Start­ups can have very dif­fe­rent goals and thought pro­ces­ses con­cer­ning pri­cing when initi­ally try­ing to get trac­tion in a mar­ket.  Some start­ups might be so focu­sed on gai­ning a foot­hold in a mar­ket and get­ting a cri­ti­cal mass of cus­to­mer feed­back that they are wil­ling to give their solu­tion away at first while others might be highly focu­sed on cash burn and feel com­pel­led to get to brea­k­e­ven with their first customers.

While we are far from aca­de­mic experts on the sub­ject of pri­cing, and every situa­tion is cle­arly uni­que, we deci­ded to write down some of our thoughts and gene­ral gui­de­lines that we hope will be useful:

• It is easier to lower price than to raise it. And price ancho­ring is an actual phe­no­me­non.  Howe­ver, pivots can pro­vide excel­lent oppor­tu­ni­ties to rethink pricing.
• Early cus­to­mers are usually highly-inte­res­ted in the solu­tion and are often wil­ling to fund fur­ther deve­lo­p­ment, eit­her as a sepa­rate charge (NRE/Installation fees) or in the form of hig­her pri­ces in the early days of the rollout.
• Cus­to­miza­tion requests should be pri­ced extre­mely high, espe­ci­ally if the degree of cus­to­miza­tion is so great that the cus­to­mer-spe­ci­fic deve­lo­p­ments are dif­fi­cult to trans­fer to future poten­tial cus­to­mers.  One-time reve­nue oppor­tu­ni­ties are often more dis­trac­tion than they are worth, espe­ci­ally when fac­to­ring in oppor­tu­nity costs – which are often overlooked.
• If the solution/technology is truly uni­que, it should not be neces­sary to employ low pri­cing as the means to win cus­to­mers. The extra time spent loo­king for first cus­to­mers who truly value the offe­ring is well spent, as oppo­sed to redu­cing price just to con­vert the first deal.
• The clo­ser the solu­tion is to its large-scale roll­out state, the more pri­cing should alre­ady be set at a level that will allow for broad adop­tion. SaaS offe­rings are often in this cate­gory. Addi­tio­nal deve­lo­p­ments are bet­ter included in upgrade packa­ges or sold as Add-on modu­les, as oppo­sed to dra­sti­cally alte­ring the core price over time.
• Usually price is highly-visi­ble, pro­ba­bly much more visi­ble to most stake­hol­ders than a company´s long-term plan to pene­trate a mar­ket.  Start­ups should set price at a level that gives employees and part­ners a sense of pride and secu­rity that the busi­ness has the poten­tial to create sub­stan­tial value and reduce its reli­ance on inves­tor fun­ding over time.

With many early-stage Inves­tee-Part­ners now ente­ring the com­mer­cia­liza­tion phase, we have recently enjoyed enga­ging in num­e­rous pri­cing dis­cus­sions. We hope we have been able to offer some valuable assis­tance in this area and that “the price is right”.

Your bm|t Team