Create a Pricing Strategy
Learning Objectives
After completing this unit, you’ll be able to:
- List five common pricing strategies.
- Define the terms "value metric" and "customer persona."
You’re eager to roll up your sleeves and start pricing a great deal.
Your pricing strategy reflects not only what the customer wants from your business and the value they see in your products/services, but also your business goals, what you hope to achieve for your business, and what steps you need to take to get there.
Let’s see what different pricing strategies offer.
Explore Pricing Strategies
There are a few different strategies out there when it comes to pricing.
Cost plus pricing: Take the base cost of production, or cost of doing business (service side), and add to that a markup, or profit for your business.
Bundle pricing: Combine several products or services to create an incentive to buy “more” at a lower price than buying each individually. This is a good strategy to sell more inventory or get a customer to try a new service they hadn’t been using previously.
Value-based pricing: This is pricing based on the customer’s perception of how valuable your product or service is. But how do you know how much they value your offerings? Asking for feedback, marketing outreach, and marketing research are the best ways to understand your customers’ perception of the value your business has to offer.
Competitor-based pricing: Price your product or service based on your competitors’ pricing. This is considered pretty low-risk, because you are just matching the rate that others in your market are already paying.
Price skimming: Set a higher price and slowly lower the price as more and more competitors enter the market. This pricing is typically best for new businesses and businesses that are targeting “early adopters” of their products/services.
At this point you might have an idea of which strategy is the best fit. But before you go any further, make sure you take into account two important things: your value metric and your ideal customer. Let’s take a closer look at each.
Determine Your Value Metric
A value metric is the cost per user, visitor, seat, transaction, or the like. It’s what you charge by “unit.” Your value metric is one of the most important pieces of the puzzle when it comes to your pricing strategy, because it’s the foundation of how you can scale and grow your business.
Unlike charging a flat or monthly fee, pricing based on a value metric ensures you’re being fair when it comes to charging small vs. larger businesses. It also gives you the opportunity for growth. For example, if your value metric is “per user” and your customer’s employee count starts to grow, the customer will need to increase their user number, which increases your profit.
To narrow in on your value metric, identify the true underlying value that you provide to the customer. Is it time saved? Money saved? Efficiency gained? Determining the value you offer as a business helps you determine what value metric to pursue.
Target the Right Customer
Each business has a certain ideal customer. Also known as a customer persona or customer profile, this ideal customer could be a marketing professional or a sales executive, for example, then categorized by the size of the company they work for. Each customer persona has different business needs they prioritize from most to least valuable.
It’s crucial that you don’t try to appeal to everyone, because you are not targeting everyone. Determining the right customer persona for your product or service is essential when setting a pricing strategy.
| Examples of Customer Personas |
Business Revenue |
|---|---|
|
Marketing leaders |
$1M–$10M in revenue |
|
$10M–100M in revenue |
|
|
Sales executives |
$1M–$10M in revenue |
|
$10M–100M in revenue |
|
|
Software engineering leaders |
$1M–$10M in revenue |
|
$10M–100M in revenue |
|
|
Operations leaders |
$1M–$10M in revenue |
|
$10M–100M in revenue |
With the right research and thoughtfulness around your ideal customer and the value you bring to them, you can determine the right pricing strategy for your business. When your pricing strategy is on target, your customers will be willing to pay for your products and services and excited to partner with your business.
