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Pricing as Storytelling
What do I need, and how much does it cost?
Pricing and pricing pages come up repeatedly as a challenge for innovative companies. Most turn into three to five columns of a number at the top followed by a torrent of bullet points underneath, starting with "everything in the previous plan, plus..." The pages are, in a word, bewildering, and the potential buyer moves on as they cannot figure out which offer - if any - would meet their needs.
I have observed three problematic patterns in the thinking behind these pages. None of them are easy to solve, but they are essential.
First, founders do not know where the value is in their products. Worse, many of them act as if figuring out how to use it is up to the customer. The theory is that by providing an open, simple toolset, the customers will discover the value. But this is short-sighted: the product enables value in a context. Unless the customer connects the product to their situation, there is no value creation. An entrepreneur's job involves helping the customer make that connection. Messy pricing pages are often a sign that this is either not understood or not happening.
Second, most software and SaaS offerings have minimal variable costs. The cost of adding one more customer is minimal. We often think of "fair" pricing in terms of a markup over the vendor's expenses, but this frame is not helpful to these businesses. The technical components of providing a hosted service - compute, storage, bandwidth - are very cheap! The founder lacks a cost basis to guide the lower bound of pricing.
Third, without a theory of value or cost, many founders fall back on advice about pricing pages that focus on presentation rather than value. For example, "show something too cheap and something high-end, so customers pick the goldilocks choice." This tactical approach is insidious because it is easy to follow, luring many away from the more challenging problem: connecting value to the customer.
The question we must answer is, "what matters?" Where does value come from for the customer? You are not alone in looking for an answer: even many big companies do not have a handle on this question.
So let's answer it! Try writing a blog post that owns "what does all this mean?" There could be a real expert marketing play in getting ahead of this to explain why each level makes sense for various use cases.
"Free is where you can tinker, but as soon as you hit meaningful development, you will see our rate limit (or whatever) kick in. That's why starter/professional/middle-tier is for getting deeper into your development, providing the tools you need to do it right without paying for the scale benefits you don't need.
"It's even good for MVP! Then the scale-up pricing is what you want after you get those first hundred customers / thousand transactions. That's where you get service guarantees and our backing to make sure you stay up."
Telling a story will build trust. Even a short tale like the above can move the positioning from a vendor to an advisor. Customers have more confidence in the company that helps them think through what matters.
Further, this storytelling exercise will elevate the issues that separate high use from non-production use. For example, many SaaS businesses are most valuable when customers use them as part of a production process. That's where the money is! So high use would be putting your SaaS into a production use case. What do people care about in production use cases? Often, the biggest issue is safety and brand control.
Safety can come from features, but more often, it comes from support. Can you offer a super-short support turnaround at this next level? Can you put an insurance policy or an audit behind the service? These are not adding more technological surface area or volume: they are about the value of the service as a component of the customer's business or life.
Before then, they may care most about ease of use to adopt your technology on a partial basis, potentially in parallel to official production use or in its corner of the business. For here, the features most important are about ease of use.
One of the exciting aspects is that changing tiers does not just have to add features. You can take some away! Those features most useful in the tinkering or partial-deployment phase may be harmful in production. Remove them and make it not just "higher price" but also "for production use."
Implementation of this storytelling idea will depend on your startup, technology, and - most of all - your market. Start today. Take a stab at writing what matters at each step in the customer's journey. What do you have that drives maximum value for that step? That becomes a psychometric segmentation for pricing that will drive more value.
Figure out what matters in the market and tell them about it. Your economics will benefit, and the value to your customers will be priceless.
I am grateful for the feedback from the Foster community before publication. As always, errors are my own.