholds (9,99 rather than 10,00) • Communicate discounts and user benefits clearly • Show your prices later in the checkout process if possible - Do customer research in order to inform your pricing - Golden rule of B2B pricing (by Bryan Stolle) • Perceived value (measurable benefits + discounted soft benefits) = 10x price • Option for B2B companies: Saved Headcount = 10x price - Always communicate reasons for price changes • Price increases: What is the additional value I get? Consider price elasticity! • Price decreases: Why do new customers need to pay less then me? - Consider vanishing value of products, i.e. sell-by-date or development of alternative products - Consider dropping products or customers if unprofitable - B2B specifics • Use one general pricing sheet • Enable sales by pre-defining a deal corridor → define starting/list price, target price (e.g. one their bonus is based upon), floor price 02-Dec-14 martin.reichenbach@gmail.com 8
  • 9. Further reading http://leanstartup.pbworks.com/w/page/15765232/Examples%20of%20Pricing%20Pages http://www.startupdonut.co.uk/startup/financing-a-business/pricing/price-your-product-or-service 02-Dec-14 martin.reichenbach@gmail.com 9

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