What's inside:
Overview
Understanding stakeholder and business views
The product journey
Choosing a value metric
Defining your timing strategy and price scaling
Navigating the art of pricing and discounts
Measuring and optimizing
Takeaways & next steps
How to Create a Pricing Model for Your Startup
Every company needs to make pricing decisions, but early-stage teams frequently spin their wheels trying to determine the best way to price their product. It’s far too easy for founders to find themselves overwhelmed, either ending up in analysis paralysis or barrelling forward while over-relying on their intuition. As founders and operators at M13, we’ve experienced this first hand, so we constructed a framework based on our collective experience across Growth, Product, Finance, and Data to guide founders.
This guide will introduce you to the framework that M13 uses to help founders launch, measure, and adjust their pricing models. We’ve created this framework as a step-by-step template that founders can use to identify the things that matter, analyze them properly, and proceed with confidence.
By the time you finish this module, you’ll know how to filter out the noise and break pricing decisions down into digestible components. This will consist of identifying key concepts, organizing market research, and using it to form a pricing model hypothesis that can be tested in-market, measured, and optimized.
A pricing model, simply put, is a set of rules that a business uses to determine who pays (or is paid), what they pay for, how much they pay, and when they’re paid. When you create your pricing model, you must ask questions from both the stakeholder view and the business view.
For stakeholders:
What problem is being solved?
What are the alternatives?
For the business:
What does it cost to serve customers?
What are the growth loops?
Both of these views must be considered before we can make the decisions that comprise the pricing model:
Who should I charge?
What should I charge for?
How much should I charge for it?
When should I charge for it?
In this guide, we’ll cover:
1
Understanding stakeholder and business views
2
The product journey map
3
Choosing a value metric
4
Defining your timing strategy and price scaling
5
Navigating the art of pricing and discounts
6
Measuring and optimizing
7
Takeaways & next steps
The principles in this guide can be applied to DTC, B2B, B2B2C, and marketplace businesses all within the same framework. Some businesses have two or three major distribution channels that each have a unique set of stakeholders. For example, Form Health sells its weight-loss telemed service DTC, but also leverages referring physicians as a distribution channel. If the physician’s referral is a critical part of the customer journey for a large subset of users, then both the physician and patient perspectives should be considered.
This guide will be most helpful for those who aren’t already measuring and optimizing the impact that their pricing models have on growth. Founders who have already chosen a pricing model should reevaluate their pricing model if:
Its underlying assumptions haven’t been validated since launch (don’t assume your model is optimal if you haven’t tested it).
Meaningful new features have been introduced, internally or by competitors (e.g. if you recently delivered a new feature or an additional use-case that targets a different persona).
The costs to serve stakeholders have changed (e.g. packaging costs have changed so that bundles no longer result in expected cost savings).
The efficiency of growth loops has changed (e.g. your referral rate is changing over time, leading to changes in viral growth).
Every step in this guide will apply to the majority of startups, but some startups will benefit from additional frameworks that aren’t included in this generalized material. If you're an M13 portfolio founder or operator who wants help navigating this walkthrough and any other supplemental analysis, please reach out to us.
To get started, make copies of these templates:
What's inside:
Overview
Understanding stakeholder and business views
The product journey
Choosing a value metric
Defining your timing strategy and price scaling
Navigating the art of pricing and discounts
Measuring and optimizing
Takeaways & next steps
Every company needs to make pricing decisions, but early-stage teams frequently spin their wheels trying to determine the best way to price their product. It’s far too easy for founders to find themselves overwhelmed, either ending up in analysis paralysis or barrelling forward while over-relying on their intuition. As founders and operators at M13, we’ve experienced this first hand, so we constructed a framework based on our collective experience across Growth, Product, Finance, and Data to guide founders.
This guide will introduce you to the framework that M13 uses to help founders launch, measure, and adjust their pricing models. We’ve created this framework as a step-by-step template that founders can use to identify the things that matter, analyze them properly, and proceed with confidence.
By the time you finish this module, you’ll know how to filter out the noise and break pricing decisions down into digestible components. This will consist of identifying key concepts, organizing market research, and using it to form a pricing model hypothesis that can be tested in-market, measured, and optimized.
A pricing model, simply put, is a set of rules that a business uses to determine who pays (or is paid), what they pay for, how much they pay, and when they’re paid. When you create your pricing model, you must ask questions from both the stakeholder view and the business view.
For stakeholders:
What problem is being solved?
What are the alternatives?
For the business:
What does it cost to serve customers?
What are the growth loops?
Both of these views must be considered before we can make the decisions that comprise the pricing model:
Who should I charge?
What should I charge for?
How much should I charge for it?
When should I charge for it?
In this guide, we’ll cover:
1
Understanding stakeholder and business views
2
The product journey map
3
Choosing a value metric
4
Defining your timing strategy and price scaling
5
Navigating the art of pricing and discounts
6
Measuring and optimizing
7
Takeaways & next steps
The principles in this guide can be applied to DTC, B2B, B2B2C, and marketplace businesses all within the same framework. Some businesses have two or three major distribution channels that each have a unique set of stakeholders. For example, Form Health sells its weight-loss telemed service DTC, but also leverages referring physicians as a distribution channel. If the physician’s referral is a critical part of the customer journey for a large subset of users, then both the physician and patient perspectives should be considered.
This guide will be most helpful for those who aren’t already measuring and optimizing the impact that their pricing models have on growth. Founders who have already chosen a pricing model should reevaluate their pricing model if:
Its underlying assumptions haven’t been validated since launch (don’t assume your model is optimal if you haven’t tested it).
Meaningful new features have been introduced, internally or by competitors (e.g. if you recently delivered a new feature or an additional use-case that targets a different persona).
The costs to serve stakeholders have changed (e.g. packaging costs have changed so that bundles no longer result in expected cost savings).
The efficiency of growth loops has changed (e.g. your referral rate is changing over time, leading to changes in viral growth).
Every step in this guide will apply to the majority of startups, but some startups will benefit from additional frameworks that aren’t included in this generalized material. If you're an M13 portfolio founder or operator who wants help navigating this walkthrough and any other supplemental analysis, please reach out to us.
To get started, make copies of these templates:
