The # 1 contrarian pricing advice from best entrepreneur-turned-VCs in the Valley
Many of you probably have intuitions about certain pricing decisions when you first make them.
Some of them come with a reputational baggage, and even before you begin to discuss it with your team you know that one’s going to be hard, that one’s going to be difficult.
Raising price is one of those.
It’s so much easier to reduce price instead. Your customers (and sales reps) will be happy, right?
In my pricing jobs, I haven’t had a rep come to me and said “the price is too low, you’re killing me”.
Well as it turns out, just because everyone will be happy when you reduce price, it doesn’t mean they will all be unhappy when you raise price.
If you stop to realize what a price increase really means, you will be excited:
It means you believe your product has increased in value — or is more valuable than you thought.
Relative to what your customers are paying for other products, you want a fair share — and you’re confident your customers would agree.
This is a good thing.
Because it means you’ll have a chance to grow your overall revenue, even if some of your most price-sensitive customers decide to churn. Or it may mean you’ll get closer to profitability, just as new funding is drying up.
The customers you lose and those you keep? They’ll give you food for thoughts about who you’re targeting, how you’re going to market, how you’re packaging products, and so on.
Don’t take it from me — listen to what some of the best entrepreneur-turned-VCs has had to say on this topic:
Marc Andreesen at an interview:
“It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible and then, under the theory that if it’s low-priced everybody can buy it, and that’s how you get to volume,” he said.
“And we just see over and over and over again people failing with that … They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it.”
“By the way,” he added, “it’s like, is your product any good if people won’t pay more for it?”
Jason Lemkin on SaaStr:
Try to Double Your Pricing on The High End. Tomorrow. At Least You Can Learn.
If your biggest customer is $50k a year now, ask for $100k next time. You may get a No. You may get a Yes. Or you may get something almost as good — “Yes, If You Can Do [New Functionality] For Me”.
You may find your comp, your value, is 2–10x higher if you just add a few important features that take your product on a new journey.
This doesn’t work on your smallest, lowest-end customers. But it can work magic on your top 5–6 largest prospects.
# 2. Price high:
Most first-time SaaS CEOs price too low and don’t drive ACVs up quickly enough because they don’t quite yet understand the context of the product. E.g.,:
Don’t be scared of competition if you provide more value than them. In fact, “overprice” versus them.
If you are changing a paradigm, it may be OK to charge 10–20x more than what people are paying for a simple tool in that paradigm today.
Do the homework, and if it makes sense for your business, give it a try— you may be pleasantly surprised to find out the world doesn’t end.