Most hyperlocal founders think the products they’ve developed are priceless. The small business owners they’re selling to, however, are likely to have a very different view. Deciding on a pricing structure is one of the most difficult challenges a hyperlocal business is likely to face in its earliest days. Striking a balance between the income a startup need to generate to stay afloat and what small businesses are actually willing to pay for digital marketing products is something that even experienced hyperlocals are still working to achieve.
Here are six strategies for determining the right pricing structure as an early-stage startup from hyperlocal executives who’ve managed to crack the code.
1. Understand your product’s value. “One pricing model that works for one company may not work for another, so of course, do your research online and look at your competitors. I think it starts with understanding the value that your service or product delivers to the end client. What ROI will they get by using our product? That helps us price appropriately. Aligning your product or service with the value delivered ensures that you can have long term, healthy relationships.” (Corey Quinn, The Search Agency)
2. Focus on sustainability. “We break pricing plans into component parts to develop the structure. First we look at commodity components — things that everyone in the industry sells that are basically the same. Then we do a cost+ type of a model. We figure out what our costs are and then figure out what margin we need for a sustainable model.” (Carlton van Putten, LogMyCalls)
3. Resist the temptation to lowball. “People make the mistake of looking at pricing in terms of how to charge customers and how to get them to pay for a product or service. Instead, start with the customer. What is the value of your offering to them? What is it worth? Ask, research, test and resist the temptation to lowball. Because pricing is ultimately about value, it’s usually not the lowest but the fairest that wins out in the long run.” (Michelle Kimball, MarketMeSuite)
4. Get some skin in the game. “What we’ve implemented is success based with some skin in the game. Nominal monthly fees — scaled based on the number of services — should be relevant to the service being offered, combined with an eye towards what it would cost for a local business to build it and manage it themselves. Then implement a revenue share, so that when the small business wins, the startup wins.” (David Levine, Gaxsys)
5. Make pricing easy to understand. “Keep it simple for customers via bundling and fixed price models. Having too many options is a problem. It confuses customers when they have tons of à la carte options to choose from. We also realize that our target customer consists of agencies and marketers. We know the pricing models those customer prefer.” (Carlton van Putten, LogMyCalls)
6. Consider margin vs. scale. “Pricing is always dynamic depending on the vertical, geography, and customer type. We always try to look at it from the perspective of the local retailer and what is in it for them. One of the benefits of enrolling to use our system is that the opportunity to fulfill orders must be accretive and generate new business for the local merchant. We are always considering margin versus scale, and the value of additional orders from the brand, retailer, or marketplace that the local merchant would have the opportunity to fulfill. It is dynamic and we’re always listening.” (David Levine, Gaxsys)
Interviews have been edited for length and clarity.
Stephanie Miles is an associate editor at Street Fight.