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Pricing and Revenue Development

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I was reading Manu Kumar’s post on Revenue Development and it occurred to me that we had unknowingly gone through a similar revenue path with Web-o-Matic.

To provide some background, we had decided to build a work flow platform to streamline the website design and development process. The platform was created to speed up the process, which it did to begin with. Even before the platform was ready we started selling the solution. Using a somewhat LEAN approach we “got out of the office” and tried selling our small biz website solution (similar to Hubspot) to anyone who would listen. This was a deliberate Customer Development decision to see what the adoption of our solution would be. Customers bought the solution and within a few months of selling we had already achieved six-figure revenues. But there was an underlying problem that we hadn’t foreseen – too many different types of customers.

Because we were experimenting with several pricing and lead-gen (aka freemium) models when we started we put pressure on the platform to deliver in the way that we had designed the process. The odd thing that happened was too many customers saying yes at too many price points. In an effort to try different pricing models we actually muddied the water a little (for ourselves). As often happens in LEAN/Agile startups we had a lot of flexibility in how we adapted to new inputs but our positioning was unclear. An unclear message means its harder to scale because it’s harder to repeat the customer development cycle.

So how did we solve this problem? What helped us the most was when we started to track feature usage (what the customers used) and mapped that against perceived customer value (what they told us they wanted). We found that many of the perceived high-value features were actually not being used. By adjusting pricing so that only the features that customers used were charged for we were quickly able to figure out a price point that worked with the appropriate feature set.

Author Richard Banfield

As CEO, Richard leads Fresh Tilled Soil’s strategic vision. He’s a mentor at TechStars and BluePrintHealth, an advisor and lecturer at the Boston Startup School, and serves on the executive committees of TEDxBoston, the AdClub’s Edge Conference, and Boston Regional Entrepreneurship Week.

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