Pricing Optimization

Workflow

1. Value Metric Selection

The value metric is what you charge for. Get this wrong and everything else fails.

Good value metric criteria:

• Scales with value delivered to customer
• Easy for customer to understand
• Predictable for customer to budget
• Grows as customer succeeds

Decision framework:

• If value scales linearly with users → per seat
• If value scales with consumption → usage-based
• If features differentiate segments clearly → tier-based
• If you can measure outcomes → outcome-based
• When in doubt → start with per seat (simplest)

2. Van Westendorp Price Sensitivity

Survey questions (ask all 4):

1. At what price would this be so cheap you'd question the quality?
2. At what price is this a bargain — great buy for the money?
3. At what price is this getting expensive — you'd think twice?
4. At what price is this too expensive — you'd never consider it?

Analysis: Plot cumulative distributions of all 4 questions. Intersections give:

Acceptable price range: Between marginal cheapness and marginal expensiveness.

Minimum sample: 200 responses per segment for reliable results.

3. Tier Design

3-tier standard (recommended starting point):

Pricing rules:

• Professional should be 2-3x Starter price
• Enterprise should be 3-5x Professional (or custom)
• Professional tier should be the obvious "best value" (anchor effect)
• Include one "decoy" feature in Professional that makes it clearly better than Starter
• Enterprise always includes "talk to sales" — never self-serve

4. Discount Strategy

Guardrails:

Rules:

• Never discount more than 40% (devalues product permanently)
• Always trade something: discount for annual commitment, case study, referral
• Track discount rate by rep (flag reps averaging > 20%)
• Sunset discounts: "This rate is locked for 12 months, then standard pricing"
• Document every discount reason in CRM

5. Price Localization

Purchasing Power Parity (PPP) adjustments:

Implementation:

• Use IP geolocation for initial pricing display
• Allow currency switching (not just symbol — actual price adjustment)
• Don't show the discount — just show the local price
• Gate enterprise features at full price regardless of region

6. Annual vs Monthly

Best practices:

• Default to annual on pricing page (show monthly price as comparison)
• Annual discount: 15-20% (2 months free is standard messaging)
• Show monthly price per-month even for annual ("$49/mo billed annually")
• Offer monthly-to-annual upgrade path with prorated credit
• Track annual vs monthly mix (target: 60%+ annual for predictable revenue)

7. Price Increase Playbook

Communication timeline:

Email template:

Subject: Changes to your [Product] plan

Hi [Name],

On [date], we're updating our pricing. Your plan will change
from $X/mo to $Y/mo.

Why: [Honest reason — new features, increased costs, market alignment].

What you can do:
- Lock in current pricing by switching to annual before [date]
- Upgrade to [plan] to get [specific new value] at the new rate
- Questions? Reply to this email — we're here to help.

[Name], [Title]

Expected impact: Well-communicated 10-20% increase typically sees < 2% incremental churn. Poorly communicated or >30% increase can see 5-10%+ churn.