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Pricing in the World of Startups

Pricing is important for a business, as you’ve been told before. But, how can you determine your pricing when you’re just starting up?

From start-up to scale-up, businesses are facing different problems. Growth doesn’t come in a golden box, but it starts with the sweat of the founders and the first employees within the company, along with the investment of the most important assets in the 21st century. Time.

During this growth, businesses are going through many steps. Initial steps essentially end when the product-market fit has been found. But after that, bigger troubles start to pop up. Accurate market size estimations, target audience definition in a more crisp way, improvements on acquisition mechanics and on pricing, lean product development, conversion optimization, and so on.

Today, we’ll dig into pricing and which ways can help you nail it easily.

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Pricing can be done for free — but ‘free’ is a misconception, not only for products but also for processes. Even though you don’t spend any money, you’re paying your time, with demotivating potential failures, and unsuccessful decisions that can push you to try doing it again and again until you find the perfect result. Wouldn’t life and growth be easier by reaching to your target audience with some mouse clicks, collecting insights within hours, and not spending a big budget?

Yes, it would — and actually, there are easy to apply methodologies for you to use when you’re working on your B2C pricing. Let’s jump into detail, and see what you need to do in order find your optimum pricing levels.

Pricing Research

Pricing is one of the most important elements of the startup lifecycle, where it touches to your P&L, business strategy and at the core, it touches to purchase conversions and unit profitability.

But, just like the most of the P’s of marketing, determining your pricing levels is hard. When you’re in a competitive market and serving B2B or B2C products, you have several options that you can consider. You can do a blind guess, copy your competitors, calculate a cost-based pricing or apply value-based pricing.

Pricing options with a wide range of options apply on enterprise products, but pricing on B2C products through mechanics such as in-app purchases or rewarding programs, optimization and defining a precise range is really important. Because, enterprises do their yearly planning and define their budget rationally, but consumers are not.

Consumers are irrational.
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In order to get rational feedback and decide upon it, there are two ways we want to share with you, that you can consider while deciding on your product’s pricing model.

Option One: A/B Testing Through Multiple Landing Pages

Fred Wilson, a well-known Silicon Valley VC has defined a step-by-step guide for startups to figure out their pricing, with high conversion rates.

What Fred Wilson suggests is, starting from the highest price level that someone can be willing to pay for your product or service, creating a landing page that reflects that pricing, and making the purchase as easy as possible on that landing page.

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Afterward, buying traffic through digital advertising channels such as Facebook Ads or Google Adwords, and measuring the conversion metrics on Google Analytics or other analytics services you prefer. According to the conversions, you keep lowering the costs until it’s barely positive for your end and then comparing the pricing options you’ve tested, with their conversion rates.

It’s a great method to find the true pricing for your products and your services, but it takes time and takes a considerable amount of money. Benefits? It allows you to acquire new users, and understand your CAC.

Resources needed for this methodology are as follows;
5–6 Iterations on (Landing Page Revision + $100-$200 Advertising Budget + Measurement on Excel + 1 Hour for Analysis)

This is a great methodology to apply, but when the market and target audience is niche, it’s being hard to attract people and generate traffic, which leads failed tests and a badly spent marketing budget.

Option Two: Pricing Research Through Market Research

Another option that allows you to collect valid responses from your target audience is surveying them, and then running an analysis on the collected normalized data.

How it works is, these services are mostly providing you templates for your pricing research. A set of example questions can be found below.

  1. At what price would you begin to think the product is too expensive to consider?
  2. At what price would you begin to think the product is so inexpensive that you would question the quality and not consider it?
  3. At what price would you begin to think the product is getting expensive, but you still might consider it?
  4. At what price would you think the product is a bargain — a great buy for the money.
  5. At a price between the price you identified as ‘a bargain’ and the price you said was ‘getting expensive’, how likely would you be to purchase?
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These questions allow you to run an analysis using Van Westendorp’s Price Sensitivity Meter.This model gives you the minimum, maximum and optimum prices, along with a price range where the conversion will be higher than other ranges — that you can use elastically according to your target revenue.

Data Collection

The hardest part is data collection. There are 2 options, where you can pick the easy or hard way according to the company assets you have.

  1. You can use survey hosting tools such as SurveyMonkey or Typeform, but using these tools, you can have trouble with high costs and data collection, since you need to push your survey to your target audience.
  2. Using Twentify, you can use surveys we offer designed to be fit with analysis methods or create your own, define your target audience in a granular way and then start collecting answers. Without you put any effort into this, platform magically does data collection. Within a couple of hours, you can collect answers from your target audience, in an affordable way than any other option in the market.

Insights Generation

After data collection is done, you need to apply a basic analysis on the data and then create your own Van Westendorp histogram. It’s quite easy where using the normalized data, you’re creating histogram charts on excel within a matter of minutes.

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The chart will give you the optimum price, and some answers to your questions that you can direct your pricing to.

  • “At $24, only 8% think the product is not a bargain, and at $28, 90% think it is not a bargain.”
  • “58% think it’s too cheap at $10, but only 8% think it’s too cheap at $12.”
  • “At $40, 28% think it is too expensive.”

Using these insights generated through the analysis, you can determine your optimum price and can see the range where you can play with it in order to get the best conversion.

What’s Next?

In order to run this research and use pre-defined scientifically prepared survey forms, we’re offering you target="_blank">our self-served market research platform. It’s free to sign up and have a look around. It’s faster, easier and more affordable to collect answers for your survey from your target audience when compared with other online panels and market research companies.

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Resources needed for this methodology are as follows;
$200-$1,000 According To Your Target Audience + 5 Minutes for Research Creation + ~1 Hour for Analysis

What you need to do is, signing up, creating your survey using survey templates and publishing your survey to your target audience. Answers will be collected within hours, and then, you can use Twentify built-in analytics tools to analyze the data.

The platform allows you to access more than 350,000 consumers in the US, Canada, Mexico, Turkey, South Africa and more.

Try our free membership here, and start collecting data instantly.

Çağlar Bozkurt
ABOUT THE AUTHOR | Çağlar Bozkurt
Co-founder and CMO at Twentify. Leading marketing at Twentify, and fixing the way brands understand consumers and shoppers.
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