Here’s a piece of advice from a16z’s Marc Andreesen:
People just literally need to raise prices.
…you can get a much higher level of engagement and stickiness and actual use of your product if you charge more.
The good news is that you have all these new founders with many different backgrounds… Many of them have never run companies or sales forces before. And so they have these extremely sophisticated views on things like products and design and engineering, and I think in some cases relatively naive views on how to actually prosecute a campaign to be able to get the world to use your product…
The temptation we see from many founders is what I call a one-dimensional view of the relationship between price and volume, which is if I price my product cheap, then I sell more of it. Because the assumption is that people just make purchase decisions based on cost and so as you drive down prices you drive up volume. And by the way, a lot of the history of the tech industry, like the chip industry is that [when you] drive down prices you drive up volume.
But a lot of startups really suffer from having that view.
Instead, we encourage companies to adopt what I call the two-dimensional view, which is that there are a couple of advantages of raising prices.
- If you raise prices, you can afford a bigger sales and marketing effort. A lot of companies have prices that are actually too low to be able to mount the kind of sales and marketing campaign required to get people ever actually to buy the product . I call this the “too hungry to eat problem”: I’m not selling enough; but I’m not selling enough because I don’t have the sales and marketing coverage required to actually get the product out there; and I don’t have that because I’m charging too little; and as a consequence I’m not selling any (despite my low prices).
- The other really interesting thing is that for a very large number of products, it turns out if you charge higher prices the customers take the product more seriously. They impute more value into it when they’re making their purchase decision and then once they purchase they’ve made a bigger commitment to it. And in particular, anybody selling anything into businesses, businesses will take something that they had to pay a lot of money for a lot more seriously than something they didn’t have to pay much money for. So you can get a much higher level of engagement and stickiness and actual use of your product if you charge more.