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Venture Accelerator

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What’s in a Price?

LEVERAGING COMPETITOR EXAMPLES (AND MISTAKES) AND CUSTOMER SATISFACTION TO PRICE RIGHT

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Start with Positioning Map

  • Who / What is solving the same problem or getting the same “job” done?
  • Include Direct, Indirect and Substitutes
  • Now add price points / cost to the customer (time metric, energy metric)

Value 1

Value 2

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Competitor Discovery

  • What price have your competitors proven customers are willing to pay?
  • What channels do competitors sell through? (direct, distribution, OEM)
  • Do your competitors have access to unique input/ materials pricing? Can you compete?
  • Do they have other competitive advantage to costs or pricing like billing cycles/ payment terms?

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Activity: Competitor Analysis

  • What is your competitors’ pricing?
  • What trends can we learn?
  • How will this affect how we do business?

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Do you know your costs?

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Understanding All Costs

Your costs include so much more than what it takes to build your product/service

  • Fixed Costs
  • Variable Costs
  • Hidden Costs

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Activity: Identifying Your Costs

Let’s determine your costs:

  1. Variable
  2. Fixed
  3. Hidden

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Some Accounting Concepts to Get Comfy With

  • COGS (cost of goods sold)
    • Direct
    • What you spend to make your product
  • Gross Profit
    • Revenue - COGS (you want this to be positive)
  • Break Even Point
    • When your revenue covers all costs (you want this to happen in a reasonable amount of time)
    • BEP (units) = Fixed Costs / (per unit revenue - per unit variable cost)
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Some Accounting Concepts to Get Comfy With

  • COGS
    • Materials
    • Labor (manufacturing, development)
    • Packaging
    • Installation / Onboarding
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Breaking Even

MT Provisions as Example:

$55 wholesale price ($65 retail)

$32 cost to make (materials, labor, packaging)

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You sell 1,000 units - are you profitable?

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Some Accounting Concepts to Get Comfy With

Break Even Point

    • When your revenue covers all costs (you want this to happen in a reasonable amount of time)
    • BEP (units) = Fixed Costs / (per unit revenue - per unit variable cost)

Example - MTP (light):

$10,000 (annual rent) + $100,000 (salaries) + $50,000 design cost / ($55 (wholesale price per unit) - $32 (materials + labor per unit + packaging) =

$160,000/23 = 6,956 units to break even

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Pricing for Success

https://blog.hubspot.com/sales/pricing-strategy

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Sales Value Chain

  1. Retail / Wholesale / Distributor margins
    1. If the customer is willing to pay $50 and the retailer requires a 25% margin, I have to sell to the retailer at a wholesale price of $37.50
  2. So…if you want a margin of 25% as well, what do you need to manufacture for?

https://www.zendesk.com/blog/profit-margin-calculator/

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Pricing Goals

  1. Price where customers are willing to pay without leaving value on the table.
  2. Cost-plus is the least strategic way to price
  3. Understand ALL costs
  4. Pricing may not cover costs in the beginning, but you should have a plan to get there

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Types of Pricing Strategies

  • Competitive
  • Cost Plus
  • Dynamic
  • Freemium
  • High-Low
  • Hourly
  • Skimming
  • Penetration
  • Premium
  • Project-Based
  • Value-Based
  • Bundle
  • Psychological
  • Geographical
  • Services

https://blog.hubspot.com/sales/pricing-strategy

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Dynamic Pricing

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Premium Pricing

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Penetration Pricing

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Psychological Pricing

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Multi-Tiered Pricing

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Project-Based Pricing

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Hourly Pricing

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Cost-Plus Pricing

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Understand Your Business!

Make sure you have a plan for each of these areas and can clearly communicate out your vision. It’s your job to set the foundation for your company.

What are your prices, exactly? What are your customers willing to pay?

What is your cost of production? What is the wholesale vs retail price breakdown?

Who will you need to work with? What are their rates? What is your supply chain?

What does your billing cycles look like? How do you take payment? Are there fees?

Are you charging for your time? Will you have diversified revenue streams?

Will you have employees? Will you need to pay freelancers? What services will you need?

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Activity: Competitor Pricing

  • What is your competitors’ pricing?
  • What can we learn from this?
  • How will this affect how we do business?

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Activity: Consumer Perceptions on Pricing

How do your customers feel about the competition?

  • What do they like?
  • What do they hate?
  • Are they satisfied?

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Homework this week…

  1. Complete your three pricing model and insights worksheets
    1. Competitive Analysis
    2. Competitor Insights
    3. Customer
  2. Complete the understanding your costs worksheet
  3. Begin to build your mock budget (Revenue, Costs, Profit) Due with Sales Forecasting at end of July
  4. Watch Micro-Learnings

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Tomorrow

  1. Sales session - can provide insight into Customer Acquisition Cost (CAC) and
  2. Follow up IP session w/ STRATA patent team
    1. Be prepared with any follow-up questions on patents, provisional patents, time/place/need, etc

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Thank you!