pricing-strategy

name	pricing-strategy
description	Design a product pricing strategy covering model selection, tier structure, value metric identification, packaging, and pricing research. Covers freemium, usage-based, per-seat, and enterprise packaging with worked examples.
argument-hint	["product type","customer segments","current stage","competitive context","revenue goal"]
allowed-tools	Read, Write

Pricing Strategy

Pricing is one of the highest-leverage product decisions. A 1% improvement in price realisation typically adds 2–4× more profit than a 1% reduction in variable costs. Yet most startups under-price by 20–40% because they anchor on cost rather than value. Good pricing starts with understanding the value delivered, not the cost to build it.

Pricing Model Selection

Model	Best for	Downside
Flat rate	Simple product; single ICP; easy to explain	Leaves money on the table for high-usage customers
Per-seat	Collaboration tools; expansion via hiring	Penalises adoption; teams hide seats
Usage-based	Infrastructure, API, data products	Unpredictable revenue; complex to explain
Tiered / per-feature	Products with clear feature segments	Tier boundary confusion; complexity
Freemium	High-volume, low-touch; network effects	Free users are a cost centre; conversion hard
Outcome-based	Mature, high-trust relationship; measurable outcome	Hard to measure; shared risk
Enterprise custom	Complex requirements; large deals	Long sales cycles; hard to scale

Value Metric — the unit you charge on

The value metric is what scales with customer value. Choosing the wrong one destroys growth.

Good value metrics:
  Slack:     messages sent (switched to seats — aligned with value of coordination)
  Twilio:    API calls / SMS sent (customer pays as they grow)
  Snowflake: compute credits (customer pays for what they use)
  HubSpot:   contacts (scales with marketing database size)
  Figma:     editors (designers; viewers free — drives adoption)

Bad value metrics:
  Storage GB   — commoditised; race to zero; wrong lever
  Users        — penalises adoption; teams hide seats; wrong lever for consumer products
  Projects     — artificial limit; customers resent hitting it

Process

1. Define the customer segments — who buys, and what outcome do they pay for?
2. Identify the value metric — what grows when your customer gets more value?
3. Research willingness to pay — van Westendorp PSM, conjoint analysis, or direct interviews.
4. Map the competitive landscape — where do you sit on the value/price spectrum?
5. Design the tier structure — good / better / best; each tier should expand 3–5× in value.
6. Set the free tier (if freemium) — free must be genuinely useful; not a crippled demo.
7. Define the enterprise package — what does a large customer need that SMBs do not?
8. Build the pricing page — clarity, trust signals, anchoring, and comparison table.
9. Instrument pricing telemetry — track conversion by plan, expansion, churn by plan.
10. Review pricing annually — price anchors to value delivered; both change over time.

Output Format

Pricing Research: van Westendorp Price Sensitivity Meter

## Price Sensitivity Research — [Product Name]

**Method:** van Westendorp PSM (n=47 target customers, 30-min interviews)
**Date:** [Month Year]

### Four Questions Asked

For the [core use case] problem, at what price would this product be:

1. **Too cheap** (so cheap you'd question quality): $___
2. **Cheap** (a bargain, great value): $___
3. **Expensive** (you'd think carefully but might buy): $___
4. **Too expensive** (you wouldn't consider it): $___

### Results

| Price point | Respondents saying "too cheap" | Respondents saying "too expensive" |
|------------|-------------------------------|-----------------------------------|
| $49/mo | 68% | 2% |
| $99/mo | 34% | 8% |
| $149/mo | 12% | 19% |
| $199/mo | 4% | 38% |
| $299/mo | 1% | 71% |

**Acceptable price range:** $99 – $199/month
**Optimal price point (PMC):** ~$149/month
**Point of marginal cheapness (PMCheap):** $99/month

### Recommendation
Launch at $149/month for the Growth tier.
Strong majority finds $99 "cheap" — pricing headroom exists above that.
Consider $99 for the Starter tier to drive initial adoption.

Tier Structure Template

## [Product Name] Pricing — v3 (Effective [Date])

### Pricing Principles
1. Price on value delivered, not cost to build.
2. Free tier is genuinely useful — not a crippled demo.
3. Every tier upgrade should feel like a clear step up in value.
4. Enterprise pricing removes friction for large customers.

---

### Free — $0/month
**Who it's for:** Individual contributors; personal projects; evaluation.

Includes:
- Up to [X] [value metric units] per month
- Core features: [list 3–5]
- Community support
- [Any network-effect feature — drives adoption]

Limits that drive upgrade:
- [Soft limit that teams hit naturally]
- No team collaboration / sharing
- No SSO / audit logs

---

### Growth — $[X]/month (or $[Y]/month billed annually — save 20%)
**Who it's for:** Small teams shipping product; 1–25 seats.

Everything in Free, plus:
- Up to [5–10× Free value metric units]
- Team collaboration features
- [3–5 features that matter for small teams]
- Email support with 48-hour SLA

*Most popular plan.* Seats: up to [N] included; $[Z]/seat above that.

---

### Business — $[X]/month
**Who it's for:** Growing companies with compliance and security needs; 25–200 seats.

Everything in Growth, plus:
- Unlimited [value metric]
- SSO (SAML / OIDC)
- Audit logs (90-day retention)
- Custom roles and permissions
- Priority support (8-hour SLA)
- SLA uptime guarantee (99.9%)
- [2–3 features that matter for mid-market]

---

### Enterprise — Custom pricing
**Who it's for:** Large organisations (200+ seats), regulated industries, global deployments.

Everything in Business, plus:
- Custom contract and invoicing
 Dedicated success manager
 Custom SLA (up to 99.99%)
 HIPAA / SOC 2 / ISO 27001 attestations
 Data residency options (EU, US, APAC)
 Onboarding, training, and professional services
 Volume discounts on [value metric]
 Custom integrations and API rate limits

Contact: [e-mail]

Freemium Conversion Analysis

## Freemium Funnel Analysis — [Quarter]

| Stage | Count | Rate |
|-------|-------|------|
| Sign-ups | 12,450 | — |
| Activated (hit activation event within 7 days) | 4,980 | 40% |
| Engaged (used 3+ times in 30 days) | 2,241 | 45% of activated |
| Converted to paid (within 90 days) | 336 | 15% of engaged |
| Overall sign-up → paid | 12,450 → 336 | 2.7% |

**Key finding:** Activation is the biggest drop-off (60% do not activate).
Improving activation from 40% to 55% would add ~50 conversions/quarter.

**Top reasons for not converting (exit survey, n=87):**
1. "Don't need more than the free tier" — 41%  (pricing limit may be too generous)
2. "Too expensive for my budget" — 28%  (pricing may be too high for ICP)
3. "Missing [feature X]" — 19%  (feature gap)
4. "No budget approval yet" — 12%  (timing / internal process)

**Recommended action:** Tighten the free tier limit on [value metric] by 30%.
Estimate: 15% increase in conversion rate from currently-free users hitting the limit.

Enterprise Deal Structure

## Enterprise Pricing Framework

### Inputs to Custom Pricing
- Number of seats (or [value metric] volume)
- Contract length: 1-year / 2-year / 3-year (discount: 0% / 10% / 20%)
- Payment terms: annual upfront / quarterly / monthly
- Add-ons: professional services, additional data residency, premium SLA

### Negotiation Floors (do not go below without VP approval)
- Minimum ACV: $[X]
- Maximum seat discount: [Y]% at [Z]+ seats
- Professional services: always at list price (no discount)

### What to Give vs What to Hold
| Customers often ask for | Offer | Hold firm on |
|------------------------|-------|-------------|
| Price discount | Extended contract term | Core platform price |
| More features in lower tier | Pilot period at higher tier | Feature tier structure |
| Unlimited seats | Volume-based seat pricing | Per-seat pricing model |
| Remove usage caps | Add monitoring + alerts | Unlimited without guardrails |

Anti-Patterns to Avoid

Anti-pattern	Problem	Fix
Cost-plus pricing	Ignores value delivered; almost always underprices	Start with willingness-to-pay research
Too many tiers	Decision paralysis; customers do not upgrade	Maximum 4 public tiers; good/better/best model
Free tier too generous	No reason to pay; free users are a cost	Free must hit a wall customers care about
No annual discount	Customers churn monthly; no commitment	15–25% annual discount standard SaaS
Ignoring packaging	Features in wrong tiers kills expansion	Map features to segment needs; not to cost
Never raising prices	Left-behind market pricing; existing customers subsidise new	Annual price review; grandfather for 12 months

Rules

• Price on value, not cost — what does the customer gain? That is the upper bound on price.
• Validate with research before launch — van Westendorp or conjoint; do not guess.
• One value metric that scales with the customer — seats, API calls, data volume; choose one.
• Free tier must convert, not just acquire — if free users never hit a wall, they never pay.
• Annual plans anchor retention — push annual at signup; offer 15–25% discount.
• Enterprise pricing is a separate motion — custom, relationship-driven; never put it in the public pricing table.
• Track conversion and expansion by tier — pricing decisions without cohort data are guesses.
• Review pricing annually — your value proposition and market change; your price should change with them.
• Package, then price — decide which features go in which tier before deciding the price of each tier.
• Anchor with the highest tier — show the Enterprise or highest-value tier first on the pricing page; anchors the rest.