pricing-strategy

Choose a value metric by asking whether customers get more value as they use more of that metric. Good options include per user for collaboration tools, per usage for consumption products, or per transaction for payments, and the metric should be easy to understand and hard to game.

Van Westendorp asks respondents four questions about prices that are too expensive, too cheap, expensive but acceptable, and a bargain. Plotting cumulative distributions reveals the acceptable price range between the Point of Marginal Cheapness and Point of Marginal Expensiveness, typically requiring 100-300 respondents.

Use freemium when your product has network effects, low marginal cost to serve free users, and clear upgrade triggers. Use a free trial when the product needs time to demonstrate value, involves setup investment, or targets higher price points with buying committees.

Raise prices when prospects don't flinch at current pricing, conversion rates exceed 40%, monthly churn is under 3%, or significant value has been added since the last pricing change. Common strategies include grandfathering existing customers or announcing increases 3-6 months ahead.

Three tiers is the industry standard: an entry tier to remove barriers, a recommended middle tier as the anchor, and a premium tier at 2-3x the middle price. Two tiers work for clear SMB versus enterprise splits, while four or more risks decision paralysis.