When I meet with entrepreneurs, sometimes I’m asked for feedback on their pricing strategy. Pricing is always challenging, especially at the idea or MVP stage. I typically share the following considerations:
- What’s the problem? – Can you articulate it clearly?
- How painful is the problem? – How does the customer view this problem? Is it slightly annoying or immensely painful? The more painful the problem, the more valuable the solution.
- How effective is your solution? – Is it a nice to have but they can get by without it? Or is it a painkiller they can’t live without? The more pain relieved, the more valuable the solution.
- Is there competition? – Are there competitors? How does their solution rank against yours? How do they price their solution? Understanding the market and where you rank in it is important.
- What does the solution cost? – How much does it cost you to provide this solution? You can’t charge less than your costs.
Deciding how to price your solution isn’t as simple as picking a number. There’s no one-size-fits-all answer. There are lots of variables to consider. The reality is that the pricing process is iterative. Perfecting pricing takes years for some companies.
In the end, the goal is to quantify how much value your solution is providing to customers and capture as much of that value as possible in your pricing.
In my opinion, starting with a deep understanding of your customer’s problem is key. You’ll be more likely to create a pain-killing solution that customers will eagerly pay a premium price for!