When to redesign Pricing Model?

Redesigning your startup's pricing model: key considerations for success

In the ever-evolving landscape of business, one critical element that often demands attention is the pricing model. By understanding the signs indicating that your pricing strategy needs a refresh, you can ensure that your business stays competitive and profitable. So, let's dive into the key considerations for redesigning your pricing model and setting your business up for success.

When to review your pricing model

If you have already achieved Product-Market FIT for some time, now might be the best time to review your pricing model.

Let's recap the sequence:

1. Focus on your BeachHead segment,

2. Align your Channel Partners with your Beachhead

3. Identify a predictable Marketing Channel Medium

4. Redesign your Pricing Model

See the diagram below for the stage indication.

Figure 1: The stages of a startup's go-to-market to scaling

Why review your pricing model?

At this stage, you'll have new, better, and more accurate data points and insights about:

1. What customers VALUE and are WILLING to PAY for

2. Understanding of Customer Acquisition Cost (CAC)

3. Possible Average Revenue per customer

4. Evaluation of Unit Economics in relation to customer volume, ensuring sufficient funds to sustain company growth

   
   

If point (4) falls short, you need to review the pricing model, especially in the current economic environment regarding funding and cost of capital. It is the fastest way for you to improve the bottom line and cash flow.

Below is a Pricing Model Design Framework at a high level, as presented at @Stone & Chalk Melbourne.

Figure 2: Pricing model design framework

Given the evolving market conditions, it's likely that the following key design constraints have shifted in the past year and will continue to do so next year:

1. Customer Budget Constraints

2. Market Price Elasticity

3. Cost Constraints

4. Growth Constraints

   
   

So, it might be time to review your pricing model to maximise profit and sales conversion. Even if business is thriving and market trends favour your growth, it's wise to redesign your pricing model before scaling up at the "Growth + Moat Stage". Avoid scaling with negative unit economics or potentially leaving money on the table. Thus, don't overlook this critical pricing review step as you navigate your path to crossing the chasm.

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