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Pricing a B2B (Business to Business) product can be overwhelming, largely because B2B organizations need to consider all selling characteristics before pricing.
The pricing strategy should reflect all the hard work the internal team has put in to develop a compelling product.
Here is a comprehensive guide on B2B pricing strategies to help you pick the best one for your business.
What is B2B Sales Pricing?
B2B pricing is fixing various B2B product and/or service prices depending on the overall cost and effort involved. For example, if a business is selling project management software to another business, the following factors will be considered:
- Competitor pricing
- Cost of resources
- Logistics cost (if any)
- Technology expenses and more.
Different B2B businesses use pricing models and strategies to establish pricing for their products and services.
An appropriate B2B sales pricing strategy can make or break a business's overall revenue. 90% of startups fail, and many times, it is because of a weak pricing strategy. Companies often focus on process automation, lead generation, and deliverables but a strong pricing strategy should
Pricing is complicated and requires the involvement of multiple departments. As a result, pricing often becomes a secondary factor for organizations. However, finding and implementing an optimized pricing strategy can drive businesses towards exponential growth.
Top B2B Pricing Models for Sales Teams
B2B pricing model is the structure that businesses follow to decide how to charge the users for different products and services. Here is a list of the most popular pricing models for B2B professionals:
1. Value-based pricing
Value-based pricing is when a brand prices its products based on its understanding of the customers’ needs and requirements. Under this pricing model, the B2B decision-makers try to perceive the worth of a product from the end-users’ point of view.
This pricing model is dependent on marketing initiatives. Largely because brands implement various marketing tactics to seek end users’ attention. To successfully implement value-based pricing, businesses should put strong effort in market research, survey, collecting customer feedback, etc.
The above image shows how Trello uses a value-based or freemium pricing model. Starting from the free plan to the Enterprise plan, Trello keeps adding several features and integrations. Accordingly, the price also increases.
- Value-based pricing is customer-focused. Hence, the chances of surviving in a highly competitive industry are higher.
- It helps businesses to build a strong connection with customers through regular interactions. Hence, the scope of retaining customers is higher.
- Estimating the value of a product can be difficult. A brand needs to spend sufficient time in market research and understanding customers’ pain points to make the most of this pricing strategy.
- The value-based pricing is mainly dependent on the ever-changing market trends. Hence, the price of products may frequently vary, causing interferences in revenue flow.
2. User-based pricing
A popular pricing model for B2B organizations is to charge based on the number of users. The price range varies depending on the increase or decrease in users. For example, an instant messaging service may charge a certain amount for the first 100 users, and the price also increases as the number of users crosses 100.
- A simple pricing strategy, easy to understand and implement.
- Since this model is easier to understand for end-users, it takes less time for sales reps to push the leads from awareness to the purchase stage.
- End users can use common credentials for various users instead of upgrading the package. This may lead you to lose a major percentage of revenue.
3. Dynamic pricing
The dynamic pricing model works best for large enterprises residing in multiple locations. Pricing depends on numerous factors like currency, customers’ requirements, purchasing power, etc. Hence, if a business operates in various locations, it is mandatory to consider these factors for fixing the prices of different locations.
Businesses should note that dynamic pricing is not about changing pricing for each business division. It is about segmenting each business division into various categories and fixing the prices accordingly.
- It is a flexible pricing strategy that helps businesses to adjust the prices of different markets based on changing trends.
- Most businesses estimate dynamic pricing with built-in algorithms. Hence, it saves manual efforts and frees up time for other critical tasks.
- Customers are not very fond of fluctuating prices. Hence, the customer retention rate can be low for this pricing model.
- Consistent price fluctuation can also result in revenue uncertainty for businesses.
- Dynamic pricing is not a transparent pricing model. Most often, end-users have no clue about the sudden price changes. This can upset them to a large extent.
4. Competitor-based pricing
Competitor-based pricing strategy is about fixing prices based on competitors’ pricing strategies. An organization needs to estimate an average price for all its competitors to implement this pricing model.
Afterward, the brand can decide whether they want to keep the same price or go slightly higher or lower the average price. The concept of this pricing model is that you are letting your competitors do all the hard work and hoping that their pricing strategy is right.
- Competitor-based pricing is possibly one of the easiest pricing strategies where a brand can straightaway price their products and services without any estimations and conjecture.
- Since the prices are the same as competitors, potential customers can evaluate the products based on their requirements and not on price.
- Identifying when to revise prices is also simpler. If your competitors change their prices, you can do the same.
- Competitor-based pricing is suitable for early-stage startups. However, as you start to scale and products become popular, you may miss out on revenue potential.
- If your production costs are higher than the competitors and you continue to follow the exact pricing, there is a vast scope of earning loss.
5. Flat-rate pricing
A flat-rate price is when a business charges a single price for all its products and services. It is a one-size-fits-all pricing model. Many SaaS brands adopt this strategy, and they charge their customers the same every month, regardless of the number of users or usage limit.
- It is a simple pricing strategy, easy to understand and implement.
- Since you have only one price for all your products, it becomes much easier to project revenue for upcoming years.
- For new B2B businesses, following this pricing strategy can lead to quicker recognition and attract a lot of prospects.
- In the era of personalization, not all businesses prefer the one-size-fits-all concept. They look for customized packages, and flat-rate pricing is not ideal for that.
- There is no scope to upsell new features and integrations in flat-rate pricing. You have to charge the same price no matter what.
- B2B SaaS brands whose products depend on users or benefits might miss out on revenue if they follow this pricing model.
Mistakes to Avoid while Building your B2B Pricing Strategy
Now that you have a brief idea of different B2B pricing strategies and models, let’s highlight some of these mistakes:
1. Not researching the market enough
Pricing strategy can never be constant. The key to success for any business is consistently experimenting with their pricing strategy and upgrading it as per changing marketing trends. However, some companies prefer one-time research and hardly keep up with the changing market trends. That’s a critical pricing mistake and can lead to huge revenue loss.
Ideally, businesses should appoint dedicated market researchers to conduct customer surveys, evaluate competitors’ pricing strategies and conduct A/B testing to optimize their pricing strategy. This continuous experiment helps them to ensure that the pricing strategy is not becoming stale over time.
2. Not knowing the ideal buyer persona
Identifying a pricing strategy is difficult if you don’t know your target buyers. Businesses that move on to create a pricing strategy without creating an ideal customer profile make a significant mistake.
An ideal pricing strategy should be customer-centric. You need to know the prospects' financial status, purchasing power, and, most importantly, how much they are willing to pay for your product. When a brand has all this data, it becomes easier to develop a pricing strategy.
3. Offering frequent discounts
Early-stage startups often provide too many discounts to the customers. While they perceive this as a retention strategy, it can always go the other way. Customers may believe that the product is of poor quality, which can drive them away. Occasional discounts are fine as long as customers are interested in your products and want to invest in them.
Selecting a significant pricing strategy is the first step toward growth. Apart from evaluating the pricing models mentioned above, businesses should also focus on finding a sales enablement tool that provides real-time insights into customers’ behavioral patterns. That way, sales reps, and marketers can identify what price the customers are willing to pay.
- Real-time cues into customer conversations
- Actionable post-call analytics
- Detailed sales revenue insights and scope of prediction
- Comprehensive performance intelligence
To know and explore further, book a sales demo now!
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