‘Mummy, where do customers come from?’ – Jeff Lawson, CEO, Twilio on customers and pricing

Know your customer

Your customers are people – what are their hobbies, where do they go, what do they do? If you’re selling into enterprise – target the ‘Doers’.

The sales funnel

Twilio offer full payment and product services on their website – sales people only get involved in the selling process when:

– the sale is big

– the product is complex

– if the customer asks to speaks to a person

How to price?

Cost based pricing. Example: Target margin = 50% (0.5); Cost = $10

Price = $10/ (1-0.5) = $20

If your costs of adding a new customer are very low, then you can consider value based pricing. Consider how much value are you delivering your customer – by how much are you increasing their revenue, how much money/time are you saving them? A discount on the value created is important, otherwise the purchase doesn’t make economic sense.

Price = value created – discount.

Competitive pricing is not a pricing strategy, but is a good way to understand where you fit in the market.

It is easiest to start with conservatively high prices and lower then if needed. It is more difficult to raise prices,  but when you do make sure you are transparent – don’t try to fool your customers.

If you’re still unsure, make more pricing options for various product bundles and see which one works best. But don’t make too many bundles as the paradox of choice means people may be paralised by indecision.

Value framing. Quote a high price and then offer an attractive deal that references the original price. “This product usually costs $100, but we are offering it to you at $50!” Customers perceive that they are getting $100 worth of value for $50.