How to Talk to Potential Customers About Pricing
Go talk to 10 potential customers about the price of your product.
How did reading that make you feel? What thoughts came to mind? For many first-time, early-stage founders who are bringing a product or service to market, talking to customers about price is stressful and riddled with preconceived notions that limit your success before you even start.
In my own experience as a small business and startup founder, as well as my consulting work with hundreds of founders, I’ve found that founders’ most common challenges with pricing their products include:
Starting the conversation about price too late in product development
Not understanding that pricing is an experiment and a conversation
Locking into the first price they set and undercharging
Setting a price strictly based on competitors’ pricing
At the core of these challenges is a fear that talking to customers about price will backfire. The greater danger, though, is not talking to customers about price. You will not limit the success of your product in the marketplace by having direct conversations about price, but you will limit it by not having these conversations. At best, you won’t capture the true value of your product; customers often place a higher value on your product than you do. At worst, you will spend enormous amounts of time and money on a product that isn’t profitable.
Talking to potential customers about price validates customer demand
The only way to confirm that your business is viable is if customers pay you for your product. In lieu of a crystal ball, founders devise methods of calculating demand that keeps us at arm’s length from the actual customer. We research competitors, crunch market data, and create waitlists with no obligation to pay.
Guilty as charged. A number of years ago, I built a product with a waitlist that grew to 5,000 potential customers. I spoke with very few people on the waitlist about what they would be willing to pay for my product, though, because they might say “nothing” or not enough. Had I called a few potential customers, rather than protect my fragile ego, I’m confident that I would have made far more money, found teammates, and forged partnerships.
Ultimately, when potential customers signup for a free waitlist, you haven’t adequately evaluated customer demand. A huge total addressable market with few competitors isn’t customer demand. Only a sale is customer demand. It can be scary to discover that you have too little customer demand, but isn’t it better to know that now rather than later?
Talking to potential customers about price gets easier with practice
Like most skills, talking to potential customers about price gets easier with practice. Here are a few strategies to make your first conversations more comfortable.
It starts with your mindset. When you view pricing as an experiment, you approach these conversations with curiosity. You are cracking a puzzle, and the more feedback you receive, the closer you are to building the solution. Be direct, flexible, and open.
With this perspective, identify two or three warm-up target customers for your first conversations. Ideally, these will be people you already know in some context. Your first customers are often people you know because customers make purchases based on relationships – they are buying you. Many founders I work with share that people they know “aren’t real customers”. Real customers are paying customers, regardless if they’re your friend or someone halfway across the world.
Once you have scheduled a meeting with a potential customer, slide into fact-finding mode. It’s as simple as asking a few direct questions – pick and choose the ones that fit most naturally in your conversation:
Is this something that you have a willingness to pay for?
Is this something you see value in?
What do you see as the value in this product?
Why is this so valuable?
If your customer replies that they are not willing to pay for your product, ask a follow-up: What would need to happen in order for you to pay for this?
If your customer is willing to pay, ask a follow-up: How much are you willing to pay?
By asking questions and not dictating terms, you will gather so much more information about your potential profitability. Once you have identified a target customer who is willing to pay an amount that you believe is fair, keep up the momentum and convert them into a paying customer. Presuming that you have started talking to customers about price before the product has hit the marketplace, offer to follow up in a couple of weeks when the product is available. Or, if the timing is right, ask how you can get started as a vendor and send an invoice.
Different customers can pay different prices
Customers will have different levels of willingness to pay, and it’s okay to charge them different prices in order to establish a market. The key is to be flexible – inflexibility kills deals, and if you don’t negotiate, you risk undercharging a customer segment with a higher willingness to pay. Remember, pricing is an experiment – you may find that you can adjust your product according to different customer segments’ price points.
Therefore, don’t lock in your price according to what your first customer pays. If you anchor your price, you are assuming that each customer values your product in the same way. This is a challenge that Elaine, a founder I advise, had to overcome. She initially based the price of her service on the wage she had earned performing similar work for her former employer. This assumes that all of her clients would have the same needs and willingness to pay as a small, rural nonprofit. Elaine was happy with her former employer. But like many other first-time founders who base their new rates on their old wage, she risked continuing to under-earn despite the fact that her clients were willing and able to pay her more.
No billing platform? Just use Cash App, PayPal, Venmo, or Cash
Many founders I work with prevent themselves from charging potential customers because they’ve yet to setup a sophisticated billing system. I’ve worked with several founders who have lost deals with potential customers eager to pay them after prototyping a product or service because not having a billing platform (like Adyen, Square, or Stripe) meant they “weren’t ready”.
If you’ve got potential customers who are willing to pay you for your product or service, you’re ready to accept their money. Because your focus should be on making things easy for your potential customer, sending a payment request via Cash App, Venmo, or PayPal is completely acceptable. I have several long-term design and research customers who pay thousands of dollars per month using these “unacceptable” methods because they’re easier than alternatives.
Talking to customers about price makes your business better
Now, Elaine has a conversation with each potential new client to set a price that matches their needs and willingness to pay. And she happily reports that her customers consistently exceed her expectations of their willingness to pay. She has doubled her goal income of $5k/month in less than one year.
Dylan let go of his need to be “perfect, perfect, perfect” before selling a product, and now he starts talking to customers the moment a product is workable. The feedback he receives early in the product development stage helps him create products that generated a 6x revenue increase for his company.
When Heather learned how to talk to customers about price, she quickly identified the target customer with whom it was easiest to seal the deal. Wasting no time with unprofitable targets, she built a company that generated $250k in its first year.
Now it’s your turn. Go talk to 10 potential customers about price. You’re ready.
Want to talk about pricing?
Pricing for startups and small businesses is one of our favorite topics, and we’d love to lend a hand.