Pricing is simple, if you actually talk to people

by Michael Bernstein on January 11, 2017

The best book I’ve read about pricing software is “Monetizing Innovation” by Madhavan Ramanujam and Georg Tack, and it’s not even entirely about pricing software. The lessons in “Monetizing Innovation” are derived from years of working at the highest levels of commerce with companies large and small to get the science of pricing correct. My favorite piece of advice from the book is also the simplest. I can paraphrase it like this:

To get pricing right, determine willingness-to-pay as early in the process as possible.

It was pretty refreshing to read this book coming from the #startuplife world where there isn’t always a premium placed on slow pace and introspection. There are downsides to this process — talking to people is messy, it takes time, and it means you can’t just ship whatever you want. Those downsides are also what makes it work.

If you’re trying to refine pricing, or price a new product, instead of copying your competition or just guessing, use some science. Design a questionnaire, get a group together, do some surveys — talk to the people! You’ll find out early on if your product doesn’t appeal to existing or potential customers. You’ll find out early on if it appeals to people but can’t sustain your business. You’ll find out everything early on that you’re currently waiting until launch day to find out.

Willingness-to-pay can seem difficult to determine — guess what, it is! I said it was *simple, *I didn’t say it was easy — but the legwork is worth it.