Create a value framework
For most companies, value lies in increasing revenue, decreasing costs, or increasing efficiency. Where does your product/service fit and how can you begin to create value for your customers? I’ll suggest two common value frameworks that can help you get to your first price.
Using this model is incredibly simple.
Ask yourself: What are the fully-loaded costs to build the product?
From there, add a margin for profitability. Then, you’re done.
“Defining your ideal customer and a purchasing model are crucial steps to creating your own pricing model”
In reality, this model can be problematic especially in the venture space where companies invest a great deal of resources into building a solution that can be scaled.
Value Based Pricing (the one I recommend):
To keep things simple, let’s say that value (for most organizations) is created through increasing revenue, decreasing costs or increasing productivity. Start by choosing which lane you swim in.
Take Expensify for example. They are creating value by increasing productivity and decreasing costs by allowing you to quickly submit expenses on multiple platforms.
In my first sales job, I saved all my receipts until the end of the month, and would then painstakingly uncrumple, flatten, and cross my fingers that the combination of tape, staples, and receipts would fit through the scanner. From there, I’d have to get my Directors handwritten signature and then scan them to accounting.
This whole process would take me 3-4 hours!
Not only is that unproductive time for me, there is also additional work required for the accounting team to sift through all my expenses, approve and reimburse.
Now let’s introduce Expensify to the equation. It allows you to submit on the spot through email and camera, automatically submitting your receipts for you. I’d estimate I spend 10-15 minutes on expenses now – quick & easy.
Let’s say I make $30 dollars per hour. 4 hours of lost labour is $120 dollars. Expensify costs me less than $10 dollars per month. While I increase my productivity, I also decrease the hassle. Expensify creates 10x value for me in my job.
To create a model like this it’s critical to talk to your customers and understand how they’re currently solving the problem. From there you calculate the potential increases in revenue, decreases in cost, increase in productivity.
I’d argue that shifting one’s behaviour to a new way of doing things is a major challenge and there needs to be significant upside for them. If you can create 10x in the price to the value you provide, I’d say you’re in great shape!
Head to the next page to learn how you should display pricing online…