How to price your product | Naomi Ionita (Menlo Ventures)

Jan 12, 2023 53m 16s 15 insights Episode Page ↗
Naomi Iannita, a VC at Menlo Ventures and former growth leader at Evernote, discusses critical monetization strategies for startups, common pricing missteps, and her 'Modern Growth Stack' framework for leveraging new tools to drive product growth and revenue.
Actionable Insights

1. Revisit Pricing Regularly

Treat your pricing like your product roadmap; revisit your monetization strategy every six to twelve months, especially when launching meaningful features, to ensure appropriate compensation for value delivered.

2. Don’t Delay Monetization

Avoid waiting too long to start charging for your product, as paying customers are the true signal of product-market fit and provide critical feedback loops on perceived value. Delaying monetization can inadvertently cheapen your product and lead to future backlash.

3. Avoid Underpricing Products

Don’t just set a base price too low; also ensure you offer different plans to cater to various customer segments, as a single premium tier often leaves money on the table.

4. Match Price to Value Metric

Pick a value metric (e.g., API calls, messages sent, storage used) that aligns with the unit of value users derive from your product, creating a natural escalator where you get paid more as people use it more.

5. Segment Pricing by User Value

Understand different customer segments and their perceived value of your product to create bifurcated pricing strategies, maximizing revenue by catering to varying willingness to pay.

6. Strategically Place Paywalls

For freemium models, ensure the core utility that gets users to their ‘aha moment’ and builds habit formation is free, but be strategic about where the paywall is placed to avoid giving away too much value.

7. Use Day 1 vs. Day 100 Features

Differentiate between ‘day one premium features’ that offer immediate value and ‘day 100 features’ which are advanced functionalities; push the latter into more advanced, pro versions to monetize through upsells down the road.

8. Form a Cross-Functional Pricing Committee

Establish a pricing committee with representatives from product, data, growth, sales, finance, and rev ops to ensure a holistic and iterative approach to pricing that is owned and evolved over time.

9. Conduct Customer Pricing Research

Talk to customers through surveys and interviews to understand feature prioritization (must-have vs. nice-to-have) and willingness to pay, using methods like Van Westendorp’s questions to inform pricing decisions.

10. Experiment with Pricing Changes

Actively experiment with different value metrics, quota limits, price points, and promotions, tracking long-term implications on churn, user growth, retention, and ARPU. Consider segmenting tests by geo (e.g., Canada or Australia before the U.S.) to constrain experimentation.

11. Be Willing to Lose Deals on Price

In enterprise conversations, continuously ask for more to understand the upper bound of customer willingness to pay; losing 20-30% of deals due to price is reasonable to gauge the limit.

12. Optimize for Growth in Multiplayer PLG

If building a multiplayer, product-led growth (PLG) product with a clear path to move upmarket (team/enterprise), prioritize individual user adoption and organic growth over immediate monetization, as this can lead to exponential revenue later.

13. Leverage Modern Growth Stack Tools

Utilize specialized cloud-native tools for product-led sales (e.g., Endgame, Pocus), experimentation (e.g., EPPO, Amplitude), billing and monetization (e.g., Metronome, Orb), and generative AI to automate workflows, break down data silos, and drive hard ROI.

14. Consider Hybrid Pricing Models

Adopt a hybrid pricing approach that combines good, better, best subscription models with consumption components (quota limits) across tiers, balancing the predictability buyers desire with the natural escalation of usage-based models.

15. Use AI for Growth & Revenue

Apply generative AI to marketing (e.g., ad copy), sales (e.g., outbound efforts), and customer support to save time, improve performance, and drive revenue, especially in areas where human effort is currently high.