Hot Takes

How should I think about pricing and packaging in a smart way?

Marketing Revenue Sales

Pricing & Packaging is such a critical part of every company’s GTM (or go-to-market), you could argue that any company at its very core has two existential imperatives.

First: it needs to be able to deliver value to a group of customers (which implies being able to define and reach them effectively). Second: it needs to be able to extract a portion of that value for itself.

Most operators worry about PMF (or product-market fit), which is foundational, but missing out on an effective monetization strategy means that you as a company won’t have enough resources to re-deploy toward creating additional growth, and as a consequence, your company might either fail or be undervalued also from a corporate perspective (think investors and/or buyers).

Price & Packaging is how you do that in a methodical and structured way. 

The back-of-the-napkin mental model I’ve seen used by some of the most sophisticated operators has (at least?) three foundational elements.

First: what’s the cost of generating that revenue, which is the sum of Customer Acquisition Cost (or CAC) and Cost of Goods Sold (or CoGS)? That will give you what you should consider as a baseline.

Second: what’s the price of the alternative they would/could consider if your company didn’t exist? People that want to look savvy at events will call this “BATNA”, or Best Alternative To Negotiated Agreement.

Third: with those two swimlanes, where do you want to position your price point directionally? You could be a comparable option, or more affordable but easier to use, or more expensive but features-rich and/or services-heavy.

Starting to segment your price points from those anchors is usually a pretty good way to go.