How to Approach B2B Pricing & Profitability
How to find proper pricing for your product:
Identify the problem that you’re solving, figure out how much it’s costing you to solve it internally - and you want to charge a percentage of that. Then you can just pitch that to people - “we’re thinking this much because it’s a $150,000 problem, we’ll solve it for $5,000 - what do you think?” and they’ll give you good advice on that.
Stick to pitching the price at least 10 times before changing it so that you get a good sample size to know if it’s working or not.
How can high ticket pricing be approached without constantly burning new leads and contacts?
It depends on how big your market is - but as long as you’re alive and your startup is running, you’re going to be burning new leads and contacts - so just accepting that as the reality will help you get over that. The faster you test, the better.
You never actually burn someone, there are founders that have come to me years after working with me, there are customers that have come to me 5-10 years after we talked, life is long. People remember you for the attempt, not the execution. They’ll respect your hustle, they’ll respect your effort.
Profitable or Not Profitable?
Most of your company at this stage is in your mind, so analyze what’s going on in your head: how you look at your own business / the way that you’re talking about it and then tease that out into a financial model.
Do you believe that when you invest money in your company you should get an exponential amount back? Some founders don’t believe that’s true, they don’t believe that’s possible. The best VCs will invest in a company where you can actually get exponential returns.
You have to look at:
How much does it cost for you to sell a product?
How much does it cost for you to build a product?
How much does it cost for you to operate your company?
Does that go down over time, or does that go up over time?
Are you thinking about financial instruments that are going to make your company cash flow profitable versus just revenue profitable?
All of these things will tell you if a company is profitable or not.
The bottom line is, you have to make your business really simple. Your profit goes up if you’re solving more complex problems in a simple way. If your business is complex, you can only solve simple problems and you’re going to have to charge less money. If your business is simple, you’ll be able to solve complex problems and charge more money. Internal complexity creates abstraction, which kills businesses.