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