Startup pricing strategies

💬 General
Dec 17, 2021
Startup pricing strategies

One of the most crucial aspects of a successful startup is the price that entrepreneurs set for their product or service. No matter how brilliant the concept, pricing your product incorrectly, whether too high, too low, or even for free, can swiftly lead to the downfall of any startup. Today, we'll look at some of the most critical factors to consider when pricing your concept, as well as some of the strongest pricing tactics for your firm.

How to plan your startup's pricing strategy

Understanding the perceived value of your product

It's essential to understand how useful your product is to your customers in comparison to the price you've set. The top companies in the world have figured out how to read their market and price their products so that what they offer is considered as a necessary buy with a perceived worth far greater than the price.


There are a few ways you can increase the perceived value of your product, you can lower the price of your product to be more affordable or you can increase the value you are offering within the product so that customers feel like they are getting more value for their money. Sometimes the best way to gather this knowledge is through testing the sales of your product at a certain price and using the collected consumer data to identify what consumers value about their product and whether they believe they are receiving sufficient value for money.


Another key thing to consider is the price your competitor's goods have been established at. Even if your product is far superior than your competitors', if they have priced their product at a level that provides greater value for money, customers will most likely choose your competitor. If your product has more value than the competition, be sure that the added value is something that customers want, and then price it accordingly.


To sum up, it's critical to remember that it doesn't matter how much you appreciate your product; what matters is how much the consumer values it! Your product may seem incredibly valuable to you, but that does not matter if your target market does not agree, as can be seen by your sales data.

Startup pricing strategies

Pricing strategies for a startup

Market penetration pricing

Industry penetration is a great approach for businesses to break into a crowded market and quickly establish a robust client base. This is when you join the market at a significantly lower price than your competitors in order to lure loyal clients away from them. This method may result in a short-term loss of profits, but it can have a long-term favourable impact on your profits.

Premium pricing

Premium pricing may be appropriate for a startup whose product is entering a specialised market with little to no competition, allowing you to avoid charging a lower price to compete. To make premium pricing a success for your firm, you must be able to generate a high consumer value perception of your product so that customers are willing to pay. Being first to market helps you build a loyal client base so you can keep your premium price even when competitors enter the market, as long as your product still adds value to it.

With premium pricing you can also move into a price skimming strategy if deemed necessary, this is where you slowly bring your price down as you look to bring out improved versions of your product.

Cost plus pricing


This is the more straightforward pricing technique for startups, which involves just adding a percentage to the cost of production to make up the difference. This is a secure method of ensuring a consistent level of profit from sales. The biggest problem with this technique is that if your production expenses per product are high, you'll have to charge a little more than cost to earn a profit, which could mean the product is priced too expensive in the market and you'll struggle to sell it.

Conclusion

There is no perfect pricing strategy for all startups and you may have to sacrifice certain areas of your pricing strategy to favour others. So, when deciding on the best strategy for your startup, make sure you know exactly what you're attempting to accomplish with it and that you're prepared for whatever positive or negative influence it may have on your business.

Amit Khanna, 7startup Founder

Amit has 18 years of experience in the industry and an MBA. He supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, and fundraising.



Tags: Startup funding, venture capital, scaleups, fundraising, startup pricing strategies, pricing your startup, marketing your startup

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