Pranav Kashyap is co-founder at central and is used to drive pricing and growth at Mixpanel.
As a former head of pricing at Mixpanel and an advisor to several startups, I’ve seen many different pricing models, both successful and unsuccessful. Product-led growth companies are unique in that customers can experience the product well before they talk to sales. At some companies like Mailchimp, many customers may not talk to anyone at the company at all.
1. Pricing as an afterthought to product strategy
Some companies build their product, define their ideal customer, and then think about pricing. Instead, these should go hand in hand. Google Meet and Zoom both offer video conferencing, however, Google bundles Meet into their workspace product, making it effectively free for its small and medium business market, while Zoom focuses primarily on video conferencing for enterprises and focuses on scale and control. This means that Google focuses on their products working well together, while Zoom pays attention to quality. Madhavan Ramanujam, author of Money-making innovationsexplains really good price-product-market fit in this podcast.
2. Very low price
Founders have conviction in their products, but often underestimate their customers’ willingness to pay. When your product is a painkiller and not a vitamin, you have a lot more pricing power than you think. You can take a Van Westendorp survey to understand the ideal range of price results for your product. This survey technique asks four simple questions:
1. What price do you think is so low that you would question the quality of the product?
2. What price would seem like a good deal?
3. What price would seem expensive, but you would still consider it?
4. What price seems so high that it’s not even worth thinking about?
By crafting survey answers to these four questions, you can get closer to the ideal price for your product.
3. Creating a single version for everyone
Although pricing with three to four good-best-best options is very common, people often miss segments that are willing to pay more for a part of your product. For example, Hulu has ESPN+ as a special add-on, as avid sports fans would gladly pay for it, and it keeps the basic Hulu subscription free for everyone else.
4. Trying to rate everything on ‘Per Country’ terms
Most of the products you use either help you bring in revenue (eg Stripe, Square or PayPal), reduce costs (eg Vendr or Zylo) or work better (eg Atlassian, Notion or Central) . Once you know what makes your product and how your costs scale, it becomes easier to narrow down to a few pricing models that fit well. For example, it wouldn’t make sense to try to sell Stripe on a country basis, but it would for Notion or Atlassian.
5. Misunderstanding the drivers of holding and selling
Most customers need time to reach the “aha moment” for your product. For example, Facebook’s aha moment was “seven friends in 10 days.” Instead of having a short, time-based trial or free plan that doesn’t really allow a user to evaluate your product, it’s important to understand how long it takes your typical customer to reach their “aha moment” at your product. For a product like Slack, where many people need to get on board and talk to each other, the value comes from the people talking. Therefore, they limit their free plan to 90 days of data history as a way to get people to upgrade.
6. Setting and forgetting prices
Many companies treat pricing as a one-time decision, but it rarely is. Your price may need to change frequently for many reasons, including fluctuations in your underlying costs, new information from your customers, or threats from competitors. AWS cut its premium price at least 61 times for its EC2 instances after finding economies of scale and cheaper components in its data centers. Some companies might be in a position similar to Asus, where its products were extremely low-end and flying off the shelves, in which case a price increase might be the right move.
Effective pricing is not a static decision, but a dynamic strategy that evolves with market and customer knowledge. Companies must constantly adjust their prices to reflect cost changes, competitive pressures and customer perceptions. By treating price as an integral part of product strategy, businesses can better align their offerings with customer needs and maximize their revenue potential.
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