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Learning how to price software is an iterative process that requires constant conversations with customers and plenty of cross-functional collaboration.
B2B SaaS and AI companies will likely tweak their pricing strategy multiple times throughout their company journey. But how do you begin the process of pricing your product in the early stages?
To advise founders and operators on how to price software products, York IE hosted a webinar in tandem with J.P. Morgan, “Price It Right: Best Practices for B2B Startup Monetization.”
During the webinar, a panel of five investors, operators, and pricing experts shared their insights:
- Matt Shapiro, Director, Investments, York IE
- Vickrum Nabar, Vice President, Startup Banking, JP Morgan
- Gina Perrelli, CEO and Co-founder, Stay AI
- Jordan Lieberman, Team Lead, Price Intelligently by Paddle
- Rob Litterst, Founder, PricingSaaS
Let’s walk through these experts’ advice on how to price software:
1. Start by observing your competitors.
Drawing inspiration from your competitors is a great way to begin the process of pricing your product. While this may seem a bit unoriginal, emulating your competitors can put you in a ballpark that your customers already understand.
“When you’re going for your first pricing model, competitor-based pricing gets a bad rap,” Litterst said. “But at the end of the day, you can probably infer a decent idea of price just from looking out at the market and seeing what’s happening.”
This is a strategy that Perelli and her team followed in the early days of Stay AI.
“When we first launched, we went directly in line with what our competitors were doing,” Perrelli said. “We didn’t want to have to fight the hurdle of trying to explain a new pricing strategy to anybody in the market and add another thing they had to evaluate.”
2. Conduct discovery conversations with early customers and design partners.
After you’ve observed the market to set your initial price point, it’s time to start collaborating with your early customers or design partners.
“Pricing is a discovery conversation with your earliest customers, and you have the ability to really dig in and ask those critical questions,” Shapiro said. “Those insights are really what help you generate the most interesting and impactful pricing solutions from day one in the startup world.”
These early conversations can help you understand what customers value most about your product, and how that translates to what they’re willing to pay.
“When you are in that phase of the design partnership or pilot that’s unpaid, try to get feedback from your internal champion to help you define your value equation, meaning: how much you will be worth to the company in terms of cost savings or extra revenue generated,” Nabar said.
Your investors could also provide valuable insights into pricing strategy, so be sure to loop them into conversations when appropriate.
3. Talk to “closed-lost” customers to identify gaps in your strategy.
It’s important to talk to your existing customers — but it’s also essential to garner feedback from the prospects that went in another direction.
“Especially early stage, talk to as many churned or closed lost customers as you can,” Lieberman said. “These are the folks who are going to share so much information with you, whether it’s on pricing strategy, product strategy, marketing strategy – something didn’t click for these individuals.”
Lieberman noted that many prospects are more willing to honestly share their perspectives with early-stage companies. These conversations could help you identify how to tweak your pricing strategy for optimal results.
4. Set up recurring cross-functional check-ins on how to price software.
The role of “chief pricing officer” doesn’t usually exist for early-stage companies. That’s why it’s important to collaborate with your executive team and incentivize ownership of the company’s pricing strategy.
“Pricing, unfortunately, is so important, but it often falls to no one to actually own,” Shapiro said. “The hard part is, how do you actually figure out a clear owner within a scaling organization that cares about it, is incentivized properly behind that, and also willing to take in the input of both go-to-market, product, and finance leaders as well?”
At Stay AI, Perrelli found success gathering feedback from many different internal voices.
“We really brought in some of the key people from the leadership team,” Perrelli said. “We wanted customer support’s POV. We wanted finance’s POV, and the product team’s POV.”
As the CEO, Perrelli took ultimate ownership of pricing but incorporated feedback from her team.
5. Constantly iterate and experiment.
The early-stage startup landscape is constantly shifting with customer preferences, market demands, and new feature development. The way you’re pricing your product should evolve as your company does.
“This doesn’t mean overhauling your pricing strategy every six months,” Lieberman said. “But rather moving a feature around, testing a different limit on a value metric or something of that nature. Playing around with this stuff will pay huge dividends in the long run, when you learn what works and what doesn’t.”
You likely won’t discover how to price software overnight. Remember to experiment, iterate, and stay in constant contact with customers and prospects. And be sure to check out our on-demand webinar for more pricing insights!
