So when I'm advising companies on what kind of, on pricing and
payment plans and how to think about monetization strategies.
Again, asking them, hey is this
a big enough market that freemium will sort of work, where a small percentage
conversion of a large pool will make sense for this to be a large company and
so you can just work the math backwards to make that work.
Most of them have easy questions about pricing,
like, what do I start charging this on?
So the first comparison is like, do you have competitors charging for this?
What do they charge?
How does this sort of work?
If you are thinking about enterprise companies,
the way we usually do is try to figure out like well, how much money
is the company already spending, on whatever it is, to solve this problem?
Usually you're not solving a problem that nobody's working on.
It's usually some problem that already exists in the company and
you have a better way of doing it.
And so the companies that will do poorly in an enterprise is when there's no
budget carved out for solving a specific problem.
So if there is no budget carved out,
it is almost impossible to figure out how to generate money out of thin air.
People can only spend money that is allocated to them by the division,
the company, whatever the finances are at hand.
Then the next thing is just saying,
like how do you calculate how much money you're spending on it?
So you just start off with like well how many people was dedicated the task?
What's the average salary for those people?
How much time is spent, and you can figure out there, and
that's like your upper bound, right?
And those people are already working on the problem, so
you can't just charge that upper bound right to begin with,
because basically you're saying those people have a job.
And those people are probably going to have to be your champions.
So you have to figure out some way,
it's like this somehow eats a lot of their time.
They want to do other parts of their job, or what have you,
and you figure out some in between on that.
And usually I say like figure out some kind of smart guess and
just start with your first customer.
And for enterprise pricing, you can adjust.
Depending on how fast they answer the question,
you're going to move the price up or down.
The biggest thing is just start with some kind of model.
One of the biggest mistakes, I think, some companies do,
is they start people off on free pilots, that's like oh, just try it.
The program, we won't charge you anything, we'll try it for 60 or
90 days, and we'll figure out where we go from there.
And I think that's a poor way of thinking about stuff.
Again, you don't set yourself up to figure out how to one, map
out the organization, to figure out what is it going to take to actually close,
you don't beta test your pricing.
As all these questions come near that,
you just are kicking the can down the road, and
so what I usually advise is say look, we don't have free trials in our company.
We can provide a service that is of value.
Here's what I can do for you.
We start off with a the three month plan, it's going to cost this much money
and if you are not satisfied with the product or
service, 100% money back guarantee.
But that way you can play the safe.
But that way you have gone through the actual process of
navigating enterprise pricing and payment and accounting, and
legal and all that stuff just to get to that process.
And if they're not even interested in that, then that means that maybe
you don't have a product that people actually want to begin with.
The other one is to think about incentives in terms of your sales force.
And also in terms of people's reasons to buy.
And the best model I've ever heard about this actually came from
Phil Libin from Evernote, and he actually talked about a concept that he
learned from someone else, and it was about the pricing thermometer.
And the idea is that there's three numbers associated with, like, pricing.
And so you have like the cost of the product here,
you have the price of the product, and then you have the value of the product.
And those are three numbers associated with a service or product.
And it says that gap between the cost and the price of the product,
that is considered that gap in distance is incentive to sell, right?
So because it's like oh, for
every one of these I sell I make that much money as a company.
The gap between value to price, that is incentive to buy for
the customer, right?
And so where you put the price on the line controls
where are the pressures for buying and selling.
Right, and so, for example, Evernote, they charge $30 a year,
and they've never changed that pricing.
And the idea is like we want all
the energy around our software service to be incentive to buy.
Right, because like wow.
This product all it sort of offers has high value to me, so
it make me want to buy it.
And there's enough people and enough pressure on there, makes it worth it.
And what's amazing about that, is if you can make that work,
it grows by word of mouth and organically.
They don't need a huge sales force to sell this because the value in itself
automatically makes the sell sort of happen.
Usually a lot of people want to do is,
like figure out like how do I get the price as close to value as possible.
And then what you do is you destroy one of those impulses for sort of people.
And also, the feedback loop that you generate for
your salespeople is usually pretty broken.
Right? because they'll do anything
to sort of sell it, and
the reason why people want to talk about is completely different.
It's like yeah, it's going to be really expensive.
You kind of get what you pay for, but I'm not super excited about it.
And anyone that is willing to increase that gap in the other direction
can undercut you as a result.
And they undercut you not because, oh this is a better price or
better value but it's because now there is two pressures in there
to make you want to consume or upgrade what have you