Pricing Tips for Early-Stage Companies

This expert opinion by Parul Bhandari, founder of South Asian Success and CEO of CustomerXSuccess, was originally published on Inc.com.

Pricing strategies for early-stage companies are a unique problem. Most lack enough data about what will work for potential and future customers to make a sound data-based decision. But what you lack in data, you can make up for in understanding your value proposition and how your pricing can set the tone for potential customers. When you set the right tone, you set yourself up for better customer retention.

I work with many early-stage companies, helping them design all aspects of their customer experience, and these are some pricing tips I have developed to win customers and drive retention.

Lean in on perceived value achieved

Customers are increasingly looking for products and services that provide a clear and tangible value proposition. This means that businesses need to focus on delivering a high-quality experience that meets or exceeds customer expectations. 

Pricing should be set as a reflection of the value that customers expect to receive, aka perceived value. For example, if you have a product that delivers results over a longer period of time, ensure customers understand what to expect and how soon to expect it. Your pricing and contract terms should match that expectation. For example, longer contracts and pricing to match the term.  

Ensure your margins keep your company operating

Businesses need to find ways to optimize their margins while still delivering a high-quality customer experience. Margins are essential to profitability. Many companies choose free trials in the early stage, which is a way to engage early customers. But free trials can cost the vendor company a lot in margin. Consider what is offered in your free package, and ensure it occupies the least margin spend or delivers high returns, such as securing a long contract ahead. 

I recently worked with a premium business development product vendor with high margins but high customer time-to-value. After a consultative margin review, it was determined that the best option for their trial would be a short free trial period followed by a fixed term contract at full price. This option maximized the margin for the vendor while also delivering value for the customer.

Test and iterate to the market, but lead with quality

Your pricing model will change, likely more than once. Setting initial pricing based on things like the market, competition, and your perceived value is important. But more important to note is delivering quality at your early stage to ensure repeat customers, renewals, and growth. Customers are willing to pay more for products and services that are well-made and durable. 

In software, for example, if you are balancing product stability versus building new features, balance the impact to your brand identity if you do not deliver stability and quality first. While new features may help you in the sales marketplace, stability will help you build your brand and set the value of your price.

Pricing is an expression of your overall customer experience. By focusing on your pricing methodology, you can send the right signals to your customers and drive longer-lasting relationships. Setting initial pricing can feel daunting, though, and often like a guessing game, without ample data to look back on. By utilizing the tips outlined above, businesses can develop a customer pricing strategy to achieve growth and retain customers.