Pricing frameworks

Most companies price like they're afraid of their customers. Pricing is the highest-leverage lever in a business, a 1% improvement in price typically hits EBITDA harder than a 1% improvement in volume and harder than a 1% reduction in cost. Every operator should spend more time on pricing than they do. Almost none do.

The three ways to price

1. Cost-plus

Figure out what it costs, add a margin. Simple. Almost always wrong. Cost-plus pricing leaves value on the table whenever the customer would pay more than your margin target, which is most of the time.

2. Competitor-based

Whatever the market is doing, ±10%. Also simple. Also leaves value on the table. You've delegated your pricing strategy to your competitor.

3. Value-based

What is this worth to the customer? Price at a defensible fraction of that value. Harder. Almost always more profitable. Requires you to actually know what problem you're solving and what it's worth to solve it.

Value-based pricing, operationalized

1. Identify the value metric. What unit does the customer measure improvement in? Revenue gained? Hours saved? Errors avoided? Tickets deflected?
2. Quantify the value. $X per unit × Y units = Z total value created annually.
3. Set a value capture %. Typically 10–30% of value delivered. Higher for mission-critical; lower for commodity.
4. Test it. Present the price alongside the value math. Watch what happens in close rates.

Example. A tool that saves a 20-person sales team 4 hours/week/rep. At a $100K loaded cost per rep, that's 10% of each rep's time = $200K/year in recovered capacity. A 15% value capture gets you to a $30K/year contract, and you just priced on the value to the buyer, not on what it cost you to build.

Packaging strategy

Pricing is half the problem. Packaging is the other half:

• Good / Better / Best. Three tiers, not four or more. The middle tier usually sells best by design.
• Anchor tier. The top tier makes the middle look reasonable.
• Gating features, not usage. Gate on features (seats, workflows, integrations) rather than arbitrary usage caps, customers hate punitive overage charges.
• Enterprise = call us. Above a certain point, don't publish pricing. Enterprise buyers don't self-serve.

When to raise prices

The answer is usually: more often than you think, and by more than you think. You should be raising prices:

• When inflation erodes effective price
• When you add features that add value
• When your close rates are too high (> 50% on new pipeline means you're leaving money on the table)
• When your churn rate for new customers doesn't change after a price increase (means you weren't pricing on value before)

Grandfathering

When you raise prices, decide your grandfathering policy before you raise. The spectrum:

• No grandfathering. Everyone moves to new price at renewal. Cleanest revenue model. Some churn risk.
• Partial grandfathering. Existing customers keep price for 12 months, then move to new price. Typical balanced move.
• Full grandfathering. Existing customers keep price forever. Builds legacy pricing tiers that haunt you for years.

What good looks like

• You know your average discount % on new deals
• You run a price increase at least every 18 months
• Your pricing page reflects a real packaging strategy, not whatever three prices you made up
• Sales knows what to concede on and what to hold firm on

Related: Pricing + negotiation · Unit economics · Funnel math