pricing-strategy

Use value-based pricing by researching willingness to pay with Van Westendorp surveys, which identify an acceptable price range from four price-perception questions. Price between the next best alternative and perceived customer value, using cost only as a floor.

Van Westendorp is a survey method asking respondents four questions about prices that seem too expensive, too cheap, expensive, and a bargain. Plotting cumulative distributions reveals the optimal price point and acceptable price range, typically requiring 100-300 respondents.

Freemium works when products have viral effects, low marginal costs, and clear upgrade triggers like Slack's message history limit. Free trials suit products needing setup time, higher price points, or B2B buying committees, with 14-30 day trials for complex products.

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.

Raise prices when conversion rates exceed 40%, churn is under 3% monthly, or you've added significant value since last pricing. Use grandfathering, delayed increases with 3-6 months notice, or tie increases to new features to reduce churn risk.

A value metric is what you charge for, such as per user, per usage, or per transaction, and it should scale with the value customers receive. Good value metrics are easy to understand, hard to game, and grow as customers grow.