You should lose one out of five deals on price; otherwise, you're too cheap

Elin Lundström

CFO at Upsales

Elin Lundström

CFO at Upsales

The lower the price, the better? 

Not always. 

Price is an important part of your positioning strategy. Yet, many think way too little about it. 

Research from Price Intelligently shows that a company, on average, spends six hours evaluating its pricing model - during the entire company lifecycle. 

You're not always competing on price

"Your price indicates who you are. It mirrors your brand and tells the purchaser what to expect."

A long time ago, I ran a side hustle while studying. 

My friends and I sold tiny pocket mirrors with engraved quotes. 

We made them in the local glaziery. Production costs were €2 per mirror, and we thought we'd sell them for €5 each with a profit of €3.

Business went alright. We managed to get featured in a prominent women's magazine and sold a couple of mirrors online. 

Sometimes raising prices leads to more purchasers

One day, we won a coaching session with the guy that practically made telemarketing a thing. 

He said to us: "you should double your prices!" 

I thought he was crazy. Why on earth would we double our prices? People won't buy.

He continued: "It should cost €10 because the mirror is a great gift. People want to feel like they're buying something equivalent to a bouquet. Buying a gift for €5 feels cheap".  

We trusted his wisdom and raised our prices.

That's when sales started to accelerate. It was like selling ice cream on a hot day on the beach. 

Suddenly, our product wasn't perceived as nick-nacks anymore. The price signalled what the product was intended for. That, my friend, was the first realization I had that price really is a quality indicator.

Attract the right crowd and save both time and money

Let's fast forward a couple of years to when we faced the same pricing difficulties at Upsales. 

We'd recently undersold our product. Due to our low prices, customers thought our software was more simplistic than it was. That resulted in us getting a lot of wrong customers. They didn't have ambitions and weren't using the system to its total potential.

So yet again, we decided to raise the prices. 

That resulted in us losing bad-fit customers – which saved our team a bunch of time. In terms of revenue, the drop-off was insignificant compared with the new income from the price increase.

Figure out who wouldn’t mind paying a lot of money for your product

However, before raising prices, you'd like to figure out to whom your product is worth a lot of money. Here are my three best pieces of advice on where to get started.

Advice #1: Dare to charge more

For starters, what edge do you have? And what position do you have on the market with that edge? Figure out what business value you bring to the table and what that's worth for the right type of customer. 

Does your product make it possible to reduce headcount with a full-time employee? Or reduce costs in some other way? Make sure to bill the customers for that. 

Advice #2: Don't set your price right beneath the competitors

Look at what business value your competitors bring to the table. What do they charge? 

A far too common way of coming up with pricing is to look at competitors' prices and put yours right below them. That, however, is the wrong way to go about it. It's actually the most common mistake we see regarding pricing strategy. 

Instead, you should compare the solutions. Are they equal? Or does your product have other benefits? If you consider your product to be better, you should also charge more than the alternatives.

Advice #3: Hold the line on prices

Many sales reps get nervous when asked about the price. If you thought it through, they'd be able to motivate it confidently. 

We recently bought a system from a company with a finance solution. Naturally, we tried to get discounts and looked at cheaper alternatives. The sales rep, however, wouldn't budge.  

He said: "I know we're more expensive, but that's because we have a very good product. Users find our system smoother than what they get from the competition. If you'd like to go for the cheaper alternative, that's a possibility too". 

So, did we end up buying their product? - we certainly did.

Common pricing mistakes to look out for

There are a few traps people tend to fall into when working on their pricing strategy. I'll highlight the most common ones here, and hopefully, you'll save an ounce of time.

Mistake #1: Making decisions based on all customers, not the right customers

If you're the cheapest alternative, people won't think you're the best. A lot of people leave money on the table here. Do your homework, and don't be too defensive. 

Think about your pricing from different angles. What does your price signal to the right customer? People who think it's expensive maybe shouldn't be your customer, to begin with. They'll probably be a lot of hassle and turn out dissatisfied either way. 

Mistake #2: Not scaling pricing based on usage

You also need to consider the usage. If an enterprise client uses your solution ten times more than a small client, bill them accordingly. 

It makes sense when you think about it. 

For us, it was very beneficial to switch our pricing from packaging to add-ons. Because people generally don't want to pay for things they don't use. Pushing someone into a next-tier package only creates frustration. 

Mistake #3: Not communicating your prices in a way that makes sense

If your pricing doesn't make sense, your customers will tell you all about it. Spend some time thinking about how your pricing comes across to a prospect. Can you explain it in a way that makes sense? 

From our experience, people are more willing to pay if they feel they're getting exactly what they want. You can, for example, say, "this feature will cost you €100 more each month", and avoid being too detailed. If you have a package pricing model, focus on highlighting what’s important for the customer. That usually makes the conversation more straightforward for the customer. 


/ Elin Lundström

CFO at Upsales

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