5 biggest pricing mistakes that startups make

These are the 5 biggest mistakes we see when startups price their products 👇

1. Leaving margin on the table

A significant portion of the prices we see from founders are too low. Typically founders do not properly apply a value-based approach when pricing their products and they think they have to grab market share by offering low prices. This thinking doesn't apply to innovative products. You will very likely look for early adopters and this specific group of customers is not price sensitive but benefits sensitive. So you can charge a premium. Do not leave margin on the table.

2. Not testing price points

The second pitfall to avoid is not playing with price points. We get it, you are getting some momentum and you are very nervous about increasing prices and losing customers. We invite you to play with different price points. Do not just improvise this though. Plan this carefully with your CFO or Finance guru: essentially you want to build different scenarios i.e. different price points and expected effects on sales. You might be surprised how many times by increasing prices, even if you lose a percentage of customers, your profit will be in a much better shape.

3. Pricing too complex

Sometimes we do see prices presented in a very complex way. Here there is a simple rule that applies: if you confuse them, you lose them. Make it easy for your customers to compare the value they are getting using your product to the price they are paying. In most cases, one price point per customer segment is enough. No need to overcomplicate stuff to get your returns.

4. Margins do not cover expenses

Think about your costs carefully and be careful not to underestimate them (we surprisingly see this happening often): if this happens, your margins won't be able to cover your acquisition cost and efforts. Big problem to have.

5. Poor value proposition design

Probably the biggest mistake is when founders do not understand the value of their product. This signals a poor value proposition design when building the foundations of the business: you likely haven't thought enough about the problem you're solving for your target customer and what is the value the customer is getting from you solving this problem for them. So you are not able to grab a portion of the value created. Essentially you haven't applied value-based pricing (please refer to our previous post with a step-by-step guide on how to price your products following a value-based pricing approach).

And remember, value-based pricing doesn't end when you decide the price point following this approach. We need to be able to communicate the value we are creating for our target customers. If we fail to do this, we will struggle in getting the value-based price we want.

If you need help with your pricing, book a FREE chat with us so we can help you.