I have heard many times that if a startup company CEO cannot easily and quickly explain his/her pricing model to a customer that the startup company is doomed. This probably applies to “non-startups” too. In any event, I agree.
Related to pricing is how a company plans to make money off a customer. The easy case – customer is buying a good or service and pays for it then and there. Slightly more complicated – customer is buying a service and paying for it monthly (i.e., a SaaS revenue model). Even more complicated – customer is paying based on use hurdles. Regardless, the company better be able to easily explain the pricing structure to the customer.
We recently had a company in the CVF portfolio, GiveGab, that changed its pricing model. And the change has been very well received so far (and we hope that will continue with major scaling). The original model had the company implementing either (i) a SaaS model or a (ii) custom build model. The custom build model was tough as it was being sold to larger organizations that move slowly. The SaaS model was tough because many of the potential customers (non-profits) had previously used other SaaS software solutions (in this case for volunteer management) with a mixed bag of results. GiveGab knew something had to change.
The answer in GiveGab’s case was the path of least resistance. How about getting paid by the customer only when the customer gets paid? In this case that meant a donation revenue model. GiveGab’s customers pride themselves on cultivating volunteers. This critically increases support (financial and otherwise) for the non-profit. GiveGab came to understand this quickly and built in donation management into its volunteer management platform. The message to the GiveGab customer was simple: we have the best volunteer management system, we want you to use it for free and only pay us for donation processing (something that most non-profits do anyway). This is a great approach. The customer pays for a transaction that it is used to paying for already. But it does so on a volunteer management system that is awesome. A win-win all around! The customer gets more and GiveGab gets scale.
Bottom line: think about the path of least resistance when it comes to a revenue model. Take that path if possible!