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 for collaboration tools, per usage for consumption products, and flat fees for simple products. 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 the 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 per free user, and clear upgrade triggers. Free trials fit products needing time to demonstrate value, higher price points, or B2B buying committees. Trials of 14-30 days with full access are typical.

Raise prices when conversion rates exceed 40%, monthly churn is under 3%, prospects never push back on price, or significant value has been added since the last change. Strategies include grandfathering existing customers, announcing increases 3-6 months ahead, or tying increases to new features.

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 risks decision paralysis.