I’ve mentioned in past posts the challenge of determining product value and pricing. I recently came across an article on Saastr (Next Time – Ask for $1,000,000. A Year. I’m Not Kidding) and it got me thinking again, not only about how you price a product, but different ways to continuously validate pricing.
Jason Lemkin, the author, starts out with a pretty simple premise:
The first is to challenge them to double their highest ACV ever on the next similar prospect. If your highest paying customer pays you $30,000 a year … even if all the rest pay you only $3,600 a year (a not uncommon scenario) … then why can’t you get $60,000 a year from the next Big Prospect that come in the door?
He then goes on to describe how he encourages all start up founders and sales people to push the envelope for pricing. I don’t disagree with anything he mentions in this article except for one thing:
Now, if your biggest customer pays you $60,000 today … asking for $500,000 a year, or even $1m, may sound nuts.
But turns out it isn’t.
Do it when a prospect asks you for something that pushes your solution. When it’s clear they want to buy, but they want the product to go further than it does today.
“Well, we don’t do that today. But for $700,000 a year I can commit to having that by Q2’16.”
As a Product Management executive, I absolutely hate the execution of this tactic. In theory, this is a great way to a) determine what features your product needs for this class/type of customer and b) help determine the price point for it. In reality, however, what usually happens is you train your sales force to sell any feature request for any price point.
The most dangerous part of this tactic is when you have 10 or more customers that have been promised 10 or more different features and already paid for them. I have both worked for and witnessed many a startup fail because of this.
As a Product Management executive I proactively coach our sales staff to bring me in early to conversations where they think we can get higher price points for legitimate features. I encourage them to continually prod prospects, but I am adamant that I am always the one that maintains and more importantly commits to the delivery of features and time frames.
I’m always looking for increased price points, but mitigate the danger to your roadmap and your customer base by making sure everyone understands that it’s not a feature free for all.