pricing-strategy

Choose a value metric by asking whether customers get more value as they use more of that metric. Common options include per user, per usage, per transaction, or flat fee. The metric should align price with value, be easy to understand, and scale as the customer grows.

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.

Freemium works when the product has network effects, low marginal cost, and clear upgrade triggers. Free trials work better for complex B2B products with higher price points that need time to demonstrate value. Hybrid approaches combine a free tier with trials of premium features.

Raise prices when competitors have raised theirs, prospects do not push back on price, conversion rates exceed 40%, or churn is below 3% monthly. Strategies include grandfathering existing customers, announcing increases 3-6 months ahead, or tying increases to added value.

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 suit clear SMB versus enterprise splits, while four or more risk decision paralysis.