By using this website, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. View our Privacy Policy for more information.
Partner at session.vc
During the start phase, typically below 3 million ARR (Annual Recurring Revenue), startups must prioritize achieving a high degree of product market fit. Keeping pricing simple and maintaining an experimental mindset is key. Startups should focus on gathering user feedback and iterating their products based on that feedback. Achieving product market fit is not a binary process but rather a continuous journey of understanding customer needs, iterating, and validating assumptions. Startups must avoid making pricing decisions that hinder data collection and learning.
With a small customer base, early-stage startups have the advantage of being more experimental in their approach without worrying about complex transitions or migration issues.
Additionally, startups should gain clarity on the pricing model and the metrics they should attach prices to (e.g. number of users, number of API calls, …) . By experimenting and collecting data and feedback from early customers, startups can refine their pricing approach and be better equipped for the next phase. Getting to the right metric is more important than the level of price. To get to the right level startups should increase their pricing until the market feedback tells "you’ve gone to far".
As startups progress beyond the start phase, entering the build phase (between 3 million and 10 million ARR), their focus shifts to go-to-market-fit. This means building a repeatable and scalable sales processes is key. To do this it becomes essential to have a well-defined pricing model in place to equip the expanding sales team and maintain consistency in the pricing strategy. Otherwise founders will lose control.
This phase presents an opportunity for startups to engage in price discovery. By gradually increasing prices and monitoring the impact on the sales pipeline, startups can identify the optimal price point that balances efficiency and the impact on customer acquisition. This process allows startups to find the sweet spot where they can generate revenue while keeping the pipeline healthy.
Keep in mind that you still want to build scale and for that you don't want to be maximum extractive, meaning you don’t charge the highest possible price.
Over time, it is crucial to develop market power, which refers to a startup's ability to charge prices and capture market share. Market power is a result of competitive positioning and evolves over time. While startups focus on product market fit, they must also consider the long-term goal of building market power, as it determines their ability to capture value in the form of prices and volume. Keep in mind that there is always a trade-off between price and volume. And as mentioned, especially in early-stage, you want to ensure that the balance is right and that you get enough significant customer feedback.
For those who want to dive even deeper into the topic, Andreas and his team have created this awesome website: https://www.principlesofpricing.com/
About Andreas Panayiotou
Our special guest, Andreas Panayiotou, Director of Pricing & Monetisation at Notion Capital, is a proven expert in SaaS pricing and has been supporting exceptional founders on their extraordinary journeys to build efficient high-growth businesses. He also supports the wider European B2B cloud ecosystem on pricing and monetization. Prior to Notion Capital Andreas set-up and led the pricing strategy function for Clarivate and led consulting engagements for Simon-Kucher & Partners.
