According to CB Insights, 18% of small businesses fail because of pricing issues. So, the question of how to price your product or service is rather vital. Price too low and you may signal your product is not good enough at least in the customer’s mind. Additionally, you may end up not being able to manage your cash flows.
On the other hand, you price it too high and you may lose customers who’ll be willing to pay a lower price. Or competition may eat you up. Either way high or low, you have serious risks. Many a start-up founder will spend precious time, money, and effort to get to that sweet spot where customers are happy to pay the price and the company makes profits. We speak to a few start-up founders who share their pricing pangs.
Amit Chavan, Co-founder, EffCode Technologies
Our product is SoBot, a SaaS-based offering that provides a WhatsApp-based storefront to small businesses. I think the most important thing to look at whilst pricing is your target audience. Only after you know who you are selling to, will you be able to set a price. Then within that, we identified our target audience. Once you know that, then you look at other factors such as your costs, your infra, operations, then your Customer Acquisition Cost, and so on. We offer our services that are based on NLP to local businesses at Rs. 5000 + GST per month. If the customer wants to use our services for a year then we offer him a Rs. 10,000/- discount. So far, we have 10 customers and more in the pipeline.
TiE Member who wishes anonymity, founder of a start-up in the F&B industry
“We had several iterations before we hit the right price. At the very outset, we had decided that we wanted to target the middle class with our product. After studying the market and the prices of F&B products, we launched ours at a price that we thought was good. However, it wasn’t as our sales told us. So, we went back and forth several times before settling on a price band of Rs. 30 – Rs. 40. In fact, to be able to offer our product at this price, we even launched a new product. We now are doing well because at this price we have more and more sellers willing to stock our product. Pricing is extremely important.
Imtiyaz Kazi, founder, Cuepra
My experience can be helpful if you are working on a software-as-a-service (SaaS) product aimed at enterprises. Some time ago, we embarked on our journey to adopt enterprise SaaS. We help organizations automate, and digitize complex workflows involving numerous stakeholders for geographically spread operations.
Be it for asset management or repair service management or quality process management. To accommodate the widely varying workflow needs across market verticals, we designed our product with configurability, flexibility, and ease of use in mind. It turns out that one needs to figure out how to get paid for the innovation and hard work that goes into trying to do more with less. This is a very challenging task.
In our experience, homegrown software is typically valued less even if it gives better outcomes than established ones. Although the stakeholder who is looking for the solution knows this, he will either downplay it or may not be able to defend the solution that you are providing is valuable and worth more, against multiple stakeholders like IT, Purchase that get involved. As a result, pricing gets dictated by the perception of the organization with time going against you.
It doesn’t stop here. The competition is fierce, at least on paper. Across many vendors, the feature list of the software looks the same whereas the pricing variations are drastic and the comparison is always with the least.
Dealing with IT and non-IT Purchase departments becomes a nightmare. This puts you in a position where you must either agree to the price or risk losing the client. In one case we decided to stick to the pricing aspect, and as a result, lost years of hard work. After two years this client still does not have the solution they were looking for.
Ultimately, it’s a lose-lose situation for both sides. It seems we have more work to do before we can master value-based selling. Selling to enterprises at low price points is like accepting a pilot’s job at a car driver’s salary with all the high stakes and risks and liabilities on your head. To top it, you need to take care of the compliances and security aspects of the product. Decide whether it’s worth the time and effort.
Why does this happen? Start-ups feel that working for a large enterprise is prestigious and brings credibility. But the downside is that large enterprises are too focused on saving costs using start-ups rather than rewarding them for the value that they bring. There are multiple stakeholders and collectively they are trained to leverage their size to negotiate ridiculously! Unless, of course, you happen to fall into the lap of a visionary leader or champion who recognizes your value and actively seeks to cultivate it. Our search is still on. In fact, based on my experiences, I am exploring small ticket, large volume SaaS business segments and providing substantial value to the customers.