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Pricing for Startups: How to Find the Right Sales Price?

The prototype is ready, the first interested parties for the innovative product have been found and we are close to the first price calculation. But how do you set a mutually fair price for a novel product, where at first glance you have no comparable products?

Why is pricing so important in the startup?

First of all, we have to be aware that the price is not just an instrument to cover your own costs and possibly realize a small profit. Rather, a price is also a value proposition to the customer. If, for example, we solve a really serious problem for our customer and thereby save him even more costs, we can also set a correspondingly high price. The price should correspond to the value of the product.

If we calculate with the costs of our startup instead of the value of the problem solution, our price may be set too low. In this case, there are only two possible scenarios for our customer:

He recognizes the value of our product and makes a bargain. He sees our price as the value proposition and considers the product inadequate.

In fact, from my experience in the B2B business, the second scenario is much more likely. This means that even if a start-up wants to sell below value, the customer will not buy because the price is simply too low compared to problem solving. At this point, I am often asked why the sales figures are not correct and whether you should go down even further with the price. It is not surprising that many founders are looking for tangible help in the field of pricing when the basic assumption is wrong.

Note: The price is a value proposition and not an instrument to cover only the costs.

But beware: a high price must also deliver a correspondingly high value.

How do you find the right selling price?

Even if it seems at first glance that there are no comparable solutions to the problem that is being solved, 99% of the cases are a fallacy. The Segway, for example, was a complete novelty a few years ago, yet it “only” solved people’s mobility issues in a different way than the car did. So even if our product is completely new, we look for other products that solve the same or a very similar problem. Here are recommended various market research service providers, or their own price research in other countries.

Most importantly, we do not use your cost-based pricing as the only basis for our pricing. Especially in start-ups, the costs are often comparatively ridiculously low and as already said: the price is also a value proposition. Calculating so with the low cost of a start-up you get a low price, which in turn promises a low value. Regardless of whether the own product really does create a great value.

I recommend a performance-based calculation for pricing in startups. In the first step you have to realize how big the problem is which you eliminate for your customer. If you solve a problem that saves the customer 20,000 € annually, you can easily ask for a five-digit amount for the product. So you get a first clue for pricing.

In a second step, you compare this price with equivalent products and arrange your own solution in a realistic and performance-oriented way in the list of alternative solutions. So the price is specified. With all the steps you should still keep an eye on your own costs. The price is not an instrument to cover only the costs, but it must cover the costs.

The third step is to negotiate a negotiation tolerance. Many start-ups offer their products directly to the customer and do not have a fixed price. This opportunity should be exploited by setting a best price and a minimum price. The Best Price is the highest possible sales price after research, this one sets in the price negotiation as an anchor. If the best price is first in the room, it is up to your own negotiating skills how close you are to the best price. The minimum price for the start-up is merely the information that you have to stay above this value.

Tip: You can learn a lot from the first price negotiations. If, for example, the product is bought for the best price, it is not because of your own negotiating skills, but because the price was just too low. In the end, the market always decides what value the product has – and therefore also what price. If the best price seems to be very high for your own senses, but the customers buy without hesitation, the price is still too low, because the value of the product is so high.

Also published on Medium.

Published inStartups

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