Pricing your early-stage product💸
Issue 7 🪜: How to determine what pricing structure will work + the user psychology behind building pricing plan for an early stage product.
Hey everyone👋, welcome to the 18th newsletter.
A pricing plan works as a marketing strategy and often we logically search for the most beneficial variant of an item while making a purchase & marketing helps a lot in it.
I recently, stumbled upon this question while talking to a user of Marked about how I’m planning to monetize it for the future & maybe for the beta launch.
Should you create a pricing plan for the MVP or go with a free plan?
If I want to set pricing for your early launch, how much should it be?
If I don’t want to charge in the beginning then when should I charge & how much should I charge?
Eventually when is the best time & how I should structure my pricing plans?
Ways to determine the price of the product:
Value - Understand the value you are offering through your product and match with the value proposition.
Competitors - Research and understand the pricing plan of your competitors. Create a spreedsheet to analyze.
Brand reputation - This plays a key role, if your brand is new you can often start by low cost or free to attract users but as the brand value increases, gradually, increase the price. Look how strong brand value helped Apple make more than any other products in the market.
Also, understand the time and team member it took to build the product.
At the early stage, take a survey, ask your users how much are they willing to pay. Give them some options after working on the above points. Don’t blindly depend on them.
🚫 Factors to consider & things to avoid:
How much profit goal do you have?
In the beginning, if you’re running on loss what’s your break-even point?
Not every type of pricing structure work for every product. Understand what type of pricing structure will work for you (listed below).
Don’t overprice or underprice your product just for the sake of getting more users/buyers. If your product is worth a high price, charge high because if you value your service your users will understand its worth.
Keep the pricing simple in early-stage as you're building a relationship with your customers. Overcomplicating the pricing system can discourage early adopters.
When will you start charging your customers? From the MVP or have a forever free plan or start charging from the beginning. This will be determined by what goals you have, your product, and your customer’s willingness to pay.
The worst advice a founder can get is “experiment with pricing” this can negatively affect the user’s mind and brand value. If you've decided to go on with a price stick with it for at least a year or have a reasonable explanation on why you've decided to create a new plan or increase product pricing.
💰 How to structure a pricing plan?
You can start by offering 2-3 (max) different plans - free or paid (paid has more value than free as it helps you get valuable feedback). And gradually, add more dynamic plans as you grow.
No matter what business model you have - B2B, B2C, DTC, etc. - a proper pricing structure helps you build a solid foundation.
Often early-stage founders offer products with a free plan this helps them understand their audience better, pricing plans that will work, build user data and build brand reputation.
If you’re an early-stage founder you’ll offer free service in exchange for feedback and collecting user data. You might want to build a user base and traction first before you can start charging users.
This can also be helpful when you’re going for the network-based model.
Example - Facebook, Twitter, Snapchat, etc. in exchange they collect your data.
Freemium can also be offered even for MVP but startups rarely do so. Often there are 2-5 plans where one is free forever with limited features and usually, only one user can use it.
Others offer monthly or yearly different plans as per usage and feature requirements.
Example - Notion.so, Slack, Buffer, etc.
This is the most common form of pricing products. You can give your users a variety of options to choose from - monthly or yearly. Each option has its own limit of usage.
A membership model only works when the product has standalone value and when most members use the product with a frequency that makes financial sense for both sides.
Examples: Netflix, Spotify, etc.
Volume tier-based pricing
Users will be charged based on how much they use the product or how many users in the team use the same account - monthly or yearly. This type of pricing is mostly offered to business or enterprise accounts where a large team uses the product.
Example - Cloud services (AWS, Google, etc)
Sometimes there are options to only pay once or a license fee to access the products. Such as website templates, landing pages, or other graphics. You can download it by paying a one-time fee or have a monthly subscription to download unlimited products.
Example - Digital products or products that don’t require future upgradation or mantainance.
Look at this tweet 👇🏻, isn’t it true? Because I feel the same way sometimes.
Research has shown that the human brain reads from left to right.
So, design your pricing page from low pricing to higher pricing
The majority of the websites will show you the pricing plan in this way - $5 or $10 or $25. Because the first thing you’ll see is $5 and make an immediate mental image that the product is cheap & you can purchase it.
On your pricing page, don't make the pricing plan hard for users to understand. Make it clear context so that they can make quick decisions.
Ending with $0.99 or $99 and not with zero
Adding a zero - $30 or $300 - at the end indicate an expensive item whereas any digit between 1-9, in the end, will indicate to your brain that the item is cheaper & you’ll make an emotional purchase.
The success of your pricing plan depends upon the conversion, profit/loss margin, churn rate, growth of the product, and reputation of your product. This can be done through a survey or A/B testing. Understand whether your users are happy with the current plan or they’ll even stay if the pricing increases.
UI/UX and marketing play a huge role in deciding pricing plans & attracting users respectively. So make sure you spend an adequate amount of time understanding what will work best for you & your users.
🔗 More resources on Pricing
This Number Just Feels Right: The Impact of Roundedness of Price Numbers on Product Evaluations
Picking a pricing strategy for your product
Pricing Strategy Framework for SaaS Startups
Until next time 👋.
👋 PS: I’m Ritika founder, product marketer and advisor for early-stage startups, find more here or connect with her here. If you’re a first-time founder looking for curated resources, download here. If you enjoyed this post, read the past issues here. You can also promote your product in this newsletter.
A big thanks for reading & sharing!