How To Evaluate The Right Pricing Model For Your Software Startup

How much does it cost you to acquire a customer?

Understanding that will help you understand your model.

Most founders think it’s just the cost of your advertising spend.

Nope.

It’s everything you spend on marketing (people + ad spend + contractors, etc) AND sales (everyone involved in the process + tools, etc)…

And that still doesn’t include anyone you might have to qualify, or the cost of running webinars, etc.

All that to say, knowing your numbers matters because it’ll help you understand where you should be in my Software Sales Matrix™.

Watch this week’s video to learn how to avoid landing in the “Startup Graveyard”… and the 3 strategies to pull you out fast.

When I sit down with a startup to help them scale their business, I always ask questions around 4 key areas.

• What’s the average size of a deal on an annual basis (called ACV: Annual Contract Value).
• What do your marketing activities look like and how much do you spend on a monthly basis?
• What do you offer to support your customers? 1-800 #? Online FAQ? Do you send people on site to train or configure?
• How does your sales process work? Who’s involved? What’s the time to close a new lead?
• How do you onboard a new customer? What’s the process for them to get started?

With only the answers to these questions, I can build a complete model of their business in my mind and map it to the matrix to understand where their opportunities lie.

When it comes to scaling a SaaS business, understanding what you can invest in, and what you can’t because your pricing doesn’t allow it, is the ultimate clarity.

It’s this level of clarity that most overenthusiastic startup founders are blind to.

They dig their head in the sand… and in doing so, dig an early grave for their startup.

Watch the video to understand the two axis’s I use to evaluate startups, and place them on the grid.

Do this for your company, then leave a comment and let me know what you learned.

Can’t wait to hear where you’re at!

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Dan Martell has advised more startups than his hometown has people and teaches startup founders like you how to scale. (Get the free 3 videos to grow your business here.) He previously created, raised venture funding for and successfully exited two tech startups: Flowtown and Clarity.fm. You should follow him on twitter@danmartell for tweets that are actually awesome.

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