{"id":2762,"date":"2017-04-13T18:45:32","date_gmt":"2017-04-13T17:45:32","guid":{"rendered":"http:\/\/insideintercom.io\/?p=2762"},"modified":"2020-07-31T22:45:54","modified_gmt":"2020-07-31T21:45:54","slug":"picking-your-pricing-model","status":"publish","type":"post","link":"https:\/\/www.intercom.com\/blog\/picking-your-pricing-model\/","title":{"rendered":"Picking a pricing strategy for your product"},"content":{"rendered":"

Choosing the correct pricing for your product is a daunting task \u2013 particularly if you’ve never priced anything before.<\/p>\n

But there are some simple techniques to get you started. Whether you\u2019re a SaaS product like Intercom<\/a>, or a restaurant, you first need to understand what it takes to attract your target customer. Then you need to decide how much revenue you want to earn from them. Plotting these two decisions gives you three pricing strategies \u2013 transactional, enterprise and self-service.<\/p>\n

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A complex sales process<\/a> for low value customers is never a viable business, no matter how many startups try it. It\u2019s like selling $2 hot dogs in a world-class, high-maintenance dining room. The numbers won\u2019t add up. As we\u2019ve covered before, low pricing alone isn\u2019t disruptive<\/a>, it\u2019s just cheap. Your competitive advantage has to scale as you move upmarket.<\/p>\n

Joel York coined the above axes<\/a> to define the three key sales models for SaaS businesses. Many startups drop themselves in the lower left quadrant, often without understanding exactly what decisions they\u2019ve made. Here\u2019s some companies you\u2019ll find in each quadrant.<\/p>\n

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What pricing strategy is right for your product?<\/h2>\n

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Going for the lower left means you usually end up with a high amount of low value customers. This limits how you can acquire customers. Spending $300 to acquire customers for your $49 product is never a strategy worth pursuing.<\/p>\n

A low pricing strategy also limits how much support you can offer (we discuss this in detail in our book on customer support<\/a>). For example, you might have to decide free customers won\u2019t get a response until all support queries from your paid customers are dealt, which will probably see your free-to-paid conversion rates drop off. The tradeoffs are numerous.<\/p>\n

None of these tradeoffs are inherently bad, but they must be conscious decisions based on your pricing strategy. Depending on the industry, customer type, and addressable market at your disposal, picking the wrong pricing model can leave you dead before you get started. For example:<\/p>\n