How to think about pricing in the early days

A really tricky part of figuring out your sales process in the early days is how much you should charge for your product.

I work with a lot of founders, and pricing is always an interesting point of debate.

When you get pricing right, your MRR goes up really fast.

When you get pricing wrong, you struggle to get any customer through the door. Even if you think you’re priced low, or free.

We’ll walk through a few different ways to think about pricing, and I’ll share examples of effective pricing that worked for me at different companies.

Table of Contents

• The role of positioning in pricing

• Using your positioning to determine value points

• Seat-based or usage-based pricing

• How this comes together

• Note on competitor pricing

• Final thoughts

The role of positioning in pricing

I talk a lot about positioning. For some of you, this will be the 10th+ time you’ve heard me say something about positioning.

But it’s really important. Because everything you do depends on it.

Pricing is the same. How you package and price says a lot about you.

Positioning helps folks understand where you fit in the market. It gives prospects a reference point, and helps them understand your unique differentiators.

So the value points you decide to highlight in your pricing should very much anchor in the value points of your positioning.

Let’s review how to do positioning:

1. Write down all of the alternatives that prospects use instead of you. This doesn’t have to be direct competition. How are they solving the problem now? What have they tried? What else could they use to solve the problem? Often this is spreadsheets or people.

2. Write down all the unique features you have against the alternatives. It should be very easy against the “do-it-yourself” bucket. Will be harder against direct competition.

3. Write down the value those unique features bring. What outcomes do they drive? What problems do they solve?

4. Then write down who really, REALLY cares about that value.

From here, we’ll start crafting different pricing options.

Using your positioning to determine value points

The first thing you’ll do is select a few value points that folks are willing to pay for.

Once you’ve selected the value points, try to rank the importance of it with your prospects and customers. What is value #1, 2, and 3.

These will give you anchors for what to choose as the main value point of pricing. It will also give you ideas for how to create tiers.

Then map out all the unique features for each point of value. This will also help you determine pricing tiers, and how to move people across the tiers into bigger packages.

Then map out who really cares a lot about the different value points and features. Those could be targets for each of the tiers.

Seat-based or usage-based pricing

This is often a hot topic of debate. Most SaaS is sold on a per seat basis. Yet most SaaS has very little value tied to seats. So often seat-based isn’t the best way to price.

Let’s use a couple examples here:

Smartlead.ai is an emailing tool. They have different tiers that map to size of organization, and price based on these tiers. The value points for smartlead are tied to the number of contacts you can work, and the number of emails you can send. So their tiering is based on volume of both contacts and emails. If you’re a large agency sending millions of emails a month across many different clients, you’re in their enterprise plan. If you’re a solopreneur sending a few thousand emails a month, you’re on their bottom plan. Seats don’t matter.

Clay.com is another great example of pricing on value points. Clay is like a massive spreadsheet that plugs into APIs and automation, allowing you to do wicked stuff with segmenting your ICP. You can pull all sorts of datapoints around intent, you can scrape websites, you can run ChatGPT prompts. Write 1:1 emails at a massive scale. The value of Clay is in the enrichment credits, APIs, and automation. Their tiers are based on how many company searches you’d do, how many companies/contacts you enrich, and what kinds of integrations/APIs you use. They have unlimited seats, because there’s little value in adding more seats.

Those companies are growing like crazy because they deeply understand the pains their prospects have, and they’ve done a really good job at matching features to value to people who really care. And their pricing plans reflect their value points..

How this comes together

Once you’ve mapped your value points, unique features, and who cares, you can start crafting different plans.

Pricing is very much an experimentation. You’re either charging too much, limiting your ability to sell. Or you’re charging too little, leaving money on the table.

The other thing is if your packaging doesn’t reflect your value points, your inbound leads go down significantly. Most folks hit a pricing page before requesting a demo or starting a trial. And if they don’t understand what they’re buying - or it doesn’t match with their perception of value - then they won’t bother becoming a lead (this is especially true in today’s market where there are hundreds of options for everything).

So if your value points are around number of integration + data enriched. And you’re pricing on seats. The value doesn’t match up for the prospect.

If your value points are tied to completing a number of high-value tasks within the software, then gating on usage instead of seats might not match the value.

At LevelJump, we messed around a lot with pricing. We started off with multiple tiers, but it ended up being confusing. So we switch to a single price per user. $39/u/month, on an annual contract. We didn’t do monthly plans. And there was a 20 seat minimum. We were a sales onboarding software built on Salesforce. It was a premium niche. And we decided not to do any price variance. Because the value of the software was completely tied to people using it - so we priced on seats.

Gong.io had a great pricing model. I spent a lot of time with them in the early days - know some of the early folks there that got it from $200k ARR to $200M ARR. They were a conversation intelligence software that joined sales calls, transcribed them, and analyzed them. Gave managers the ability to coach their reps in a way that was never done before. The value points were around recording calls and coaching on pipeline. So they had seats tied to those value points, so sales managers and sales reps would be a paid seat. Everyone else could get a free seat to listen to calls, but couldn’t do any of the coaching or recording, so there was value there as well for Marketing, Product, Executives, etc.

At Proposify (proposal management software), we went from having tiered plans based on number of active proposals, to per seat model. Then we went from having a solopreneur plan + mid-level plan + enterprise plan, to completely killing the solopreneur plan. Also our mid-level plan changed from monthly billing to quarterly billing. I increased pricing on the enterprise plan by 10% every 6 months, and I never got pushback from the market.

At SalesMVP, I started off selling bootcamps at USD $5k/mth, minimum 3 months. It was really hard to attract and sell to the right folks. I’m working with founders who need to do founder-led sales, so this was high for many founders who are still at that stage. I repackaged into a sales methodology instead of coaching bootcamps, and created 4 tiers with different value points. Bottom tier is DIY, get access to the methodology and some community support. Then there’s a group coaching tier for early-stage startups that need more support. Then there are folks who want fast results, so there’s a 1:1 tier (value here is speed to implementation). Then there’s a scaling tier for founders who are building their sales team. So the level of support and value matches both the target audience/willingness to pay, and has value points tied to speed of implementation. Every tier gets full access to the FOUNDER methodology regardless.

Note on competitor pricing

Be very careful copying your competitor’s plans. You don’t know what their positioning strategy is. You don’t know if their pricing is right. Especially if they’re a well-known, established competitor.

A better exercise is to understand your value points, and price based on those value points. You might realize that even though you’re competing against someone, your value points are tied in integrations and enrichment, while theirs are tied in workflows. So you might be better off with usage-based pricing while they’re better off with per-seat pricing.

Final thoughts

Don’t over-engineer pricing in the very early days. Once you have enough customers and prospects, you can start making some calculated decisions on how to price.

But in the very early days, when you’re working on customers 1-20, you’re better off choosing a price that sells, than trying to optimize pricing to not leave money on the table.

You don’t want to give your software away for free, because you won’t get real users giving you real feedback.

But you also don’t need to optimize for maximum price, because you’ll be turning business away.

Choose a price that’s fair, get validation that it’s fair, and go sell. Once you get feedback from customers, and they tell you that you could have charged more, increase your price slightly and go sell it at the new price. Keep doing this until you get pushback.

Let me know what you think of the newsletter! Always want to cover topics that you care about.

For more practical early-stage sales tips, connect with me on LinkedIn.

If you’re looking for more hands-on help implementing your first sales process, reach out for coaching packages.

P.S. I have one seat left open for September 19 start. Ping me if you’re interested.