Get Your Pricing Right in 10 Steps

[This article was originally published in New Business Minnesota in July]

Pricing is one of the most powerful levers to transform a good product into a good business. A key set of metrics such as profitability, average revenue per customer, and customer acquisition, lifetime value, and retention is driven by your pricing strategy.

Pricing Is Not about “Prices”

Getting pricing right means identifying the pricing structure, pricing model, and pricing window, that drives acquisition, monetization, and profit growth - all at once. The right pricing structure aligns your offering with the benefits received by different types of customers. The right pricing model allows you to monetize your offering in ways that their benefits are realized by your customers. You can increase your customers’ lifetime value as they continue to realize the offer’s benefits. Customers should pay more, as they receive more value.

Pricing is not about “prices.”

From Good Product to Good Business

Product Development and Management Association – PDMA reports that 65% of the new products fail to make their revenue and profit goals every year. Here' at Pricing Innovations, we’ve set out to reimagine the way we innovate, develop and monetize products that meet their revenue and profit goals. That’s why we created the Pricing Canvas ™. The Pricing Canvas ™ consists of ten sections each representing a structural component of your business, product, and market. Each section helps you to design your pricing and monetization plans using the principles of strategic, competitive, and value-based pricing.

Pricing in 10 Steps

The Pricing Canvas ™ helps you to get your pricing right in 10 fundamental steps:

1.     Product and Pricing Strategy: Determine the sources of growth in the acquisition, monetization, profitability and/or market share. Decide how each offering will drive each of your growth goals.

2.     Product Structure: Define your offering and articulate the top three to four benefits that your offering provides per each type of customer.

3.     Competitive value profile: Determine the basis of competition and how your differentiators impact your competitive pricing position.

4.     Offer structure: Understand how different types of customers need, utilize, and benefit from your offering differently.

5.     Pricing structure: Construct the pricing structure, model, and window that maximizes acquisition, monetization, and customer value.

6.     Value metric: Understand what makes a customer keep paying and decide on the pricing metric that drives your acquisition, monetization, retention and profitability all at once.

7.     Metrics and validation: Identify your key pricing metrics and decide how you will track the profitability, average revenue, average account value, customer lifetime value, and retention etc. at a segment level.

8.     Partners and channels: Rate and rank your upstream and downstream partners in terms of their impact on your profitability and growth goals.

9.     Cost structure: Itemize in detail the drivers of your fixed and variable costs. Investigate to see if you have any off-the-invoice costs.

10. Go-to-Market Plan: Look for the right model that will drive conversion and mobilization to improve customers' lifetime value.

Download the Pricing Canvas ™ Guide for free and begin your own pricing innovation today.