Tips to Increase Price Without Angering Your Customers, Tactics to Prove Your Market is “Big Enough” to VCs - Tactician: #0078

”‘We’re raising our prices, but for a good reason. Each purchase now includes a complimentary sense of pride. You’re not just buying a product; you’re buying self-esteem. Feel better? No? Well, we tried. That’ll be an extra $5, please.’”

15/03/24

Tips to Increase Price Without Angering Your Customers

Why Read:

• Learn strategic pricing tactics that optimize revenue without alienating customers, crucial for sustainable growth.

Author:

• Jason M. Lemkin, SaaStr Founder & VC

Link: 

• “Four Simple Tips to Increase Pricing. Without Angering Your Customers.”

Key Concepts and Tactics:

• Plan Annual Pricing Increases for New Customers:

  • "First, plan to increase pricing in general once a year, each year for new customers. But earn it. And generally for new customers, not existing customers. How much? Well, that will depend on how much additional value you’ve added over the last year, how strong you stack up vs the competition, and how strong your brand is. But you should be a bigger, better, and more highly regarded company and product this year than last. So increase pricing annually to reflect that. How much? Well, that depends on how much you’ve earned."

• Do Not Overcharge Customers:

  • "Second, don’t rip your customers off. Don’t increase pricing beyond what you’ve earned. Yes, this will be hard to measure. But this is your job as CEO, to balance the different incentives and forces here."

• Focus on Deal Size Over Per-User Pricing:

  • "Third, focus just as much on deal size than pricing. You can often make more money closing 2x the seats without futzing with pricing."

• Start with Higher Pricing at the High End:

  • "Fourth, start at the high end. [...] If your largest customer is $25k a year and they are happy … ask for $35k the next time you get a similar lead. Then, if they are happy to pay $35k … ask for $50k for your next Biggest Deal. This will build confidence."

Tactics to Prove Your Market is “Big Enough” to VCs

Why Read:

• Gain insights on diverse strategies for demonstrating market potential to investors, essential for securing funding.

Author:

• Sahil S, VC at Stedu Fund and Writer at The Venture Crew

Link: 

•  “How to Prove Your Market Is “Big Enough” to VCs? ”

Key Concepts and Tactics:

• Top Down, But Brick By Brick:

  • "Most market sizes are top-down. 'The market for marketing software is $XB dollars so it’s big enough to support some really big companies.' It’s the simplest way to think about market size."

•  Bottoms-Up Market Demand:

  • "The previous approach completely fails when you’re talking about markets that don’t quite exist yet or when an investor is not at least on the fence about market size. Another approach is to do a bottoms-up analysis to demonstrate the scale of market demand for a service like yours. Start with the total number of potential end-users, and use reasonable estimates around customer demand, pricing, market share, etc."

• Attaching To Mega-Trends:

  • "Being in lock-step with a broad mega-trend is another way that investors get over a seemingly small market. This means that the investor (consciously or not) believes that the mega-trend will either - drive massive market growth or drive the new company to have an unusually high market share."

• Using Analogies:

  • "Using analogies can be tricky because they may not land. But if they do, I find that a lot of investors often get fixated on an analogy that can sufficiently build conviction. [...] I find that the best analogies are ones that tend to connect to one of two things. Either, it is tied to a mega-trend. For example, 'Just like the shift to the cloud allowed for the rise of great companies in different categories, the shift to mobile computing in the enterprise will do the same. [...]' The second analogy is to connect yourself to a company with a similar ethos or founders with the same superpower. This is a lot harder to do and probably happens by inception more than through direct argument. [...] I have heard investors who have gotten to know founders over some time say something like 'Wow, these founders are unbelievably obsessed with design and user experience in a way I haven’t seen since (person X). Maybe they really can pull it off!'"

•  Scope Expansion:

  • "This is some version of 'Today we are doing X, but that just puts us in a great position to do Y, which is obviously huge.' There are a couple of flavours of this. The first is the bank shot. This is where X is actually not the foundation of a great sustainable business but could be a gateway to more. A lot of VCs have a hard time with bank shots unless you are already demonstrating some really remarkable traction. [...] The second version of this is when X is actually pretty decent. [...] Usually, this works well when the underlying business is profitable and decently large without being too capital-intensive, which gives you more freedom to pursue the bigger opportunity as a next step. This allows an investor to say to themselves, 'I could reasonably get a 5–10X on the core business, and there is some small probability that this could actually be a 20X or more.'

• Betting On The Future:

  • "One additional approach that most founders use quite successfully is what I’ll call 'the future bet.' The approach here is to deflect discussions about current market size and focus the discussion on a single, simple bet about the future. For example, [...] Even though most rental markets aren’t very large, the bet goes something like 'Do you really believe that people are going to continue spending thousands of money on products that are not utilized 90+% of the time? Our bet is that consumers are rapidly moving away from ownership towards sharing and renting, and those multiple billions of dollars are going to shift towards the companies that get this right."

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