Pricing determines your business


It’s often said that you shouldn’t talk about price during customer development interviews. The usual justification is that your goal is to uncover the details of your potential customers’ lives and pain-points, whereas a mention of price turns attention away from that topic, diverting the discussion to budgets and comparative value.

But I disagree. Price is as important as any other feature to determine product/market “fit.”

How many times have you heard someone agree that “it would be great if someone did X,” but when show them someone did do X, but it costs $39.99, they don’t buy? Or seen a review of an iPhone app hung up on pricing trivialities: “It would be pretty good at $0.99, but it’s not worth $1.99.” How many times have you seen someone struggle with an inferior product because they cannot afford the better one? Or struggle with an inferior, expensive product that was purchased based on the salesmanship — the idea that “expensive must mean it’s better” — instead of craftsmanship?

Price is inextricably linked to brand, product, and purchasing decisions — by whom, why, how, and when. Price is not an exercise in maximizing some micro-economic supply/demand curve, slapped post-facto onto the product. Rather, it fundamentally determines the nature of the product and the structure of the business that produces it.

Consider the consequences of these monthly pricing possibilities:

$0/mo means your goal is to maximize growth (trust and usage) instead of revenue. Your product is designed with natural tripwires to trigger other pricing (Freemium model), or not (business model left as an exercise to your future self). Requires venture funding because you have no income, and if you’re successful you’ll need lots of people and tech to run the business. Even outliers like WhatsApp (sold for $19b with 55 employees) and Instagram (sold for $1b with 13 employees) raised lots of venture funds. This is often B2C because the value is in quantity of customers, and there’s 100x more consumers than businesses.

$1/mo means you can’t afford customer service and it must incrementally free to run the technology behind it, both of which have implications for the sort of product you have to build (e.g. simple enough to be self-service). Marketing and sales spend is nil, so there has to be a reason it spreads by word of mouth, ideally virally as a natural result of using the product itself.


$10/mo means people see you as a cheap version of something else, but still expect a phone number. (Think: GoDaddy). Even bootstrapped businesses can make this work (e.g. most shared hosting companies), but they only make interesting money at large scale (by definition, because it takes over 8000 customers to make only $1m/yr in revenue), which takes a long time to grow. So you can get to $10s of millions but it will take 10 years. (Again, like shared hosting companies.) This is a hard slog. If you want to scale faster you’ll need venture funding, both because of the anemic revenue, and because otherwise you can’t afford to advertise. Often bootstrapped companies of this type boast about having no marketing or sales departments, but the truth is they can’t afford it, and those companies typically grow slowly, often eclipsed by companies who can afford to grow 10x faster. In a huge market this is probably still OK because there’s enough customers for everyone to thrive in different ways. On the good side for this business model, often people will simply forget they have the $10/mo service even if they don’t use it, resulting in “free revenue” which at scale can be surprisingly substantial (yet again like shared hosting companies).

$100/mo means people expect to be able to call support, and if a competitor is substantially better, it’s probably worth the effort to switch. Also this is almost exclusively B2B unless it’s something “luxury.” Big companies can buy it without much consideration, but small companies need to understand the value, so you might need sales material to convince them, and a demo. I love this price zone for bootstrapped companies, because it’s low enough that you can address a broad business market, but high enough that you can get nicely profitable with a reasonable, achievable number of customers (e.g. 200-300), and you can afford to spend money acquiring them.

$1,000/mo means only medium to large companies can afford it. They’ll have complex buying processes around annual budgets, approvals, ROIs, demos. You will be compared to alternatives and weighed. You need to be a part of that conversation which means a real sales force, sales materials, impressive logos, case studies, and referenceable customers. Features might need to include things that big companies need that others don’t, like role-based access privileges and integration with LDAP. This can be a surprisingly difficult zone to become profitable in, because the sales and marketing motions and engineering costs are the same as for much larger sales, but without the attendant revenue.

$10,000/mo means larger companies only. It’s unlikely the product is sufficient out-of-the-box, and you might need in-house professional services or to partner with consulting firms for implementation. If something goes wrong they’ll cancel and not be willing to pay out the rest. It’s possible to achieve this price-point with mid-sized companies if it’s usage-based (e.g. ZenDesk, Box) or performance-based (e.g. marketing optimization), so the product itself needs to create and then demonstrate value to earn that result.


$100,000/mo means Global 2000 only, large-scale projects that require multiple departments for decision and approval, long sales cycles (9-18 months) which requires massive cash spend to bide your time. Likely to start as a smaller pilot or proof-of-concept, which hopefully you can get paid for, and which needs to be convincingly successful, perhaps battling against another pilot with another vendor. You’ll need on-site visits even in this day and age of video-conferencing. Examples: WorkDay (much of revenue is consulting), IBM.

So which is better — higher or lower or in the middle? That’s a better question. Here’s something resembling an answer.

The best thing, of course, is to realize that price is linked to everything, and bring it into your customer interview process Talk about their expectations of cost, and why, who would write the check, who would need to approve it, whether an ROI argument would be welcomed or scoffed at, or what would need to be changed (if anything!) to justify doubling your price (at which point, maybe you should do that an in fact double your price!)

In fact, discussions of price in particular was the key to invalidating one business idea and then validating WP Engine, which now (2014) employs 200 people.

Price is not an afterthought, it is essential business design.

18 responses to “Pricing determines your business”

  1. I think a lot of B2B bootstrapped startups fit somewhere in the 10-100 range. What pricing bands and expectations do you see within that range?

    • I think you have to pick which side of the band you want to average to, as you select your tiers. $9/$19/$39 style products are quite different in perception and resulting average MRR/customer than e.g. $39/$79/$149.

      For me, all else being equal I like higher prices. You need fewer customers to be successful, support often scales by number of customers rather than amount you charge, and you can afford to spend more to acquire customers in the first place.

  2. Excellent review. I think the most important and almost unique consideration is perceived value for the customer. And that perception depends upon several defined factors for each of us.

  3. Great timing, per the usual.

    The last line-“Price is not an afterthought, it is essential business design.”– is the dragon slayer.

    After all, a startup is a solution to a problem and pricing is commensurate with the cost of the problem.

    As of late, apparently I’m the ad hoc online defender of Uber’s surge pricing. To be clear, I don’t advocate obfuscation and/ or some of the UI/UX/CX issues Uber has; those issues not withstanding, I’m absolutely in love with surge pricing because it is a real world codification of pricing based on the cost of the problem–>fundamental component of business design.

    Would love your thoughts on surge pricing, Jason.

  4. Brilliant post as usual! My business fits in the $100/mo B2B with soon more than 4.000 clients worldwide. Your description of this zone reflects well my experience. May I add that with great embedded and online documentation, I attest that 95% of users questions and overall support can be handled “automatically” which lets time and energy for future development.

  5. Great post.

    There is no question price communicated value. It is an essential part of the value proposition. All of us judge the quality of a product based on price. A billboard for a whiskey in Mexico City simply stated “it’s expensive”. That was their message.

    But your point is more important: price is a basic element of your business model. It helps answer part of the essential questions of strategy: where to play and how to win. Pricing determines what customers you serve and the model to profitability.

    BTW – here is my favorite post on pricing (hosted on WPEngine as of yesterday!)

  6. Since my company specializes in bespoke travel, I struggled with whether or not to put prices on our website for a long time.

    We’re still in the midst of how best to present it, but we realized that it’s absolutely essential as it gives people a way to determine for themselves whether or not they are a potentially good fit for us.

  7. Great post, we just launched at $49 – do you think we’re in the grey zone, or would you consider that the same as $100/mo? I do wonder if since people view $49 as higher-end for a social media tool it would all be the same to be at $99 instead.

  8. Hi Mark, I perfectly agree with you pricing is important as it will make or break your marketing efforts. Start-ups tend to slash prices in order to remain competitive, even if this strategy might boost business in the short term, over the long term it can create various problems for instance the brand might be associated with cheapness, which will devalue the brand in the eyes of consumers. I read a piece on the topic that might be of interest

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  10. Operating (purposely) at a loss, spending massively on market awareness
    and customer acquisition would take our growth rate through the roof.
    And bump our valuation substantially. After several years of
    bootstrapping that grass can look pretty green.

  11. Pricing is the prime part of any business. Try to put a reasonable price what customers like. This policy can improve your business.’PhotoTrims‘ is one of them who make a reasonable price in production.

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