This blog will focus on B2B Pricing Strategies for startups with a focus on annual licensing and product or project based pricing models. This blog is not about SaaS pricing strategies. The first thing to learn about pricing strategies for a startup is to be flexible. The second thing to remember is to be willing to rework all your pricing models, real-life is not an excel sheet.
We work (and have worked with) a wide variety of startups ranging from fintech to professional services to industrial, all undertaking B2B sales to grow their business. A number have a pretty solid pricing strategy that makes sense.
Project and Product based
We have a client that charges hourly for installation services and then a rate for the materials that are being installed which they import and then sell across Canada. The model was clean, easy to understand and their offering was always 15-30% less expensive than their competitors. So once the prospect was educated on the product and a pilot project went well, the sales pitch was pretty straightforward and did not require a reworking on price. Keeping it simple for clients matters. So having an hourly rate, number of installation hours and linear feet of material with a linear foot cost keeps it super easy to understand.
Now in this case, the firm is currently experiencing inflationary pressures along their supply chain and these have had to be passed along to the client. The saving grace though is that all their competitors are not immune to these cost increases either so the percentage savings stayed the same. When clients asked why the prices have gone up they have politely explained shipping costs due to fuel costs have gone up significantly as have labour costs and hence the reason for the cost increases.
We have another client that sells to the research and academic market under an annual licensing model. At first, we specifically targeted the institutional / academic market and had benchmarked the leading competitor from a pricing standpoint. We put a new twist on the pricing and a number of prospects told us we were too expensive. We quickly learned that although the competitor was the incumbent, they in reality did not have many clients in the vertical and it was apparent why. The prospects had no real budget. Even when we tried to offer the product at next to no cost, it was still too much. So we quickly learned that this particular market is not a good fit as there is no money to be made. Lesson there is learn fast and be willing to exit the target market.
This did though allow us to put further thought into our annual licensing pricing model and break it out into a few more tiers based on users which would hopefully allow us to close smaller clients faster. So we switched target markets and went after research based organizations and found that our new tiered pricing based on users did not cause any challenges and that our closing time took a couple of months vs a year in the academic market.
In another instance we have a client that sells a risk mitigation solution to public sector organizations under an annual licensing and subscription model. What was interesting here is the solution had been around for over 6 years, but had lacked management support and although it was generating some revenue it was not growing at all. So we were brought in to assist with growth by driving sales. Our first goal was to help narrow down the target market and then book qualification meetings. We did this and found that the best market was the public sector type organization that recognized the benefit of risk mitigation. The initial pricing model we used was the initial one the organization has established at inception and since there were very few clients and they had been clients for years, it was hard to know how prospects would react to the pricing model. What we found was that oddly enough the pricing model was prohibitive for smaller clients to sign up so if we wanted to address the smaller end of the market (and we did) we need to change it to make it less expensive for them. When redoing the pricing model we built it in such a way that the top end pricing didn‘t change but the low end became much more affordable and in line with available budget.
Good luck with your pricing journey and remember be flexible and be willing to build it again from the beginning.
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