Pack light. Check Map. Move briskly.
In travelling the landscape of emerging companies, I’ve noticed pricing often needs a “health check.” At least three out of four have prices below customer perceptions of value.
Reasons may vary. Lack of precision around why customers buy. A “feeling” the market won’t support a higher price point. A low “introductory” price will increase transaction volume. Perception the topic may not have enough upside to justify digging deeper.
Since countless books and articles exist on the topic of pricing, this post shares three practical steps to help you capture more value.
Use Hasty Research
Too often this option gets overlooked. For emerging companies, interviews with a few customers can reality check key assumptions, and produce useful insights for pricing.
Several of my favorite go-to questions are:
What is the primary benefit you receive from us?
Why did you decide to buy when you did?
How would you feel if you could no longer use us?
What would you likely use as an alternative if our product were no longer available?
These along with a few open-ended questions can help you discover value that current pricing may not capture.
The process works equally well for interviews with former customers or qualified prospects who chose a competitor instead.
Unpack Margin Stack
Another area of pricing often shortchanged is channel margins and pricing.
Much comes down to the question of channel power. For example, a unique product in demand means you as the “supplier” has the power to outline commercial terms. If not, your channel will.
Failure to apportion “margin stack” to the value each player provides can instantly stall an otherwise promising initiative. Done right, this exercise forces you to tackle big questions immediately: Is go-to-market strategy right? Is this business truly sustainable? Are we “giving away” too much margin?
Tip: Margin is not based on cost, but percent markup on selling price at each step in the supply chain.
Stare Down Complexity
Whether refining pricing model or adding a new offering, keep it simple. Unnecessary complexity adds friction to the selling process.
For example, a common issue is too many offerings, or SKUs, with insufficient differentiation from the customer’s point of view. This means more time gets spent explaining differences and figuring out “fit.”
Another offender is pricing models that struggle to scale efficiently as the pace of adding customers quickens, or that break as the business pushes into adjacent markets. Constant one-off adjustments consume valuable management and seller time better spent elsewhere.
…see complexity explode if adding resellers to the mix.
Always Keep Pricing Top of Mind
Left unattended, pricing corrections can be costly and time consuming to fix. In the event the ups and downs of finding the “right” price strike a chord, drop me a note.
Chris Preston is a business advisor and sales leader who helps turn emerging companies into market leaders. A former Microsoft executive, two-time startup veteran, and board member, he is founder of True Partners Advisory. If you’d like a little help, contact us.