We started off week 6 with a talk from Seth Levine, Managing Director at Foundry Group, about pricing. Seth started off this talk withSethLevine.com back in 2010 about pricing that went viral and now (for reasons unknown to him) has become the Foundry pricing and productization guy.
Below are links to the two articles:
Seth says on his blog posts to “keep in mind here that I’m dealing generally with web services of some kind in the advice below (not consumer apps and not enterprise software). With those caveats, here are some ideas on pricing models:”
Below is a quick summary of his talk and major points he made:
Beware of too many pricing tiers
In his talk, Seth warned the companies to beware of too many pricing tiers: less is more, 3 is ideal, he could be convinced of 4, more than 4 you are overcomplicating it. “More tiers = more complication = more confusion.”
Have a clear delineation between product tiers
He also stressed the importance of differentiating the pricing tiers and clearly offering more value as they pay more (i.e. Analytics, workflow, 24/7 Support). He also suggests a “Call us for enterprise pricing” tier to gauge enterprise interest and says “Most companies vastly overestimate their prospective customers’ ability to understand the features of their product (thinking the value of each feature is self evident).”
Be careful what you put a tariff on
This can be tricky… a new company especially doesn’t want overly tax the very feature(s) that drives value and engagement from your users. Remember that what you charge or perceived cost is directly aligned with the value you could provide.
On the freemium myth
Many people use free as an excuse for releasing a shitty product. Build something awesome! For B2B markets especially, if something is free the buyers might equate that with no value and how could a free product possibly be as good as something that costs $100’s a month? Even if you do have an awesome product, if your price is $0 to companies they may not think you can compete with other established enterprise solutions.
Seth said you shouldn’t be afraid to charge a healthy price for your product. If you have a great product, you should lose some customers because your price is too high. And finally some advice i’ve heard many times before, It’s easier to lower a price than raise a price.
How about your Trial Period?
Rather than offering a free product, consider offering trials, but limited trial period. Generally 14 days is plenty of time for people to see if they like what you’re doing. Mange the trails, don’t just wait and see (know what tips people from lookers to buyers).
Always fun when the Foundry guys pop across the hall to share insights with the Techstars Boulder Companies. Now the companies can take these insights and start sprinting towards their goal which culminates on Demo day hosted at the Boulder Theater Thursday, October 9th.