#28 — Cold Take: Don't price your enterprise product until you have to
August 13, 2024•2 min read
Our take: Early-stage companies should avoid concrete pricing for as long as possible. Here's why and how to figure out what to charge.
Why it matters: Founders often focus on pricing mechanics (seats, users, frequency) when they should be focusing on the perceived value their product delivers to enterprise customers.
The reality: In enterprise sales, customers will pay based on how much value they believe your product provides their organization.
- If they think your tool saves them $1M annually, they might pay $100K-$500K
- Your goal with early customers is determining this perceived worth
Value metrics to track:
- Engineering time saved
- Infrastructure costs reduced
- Faster product market entry
- Downtime prevention
- Conversion increases
How it works: A recent observability company example combined two value streams:
- Reducing existing observability bills
- Enabling deeper insights into mobile fleets
They created a pricing model charging per GB ingested, targeting about 10% of the perceived value.
Avoid pricing too early
When customers ask about pricing before you're ready:
- "Here's the list pricing, but it depends on many factors"
- "There's a wide range of what our existing customers pay"
- "Until we scope your use case we can't know"
The bottom line: Focus on finding the right customers and use cases first, not maximizing revenue.
Align on value perception
From day one:
- Anchor discussions in your value proposition
- Mention it consistently in every conversation
- Document it in POC materials
- Check regularly that value is being delivered
When pricing time comes: Create a data-driven case showing how much monetary value you're providing.
- Example: If you're saving them 10 engineering hires worth $300K each, you're providing $3M in value
- Charge a small fraction of that value annually
The takeaway: Hold back on publishing a pricing model until you've established a repeatable process for determining and communicating your value.
Go deeper: Avoid charging for POCs - they're about determining value first, then pricing. Large companies are already taking a risk on unproven technology; don't make them involve procurement yet.
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