getting started with pricing experimentation
not surprisingly, y combinator has relevant resources for how to start thinking about your pricing strategy as a tech startup (a link to video is at the bottom of this post). a piece of this video advocates for an experimentation mindset before moving toward adopting a particular pricing strategy (though it does seem to advocate for value-based pricing), which is the key to building a successful pricing and packaging strategy in the long term. the concept is simple: create your own demand yield curve and run pricing experiments with your sales team and/or the pricing page on your website. track the following results:
how do your conversion rates change?
what happens to your sales volume?
how much revenue did you generate?
a very straightforward approach, with metrics that you should be tracking anyway to measure the health of your sales organization.
the other part of setting an early pricing strategy that is emphasized in the video is understanding the value your product drives for your customers. the starting point, according to y combinator, is driving 10x value (sell a product for $10, deliver $100 worth of value). i am skeptical about how a company would calculate the value they drive for their customers at such an early stage, but i’d love to hear how companies are measuring it!
a key pillar of esperanto growth strategies’ philosophy is being dedicated to experimentation. you almost certainly won’t get pricing right at the beginning, but if you try different concepts and ideas and keep at it, you’ll undoubtedly come out ahead. you could also shoot me a note at awork@esperantogrowth.com to chat further about how we can help.
check out that video and let me know what you think.
