Inflation is at a 40-year high in the U.S., but a 23-ounce can of AriZona iced tea still costs 99 cents. Founder and CEO Don Vultaggio says he plans to keep the price where it’s been since he launched the company 30 years ago.
“Consumers don’t need another price increase from a guy like me,” the self-made billionaire told the Los Angeles Times.
Unlike soft drinks, startups are not a volume business, and early-stage companies must revisit their pricing models regularly. The competitive landscape is in a constant state of flux, and each time they release a new product or service, revenue streams must be recalibrated.
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In his latest TC+ post, Michael Perez, director of growth and data at VC firm M13, shares five questions he uses to devise pricing strategy frameworks, along with three value metrics and a detailed measurement plan for GTM strategy.
“Pricing models that scale proportionally with value tend to capture more value as revenue and contribution margin,” he writes. “Contribution margin can then be reinvested in sales and marketing or operations to create more value.”
Until you’ve conducted extensive research on your users and competitors, there’s no way to know whether your services are priced improperly. Usage habits are only one signal of a customer’s willingness to pay, so Martinez shares multiple strategies and target metrics for building scalable models.
“The principles are basic, but it’s easy for founding teams to miss details that matter,” he says.
Thanks very much for reading,
Walter Thompson
Senior Editor, TC+
@yourprotagonist
M13’s Karl Alomar: 6 strategies for leading startups through a downturn
Image Credits: horstgerlach (opens in a new window) / Getty Images
Basic best practices will not help your company endure this winter, so I invited M13 managing partner Karl Alomar to join me on a Twitter Space to discuss the following:
- Using “ruthless prioritization” to find proof points.
- Investors still expect “healthy growth”.
- Why founders need to secure 24+ months of runway.
- How to talk to your investors about pivoting.
- When it’s OK to leave money on the table.
- What you need to do differently to fundraise during a downturn.
Drawing from his experience of leading startups through the dot.com implosion in 2000 and the 2008 Great Recession, Alomar said it’s critical for founders to be strategic and not reactive.
Whether you feel like a leader, “the decisions you make in your business are going to affect all the people that work for you, so you have to be able to manage and communicate across all those stakeholders very effectively,” he said.
How your company can adopt a usage-based business model like AWS
Image Credits: Javier Zayas Photography (opens in a new window) / Getty Images
Formerly a general manager at AWS, Amberflo.io CEO and co-founder Puneet Gupta has shared his seven-step plan for developing usage-based pricing models.
Gupta’s guide starts with an obvious point that trips up many cloud-based startups: Integrate usage metering into your products and services before you launch.
“Knowing who is using what, when, where and how much will help you unlock valuable insights across all functional groups and teams, and make determining pricing much more straightforward,” says Gupta.
Your fundraising pitch deck needs appendices. Here’s why
Image Credits: Haje Jan Kamps (opens in a new window)
In the human body, the appendix is a small tube located at the junction of the large and small intestine. For years, conventional wisdom said it was a useless evolutionary holdover, but we’ve since learned that it helps strengthen the immune system.
Similarly, it might be tempting to perform an appendectomy on a fundraising deck to reduce the slide count, but doing so may deprive potential investors of the details they need to make a decision.
“If you start to see patterns in questions you’re getting in pitch meetings, that might be a hint that some additional information would be helpful to the investors,” writes Haje Jan Kamps.
7 ways investors can gain clarity while conducting technical due diligence
Image Credits: MirageC (opens in a new window) / Getty Images
A startup with a decent amount of funding can scale to a degree thanks to pure talent, but if its tech can’t scale too, you’re looking at a ship taking on water.
According to Roger Hurwitz, a founding partner of Volition Capital, investors should spend time on technical due diligence to understand the product, the team building it and prioritize initiatives.
“Over time, technology should become less of a black box for investors.”
