startup pricing strategies

Startup Pricing Strategies for Market Entry

We are working with a really interesting technology company right now that provides a unique digital solution to a specific vertical. The challenge with their technology is that although it has been around for about a decade, very few people have been able to successfully commercialize it due to hardware limitations. In the last 12 months, hardware has finally (or almost) caught up with the software aspect and now the total solution can be used very effectively.

Given that all the parts are working means we can start selling. The challenge, though, at least for the market we are selling into, is that budgets are tight (where aren’t they ?) and this sort of offering has no track record in any market in the world. So we are really leading/bleeding edge here from a commercialization standpoint. So prospects are saying “I am interested but…”

So working with our client, we developed a few unique market entry and pricing models to get the ball rolling and get over the “but…” objection. They included:

 

A Revenue Share Model

Our clients’ solution drives revenue for their customers and brings in foot-traffic so providing the solution at no cost and sharing the revenue allows us to gain traction, generate revenue and build market case studies. This model also virtually eliminates the risk for the customer. Now they have marketing efforts to undertake and stakeholders to educate to make this work but that is a process they are currently used to doing and do it for other products they showcase.
 

A Rental Model

The customer can have access to the hardware and software (the total solution) on a monthly basis with maintenance and parts replacement included for a low monthly fee with no more than a 3-month commitment. The beauty of this model is that again the objection around cost or commitment is mitigated by the low monthly rental rate and no term. It makes it easier for them to say “yes.” At this point in the business, adding new customers that generate revenue will provide a gateway for new revenue generation solutions and provide a customer reference makes a ton of sense.

In both models, part of the idea is to make a real estate grab here and secure a number of customers as soon as possible before the competition is able to figure out what to do. Take advantage of the first mover strategy and create barriers to entry for competitors.

When you are developing your pricing strategy for a startup here are a few things to consider:
 

Your Goals

What are they? Are you looking to break into the market or grow slowly? Is it to drive revenue or establish a customer base?
 

Leverage Existing Contacts

Speak to people you know, network through events and get a feel or some opinion on what pricing strategy may work for you.
 

Value Proposition

The solution you are selling must do at least one or more of these things: drive revenue, reduce an expense, create an efficiency or mitigate a risk. Decide based on your value proposition how to price? Do you take a percentage or revenue like the example above or perhaps a percentage of cost savings or perhaps you charge a flat monthly rate. There are many options to consider and to try.
 

Competitor Pricing

Benchmark if you can. If the industry you are in is competitive, learn how your competitors are pricing and decide on how to best beat them. Lower price? Go SaaS?
 

Talk to Your Potential Customers

Be flexible in your approach to pricing and in some cases take the lead from your customers. Ask them to provide input into the process. This helps generate buy-in.
 

Be Creative

With pricing, there is no one model. It will take time and in some cases a variety of iterations to find the best pricing model for your startup. Think out of the box when it comes to pricing if you can and try to find unique ways to price to differentiate yourself.
 
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