Startup Life/Opinion/

Startups, don’t be afraid to charge more than the competition

Higher prices can actually be a signal of quality and trust to your customers and can help you gain market share.

By Marco Squarci

Pricing is an afterthought for many startups. 

Founders and teams obsess over being creative and innovative, spending significant time and resources in designing and building products — but then struggle to monetise them. 

Don’t get me wrong, innovation is and always will be the most important driver of growth. But focusing on a vetted go-to-market and monetisation strategy as early on as possible is fundamental to consolidate product-market fit. According to recent studies, pricing has an extremely high 72% correlation to startup failure

Don’t be afraid to be more expensive than the competition

Most newly launched startups are worried about how they price their product compared to their competitors, especially from the corporate side. In doing so, they’ve developed a habit of setting their price low to minimise adoption friction, boost growth and attract new customers. While this approach may prove itself successful in the short term, especially with the help of VC funding, it comes at the cost of potential deep losses before profitability and product-market fit are even achieved. 

The obvious challenge, especially for bootstrapped businesses (of which my company, Specter, is one), is that competing on being the cheaper alternative is simply not enough. You actually need to build a better solution and prioritise profitability as the best type of both short- and long-term funding.

You shouldn’t be afraid to be more expensive than the competition, and price shouldn’t be considered a barrier to growth. Instead, it should be a feature of the product that reflects its market position and quality.

[Price] should be a feature of the product that reflects its market position and quality.

When we started building Specter, we focused on building the first product to suit the most demanding and sophisticated clients in our industry, who we knew would want the highest level of quality. This strategy allowed us to develop a product that got accepted and validated by those sophisticated customers directly at launch, and that gave us the possibility to charge a price for its true value from the get-go.

Price as a proxy for quality and trust

You shouldn’t be afraid to be more expensive than the competition, and price shouldn’t be considered a barrier to growth. Instead, it should be a feature of the product that reflects its market position and quality. Let me tell you why. Higher pricing leads to:

1. Higher quality clients

Startups are cheap to build, but expensive to grow in the long run. If your customers only want to buy from you because you have the lowest price in the market, then you should expect them to leave you when a competitor comes out with a better offering or when you’ll eventually need to raise prices. 

On the other hand, if you charge premium pricing based on value added right from the start, you’ll position yourself as the best at what you do, and you’ll attract clients who value your unique offering. These are more likely to stay loyal and more willing to invest in quality, rather than leaving you for the lower cost option the moment it appears. Moreover, it’s actually way easier to decrease prices, rather than increase them — founders often underestimate this.

2. Better results

When you charge low prices, clients will give up at the first sign of resistance, difficulty or struggle. We noticed that when we charge higher prices, clients are more invested in getting results and will stick to us no matter what, even if that means trying and failing a few times before getting it right.

3. Better support

We want to make sure that every single one of our clients’ needs is addressed, their unique challenges are overcome, and that each client gets the best possible outcome from our work together. In order to provide high-quality support, especially in the early days, both my cofounder Dominik and I invested our own time to build a real relationship with not only the customers, but with every single new prospect as well. You need to value founders’ time — that’s your most valuable asset.

Pricing should be a key area of focus and experimentation in the early stages of a startup’s lifecycle: it can boost your company’s profits, increase customer satisfaction and help you discover product variations that you hadn’t considered. 

Marco Squarci is cofounder at Specter, a data and insights company that tracks private and public companies. 

Join the conversation

avatar
  Subscribe  
Notify of