Fireside chat: Exploring pricing strategies for early-stage startups

Key takeaways

Pricing Is foundational: Early-stage startups must consider pricing from inception, integrating it into their business model and strategy discussions.

Experiment and adapt: Willingness to test different pricing models and adapt based on feedback and market dynamics is crucial for finding what works best.

Focus on value: Pricing should reflect the value provided to customers, with adjustments made as this perception evolves.

Engage in customer discovery: Direct engagement with potential users is invaluable for refining product offerings and pricing strategies. Use customer discovery sessions to gauge willingness to pay and understand the perceived value of your offering.

Iterate continuously: Pricing is not static; it demands regular review and modification as the business and its customer base grow. Regularly review your pricing strategy in the context of customer feedback, market trends, and business objectives.

Pricing tips & tricks

Conduct thorough market research: Understand competitors and adjacent markets to inform your pricing strategy.

Use a simple pricing model: Ensure your pricing is easy to understand and communicate, avoiding complexity that can deter potential customers.

Align pricing with growth: Consider models that scale with your customer's usage or the value they derive from your product.

Transcript

Matthew: Hello and welcome to Fireside Chat. My name is Matthew. I'm a former software founder now leading Stripe's product marketing efforts for startups. Today we're diving into the topic of pricing for your products. If you have any questions throughout the talk, please feel free to post it in the Q&A below.

We have some Stripe expert experts on hand to answer questions live. So why are we talking about pricing? Well, sixty-seven percent of founders admit to guessing their pricing. And yet spending time on pricing for your product is perhaps one of the highest ROI activities you can do as a founder. We recently surveyed 1,500 executives, founders, and leaders across payments, finance, engineering, and product teams, and we wanted to hear from them how they were thinking about pricing going into 2020.

The survey businesses range from small startups to large enterprises, and we covered both B2B and B2C business models. Here are some of the highlights. We learned that 40% of founders are looking to test new pricing models in 2024. This reaction, as we're all familiar with, has largely been in response to buyers consolidating the tools they use in e in an effort to cut operating costs.

It's worth calling out a common misconception, changing pricing in response to these factors. It doesn't always mean lowering pricing. We found that very few plans to lower their pricing even in the current market where buyers might be harder to convince and sell cycles a little bit longer. So what are they doing?

The purple bar here is the pricing they currently use and the black is what they're considering Moving to. A majority of businesses use simple flat rate pricing where pricing doesn't change from month to month or year over year. Although flat rate remains a pretty staple choice for many, there's curiosity to test new pricing models in order to introduce multiple price points or buying options for users.

In fact, sixty-seven percent of founders believe that usage-based pricing will gain in popularity usage-based pricing is a pricing strategy where businesses charge based on a customer's usage of a product. This could be something like the amount of gigabytes used or the number of units used provided.

And at the very center of this type of pricing model is a billable metric that hopefully scales in proportion to the amount of value delivered to the user. The thinking here is that by enabling your users to align the amount they pay with the amount they use your product, the less likely they are to churn because they'll know exactly the value they're getting.

However, if you're an early stage startup, you know, pricing based on usage or value can feel somewhat chicken and egg. It's really tough to put a price tag on something when you are innovating in new spaces and therefore it's, it's really hard to benchmark against competitors and alternatives. You may have a lack of customer data and therefore don't yet understand what they truly value in your product.

And ultimately, you may have an unfinished project product and not enough time. It's hard to price products that you're constantly iterating on and improving, and when you simply have so many other things to do. So this is why we've invited a group of people who have been there and done it to sort of share their story and lessons learned.

So today I'll be joined by Morgane, principal at Crane Venture Partners, Nick Co-Founder at Trumpet. And Alex Co-Founder and Chief Product Officer at Cerbos. Nick, Alex, Morgane. I'm curious to know more about you. I'd love to know who you are, what you're up to, and why your experiences might tie into the topic of today's session.

Why don't we start as you appear on the slides, so from left to right. 

Morgane: I will start then. Hi everyone. I'm Morgane working at Crane. As Matt was mentioning I am not a VC by background. I'm a sales, so obviously pricing is a topic that's very close to my heart. When, so before joining Crane, I spent four years building a sales function at a company called Tassian.

It's a cyber security company who's disrupted the whole. DLP space with a machine learning approach. And I started there as a salesperson when, when we were just 10 people, and I left after our series C when we were more than 200 people. And so I think one of the key topics that we've been discussing every single day at Tessian was pricing.

And this topic is following me at Crane. Crane is a, is a pure enterprise, B2B SaaS fund. So we invest very early stage, so pre-seed, seed up to pre-A, what we call pre-product market fit. And so this stage is key in order to determine your pricing. And so it's a, it's a topic that we discuss with, with our founders including Alex day in, day out.

And so I hope to be bringing some of the insights and also maybe mistakes that I've been making as well in my previous role. 

Nick: Hi everyone. I am Nick. So yeah, I am founded a few, few businesses. My first one was called Design My Night Over in the uk which was hospitality B2C and SaaS Solution.

We had lots of different. Pricing issues there charging, you know, end users to use our product. But also we had three SaaS solutions. All the different fund you have with trying to price SaaS correctly in hospitality which is a notoriously tough market to operate in. We successfully exited that in 2019.

Has since gone on to co-Found a company called Trumpet. Which is in the digital sales room space for sales leaders and customer success leaders. We're, we're VC backed, so we raised about two and a half million dollars pre-seed. We're about a year and a half old. We've got about 8,000 users. And yeah, we're, we are constantly talking about pricing as we evolve the product and move from sort of SMB up to enterprise as well.

So yeah, excited to deep dive into some of that. Okay. 

Alex: And I'm Alex. I am a software engineer at heart, but have kind of wandered into the world of, of product and now found it funny business you know, started my career massive enterprise Microsoft, and then immediately had enough of that and jumped down back into startups where I've worked.

Developer, tech lead, and then laterally into sales and, and product in MarTech in finance and supply chain in some consumer businesses as well. But then about three years ago we decided to solve a common problem me and the rest of the team had at pre our previous experience, which is around authorization.

So implementing that complicated roles and permissions style logic that every SaaS. Business and pretty much every collaborative software platform has but approaching in a way that's scalable for developers, product security teams already decoupling that logic out and making it as, as secure and adaptable to changing requirements as possible.

The, the pricing journey has been quite an interesting one because we are a commercial open source or an open core product. So the core engine or service is completely free, open source, grab it off, GitHub, off you go. And then we built a suite of tools and capabilities on top of that which we then have to price and position to the market which obviously adds lots of value.

But trying to get users from that sort of free open source mindset to, oh, I should probably pay for this now in a way that's scalable, has been quite an interesting journey. 

Matthew: Amazing. There's so many questions I wanna ask each of you, but we only have 40 minutes, so I'm gonna dive straight in.

So today's session is very much somewhat theme-led, but a totally open discussion. So for those listening, come with us, bear with us as we attempt to sort of talk through some of the phases involved in building your pricing strategy. Mostly including customer discovery and packaging. So my role is just to ask questions, dig into their experiences, and hopefully try and draw out actionable tactics that people tuning in might be able to apply to their own journey.

So I'd love to start with pretty much the, the, the first principle of building any company, but in particular pricing. And that's the problem you are solving. As we're probably familiar with. You know, great products are born from the most acute user pains. You need to intimately understand a problem before you can build the optimal solution.

So spending a meaningful amount of time in customer discovery mode is therefore pretty important. So Nick, I, I'd love to start with you. You are a multi-founder, and I know we've discussed this topic before, but customer discovery is like the first principle of everything you do here. So I'm curious. We designed my knight and now trumpet.

Can you talk us through how you went about gathering the user insights and feedback that influenced what you ultimately decided to build and then how you thought about pricing, what you built? Yeah, sure. 

Nick: So yeah, it's, it's a huge, huge part of what we do and I, I'm an angel investor as well, so I'm investing in about 55 startups now.

Speaking to seeing ideas, seeing decks constantly across my desk on how people actually ideate on the problem. And I would say probably 60, 70% of the decks I see as we say in the, in the business vitamins, not painkillers. And I think if you're launching a vitamin to start off with I.E.

you are not really solving a, a, a core pain. You know, it's a nice to have, that's a very difficult starting position to launch a business from, especially in the current sort of tough economic climate we're having. So for us customer discovery is key. My sort of tip is when we come up with an idea, which we did with design my night and before Trumpet Andrew, my co-founder and I have designed my night, had about six ideas that we liked.

Trumpet was one of them. We, what we do is we do everything we can to dissuade ourselves. That it's a good idea. What most founders do is they'll go out to market. They, they come up with an idea, they think they've got it, they think they've got their million dollar idea. They'll create a brand name, you know, day two.

Get very excited about it and then do everything they can to persuade themselves that it's a good idea. Now actually, if you flip it on the other side and trying to dissuade yourself, the type of questions you are gonna ask in customer discovery lends itself to more critical feedback. Whereas if you are going out trying to persuade yourself that it's a good idea, then you'll normally get sort of good feedback back.

So what we do is, so let's use Trumpet for example. So it's, you know, it started out in the sales space. So we actually reached out to 50 sales leaders. Cold, a lot of them as well. What we do is we put a one-pager together. This was before it was called Trumpet. And we are like, this is the problem we're solving.

This is the solution. And this is, we think the ROI it's gonna have we'll put that on a one-pager. We then did cold outreach and we say on cold outreach, here's a one-pager. Here's a Typeform that if you could fill out for five minutes, it would be great if you're to jump on a call. Here's my calendar link.

So give people two options 'cause a lot of people won't wanna jump on a call. But you'll find most people do want to help, especially if they're experts in that space. And we gathered a ton of feedback and the questions were, you know, what do you have already that solves this? Why wouldn't you buy this?

Why do you think this isn't a good idea for you? What features do you think it would need for it to be a good idea? You then talk about pricing. If you think this is a good idea, you know, what, what do and, and we deliver on the ROI we're talking about. What do you think a pricing model would look like?

That would be suitable for you. And we basically gather all this feedback. We put it into a notion, we tagged it positive, negative in different feature ideas and. After about three months of that, of these six ideas, Trumpet was the one that was like very, very positive with a very engaged potential user base.

And then don't forget you then have 150 people to go to to launch your MVP too. So that's a good way to build a sort of instant sales funnel. So that's sort of how we ideate, and that's even before getting excited, coming up with a brand name, coming up with a logo. And yeah, that's what we did for trumpet and out of the six, that was the one that that came through.

And as I said, we spent three months doing that. 

Matthew: Awesome. I mean, there's so many things I wanna unpack in that you kind of answered as you go. So you, you are adding this all into notion that's kind of your CRM for feedback. If you're doing it over three-month period, you said you gathered a ton of feedback.

What what does that mean? Is that specifically we wanted to go out and get feedback from a hundred individuals that fit this archetype or demographic, and we're not gonna stop until we hit that. Like, how did you decide that enough is enough? And within that, what specifically did you look for that said, yes, this is a good idea, let's proceed, or no, let's put it in the bin and move on to the next one.

Nick: Yeah, so we, we defined our ICP, so our deal customer profile before we, we, we went out to market. And obviously salespeople will know your ICP will change as, as the product becomes more mature and you actually launch the product. But we had an idea of who would be selling to. So sales managers, sales leaders, rev ops customer success managers.

In our mind we normally have about 50. As a good base. But obviously the ideation is also a sales funnel, so you know, to get 50 you have to send out 300, 400. And just as it so happened, the sales people love to talk about sales, which is great. So, you know, we got a lot more feedback than we were hoping for.

So yeah, normally 50 for me is a base to get a good sense. But I say we've got over 150. And then in terms of the feedback itself. You've got other tech stacks that you are using and, and how you are solving this problem. That was very interesting to us. A, it uncovered some competitors that we didn't think would be competitors.

It also allowed you to think, okay. How are people fudging this problem at the moment? Maybe with Google, Docs and PowerPoint and Notion, you know, and how can we pull those three elements into one to make it a lot more efficient? So we started to learn how people are actually already solving this problem, but not in an efficient way.

So it gave us a really good idea for our MVP on, okay, that's how we can go to market. Look, we know you are using Google Drive and Notion and PowerPoint at the moment to solve this problem. If we can pull that all into one platform and save you five hours a week how does that sound? You then also start to start thinking about your marketing.

So actually when you're speaking to these people, you are hearing the messaging, the pain that they're feeling, and the sort of elation on what elements of that pain. If you solve, there'll be feeling. And then that's how you start to lean into your messaging as well. So for example, our first marketing lead message was about time saved.

We've moved way beyond that now because obviously marketing like sales is al always evolving. But from our discovery calls, we got that marketing insight on the messaging to use. And the first initial pain point we thought we were solving was time saved. So it's how, how are you currently doing it?

What would you like the product to see? So you know what feature set, and obviously you can't launch everything as an MVP, but for us, we got some really good product ideas that we weren't even thinking about. And obviously as a good product leader, this needs to continue all the way onwards. You know, as founders we're speaking to customers every week now and getting product feedback, but that's like critical at the start as well.

So new features I, new feature ideas, marketing, messaging. What are you currently using? What problems do you think we are solving? And then obviously pricing. So, you know, if we solve these problems, how much would you be willing to pay for this? And you just get a sense, you've gotta take it all with a bit of pinch of salt, especially when you're asking a potential customer on what they're willing to pay for something.

But it gives you a good range. I mean, actually we got a wide range of results and that allowed us to start informing our initial 

Matthew: pricing. Yeah, there's so many like tried and tested MBA-proof methods to assessing, willing willingness to pay. But my question was going to be, you know, while you're doing this, while you are gathering this, this user feedback and trying to build this mind map of how are they doing this already?

What is the janky system they pulled together in order, in order to enable 'em to, you know, avoid this problem? Did you ever think about, you know, how much that process is costing them right now? You've mentioned time, but did you ever put a real price tag on it? Like they have to subscribe to these three point solutions and that's 50 pounds a month per person.

We know it costs them, you know, 10 hours of operational time per week and we're putting a price tag on that. And did you ever ask them specifically to like, put a price tag on this pain as you're going through customer discovery? 

Nick: So we were exactly that. So the tools they're already paying for what, what was something, and actually as we've evolved Trumpet, it's actually become a big tech consolidation play.

So for example, we built our own Loom, we built our own DocuSign, we built our own Typeform. We built our own proposal software. So now based on that initial feedback of cost savings, especially in today's market, we can actually go to market to sort of mid-market and say, Hey, look, we can save you 200 bucks a month per user with not having to buy these tools.

Oh, and not only are we saving you 200 bucks, you're also getting Trumpet, which is gonna help you close more deals and faster. Bit of a no-brainer. So yes. So tech consolidation, what are you already using? Time is a funny one. I dunno if the other two would agree or disagree with me. Is very difficult to sell on time saved.

You know, when you go out to market and say, well, we're gonna save your reps five hours a day, which, you know, if they're doing five hours more selling and less admin. That's gonna be worth X to you. The numbers then get suddenly very big as well. And you know, it's suddenly like we're saving you $15,000 a month per rep on time saved and efficiency.

That doesn't really resonate, I don't think, as a marketing message, even though it might be true. So for me, when you're looking at pricing and messaging, you have to get into ROI, which look is very difficult at the start, of course, because you haven't got an ROI, you can't prove it. But that's when you've gotta really dig with them beyond stuff like time.

So for us. The pain points we were solving was helping you close deals faster, helping you close more deals, which are great, ROI's. 'cause if we can close 5% more deals for you, you know, we are gonna be making you hundreds of thousands, if not millions of dollars. So then actually our price becomes a bit insignificant.

But of course, you then have to prove that 

Matthew: ROI. I love that, that was very information-dense. Thank, thank you so much, Morgane. I'm, I'm keen to tag you in here because on the inverse, you, you guys at Crane invest in early stage companies, so you are no doubt constantly speaking with companies that are in this customer discovery phase.

And as Nick just described, it's a very iterative process. You know, you build product A that solves against pain problem one, and then you kind of evolve and iterate and grow it from there. I'm curious, as founders approach you for investment and they're in the middle of this discovery phase, if there are any kind of green flags that when they're pitching to you or presenting what they know about the market, you go, that's smart.

Like that's a really good signal. 

Morgane: There are many, and actually what Nick was saying is literally music to my ears, and I wish I was hearing this every day when I meet founders, you'll be surprised, but to be fair, one of the first green flags that we are looking for is if they thought about pricing at all.

And I know you're surprised to hear that because we may all think it's a given to think about pricing and it's actually coming from day one in, in your thought process as a founder. But it's not the case. And maybe as, also as a reminder for Crane, we invest a lot in open source companies and so this is a different type of founders.

This is a different type of mindset, and so sometimes they don't necessarily think from day one where the paywall is. So I would say that. First green flag to me, super simple. Constantly thinking about pricing, showing that they think about pricing, and also knowing it's difficult. This awareness and kind of like Nick described this awareness that the price, the whole question about pricing is huge.

Pricing model's gonna change dozens of times throughout the company life, and it, it's gonna keep evolving with the company. So I love it when founders are aware of this. So, and it's not a given. So that's the very first thing. I would say a few other things. Nick was talking about discovery. This is literally, I think it's literally the number one topic we discuss with our founders, how to run efficient and good discovery, and the shortcut that founders sometimes, sometimes make, which is like to, to give her, I do understand, is discovery means.

Qualifying and validating the pain points, and they stop there. And so when they go through this discovery phase with the user interviews. They don't necessarily talk about pricing. So when founders talk about pricing, it's a big green flag for us because to us it goes hand in hand with the problem discovery.

And sometimes founders come to us and we ask about those user interviews that Nick was, was mentioning. And they're super enthusiastic. They're like, people love our product. There's a lot of enthusiasm around it. They would use it, use it. Everything is so high pathetic. We love it when it's like.

More concrete and there is like a, So what, like, okay, so what, what does it mean? So how does that indicate that users are willing to pay for it and how much are they willing to pay? So I don't want to repeat any of the things that Nick said, but when founders have done this specific exercise about pricing and we know it's not gonna be perfect, and to be fair, we don't care.

It's a big, big indicator that they have the right mindset. And so. The pricing conversations sometimes are difficult for founders to consider because they think, oh my God, I'm gonna talk about money, price. And so the the reflex is to shy away from it, and our goal is to help them there. And so I. What, what Nick was mentioning is that pricing is tightly connected to value, like, you know, this whole ROI element component.

So when founders know how to think about it and make the connection between pricing and value perceived by users, it's, it's amazing to us because it shows that they, they're doing the right things. So it's another very big component in our assessment. And about time saved. Usually it's a no. No go for us because it's gonna be very hard to quantify.

It's gonna be very hard to sell. I'm a salesperson myself, like I would never have been able to sell anything based on time saved. We love it when there is impact on the top line or the bottom line, but we see a lot of, for example, developer productivity tools that are difficult to sell. And so that, that's another element, like finding the right angle for the ROI.

I, I think another element going a bit deeper is. Okay. You thought about pricing. How are you thinking about it? The variables that you embed into your pricing and what we're looking for there is again, a mindset. We know the pricing model that they come up. For day one is not gonna be the pricing model, but at least showing that they thought about it.

What's the right variable? You mentioned maths, the, the number of seats, for example, is it the right variable for your company? How, why did you think about it this way and how do you think this? Element will unlock more value from existing customers because pricing also means that you need to be able to scale the company with, with pricing.

So that's another big element. And I would say maybe the last one again, maybe it's a given and you'll think it's very basic, but it's not. A simple pricing model is what we love. When I'm struggling to understand a pricing model, I think, okay, if I struggle and I'm quite experienced with it, it means users will struggle.

It means people will struggle to describe how it's priced. Customers will struggle to understand like. Predictability of how much they're gonna spend on the solution. And so I think it needs to be like crystal clear. In terms of pricing package, I would say so, I know it's a lot, but these are the, the different items we're looking at.

And I would say as a summary, I would say it's pretty much a mindset and being aware that pricing needs to be embedded in your company from day one. And it's gonna change and it's a constant evolution. 

Matthew: love that all the founders listening to this now are frantically looking at page four solution on their deck and removing time saved as their kind of leading value prop there.

I mean, yes, I, I love all of that. Complexity kills. It's a continuous process. So, follow up question. I'm curious because a lot of founders, before they put a product in the market, they might do this big lift on thinking about pricing. Then they kind of set it and forget it. It's out there and they might revisit it in a couple of years if anything is presented to them that suggests pricing is off.

But I'm curious in your follow up calls when they're in the portfolio and your regular catch-ups. If pricing is this continuous thing that you always talk about and you like to see that founders have it embedded in their culture and their processes. So every 4, 6, 12 months, they're sitting down and thinking is price right?

And then deploying another customer discovery process to make sure that it is right. And it's not just something you do once right at the start, it's something you continuously do throughout the journey. Do you have those sorts of conversations? 

Morgane: Yes, always. To be fair, and we're a bit obsessed with pricing because so much, so often there is so much value that can be un unlocked with a new pricing model.

So obviously, and as you were saying, Matt, the, a change in pricing model never really means going down. It means going up. So it goes with this like the it, its own challenges, but it's, it's a constant evolution and discussion we have with our founders. I think what we try and spot but. Like there is no direct question to, to actually spot that, but we're trying to see if the value perceived by users and customers is aligned with pricing.

So if the founders come to us very excited saying, our users absolutely love the product. There is no pushback on pricing our communities so happy, et cetera, we think, okay, maybe it's a signal that it's time to review pricing. Up. Because what we're looking for and what we like it when founders actually see it, is that if there is no pushback on pricing, it means that the value perceived is much higher than pricing.

So there's a discrepancy and you need to match that with, with pricing. And at the moment I'm working with a, with a French company and they just. They've just re reviewed their pricing because now they have a big enough customer base. The NPS is off the roof, and they've actually seen that there is a discrepancy between value, perceived, value delivered, and pricing.

And so they're upping the pricing to align that, and I think it's a very normal exercise to do. Throughout the life of the company. And I would say that it's pretty normal to start with lower pricing, to just like get more mindshare, build your brand, get your first users, etc. And then it's a constant adjustment.

So this, we do, we do a lot and very much with this like value. Mindset. And we have a few ways and a few questions that we help our founders with in terms of like, what questions can you ask your users to see if there is like potential to unlock more value. So constant discussions and on my side at Tession over four years with, I can't even count the number of times we've changed pricing and I don't even think we got you perfect pricing, but it was.

Like always about matching these value perceives versus versus 

Matthew: pricing. Yeah. This seems like a good time to tag Alex in as a chief product officer. I'm sure you've had your fair share of customer discovery calls. So I'm curious, kind of running off what Morgane has just said around trying to align your price to value.

I'm curious what that journey looked like at the company you've founded now. How did you identify what value was? What was that metric and generally like, what your journey was to get to that point. 

Alex: Yeah, absolutely. So just 'cause at the start, like Cerbos, we are an open core business. So we actually, we've been around for about three years now.

Thanks to Crane and other VCs, you know, we've got good, good funding. So we spent the first two years really just building an open source project and we got. We've got thousands of deployments out there, and we have a very, like, active community of open source users, and these are our developer personas.

And every week I'm speaking to a dozen or so of these kind of added users to understand more from like a technical standpoint what their requirements are and really kind of the technical pain. And then as we started designing and building out what is our commercial product on top, which, you know, you, you do pay for that's where the kind of discovery slightly changes a bit.

So we're no longer just looking at. Sort of what their pain points from a, a technical standpoint or a business standpoint, but trying to understand, okay, how did they see the value or how do they think about what service does for them in terms of be it users or where it fits into their stack or number of systems that are being authorized through service, etc.

And the kinda, the questioning kind of changes. And one thing we were quite. A conscious of doing is we, we move the discovery just from our kind of key developers persona that, that we target today, but try to through them speak to security teams or product teams or CTOs even, which are the people that are gonna be the ones that will be, that hold the budget or will sign, you know, fill in the Stripe checkout in our app to, to pay for it.

And because the, the product we built. Is actually for a slightly different persona for than the open source project. So the open source project is just for developers. Now, if you're technical, you're happy to run a point infrastructure. You don't have to pay us a penny, just go and use the open source project.

And we happily and openly say that. But what we see and what learned for those first two years of just building the open core is actually developers. Don't want to keep on running, maintain it. They wanna basically hand off the management of permissions to the people that hopefully hold those requirements, which is the product team or the customer team in some cases, or a security team for larger enterprises.

We've got users both early-stage startups to multi-billion dollar enterprise businesses using servers today. So it's really like making sure we have good coverage and good understanding of the different future personas for what our product now is. And so in terms of coming to the metric, we kind of did.

You're fairly standard sort of desk research, like what is everyone else doing? You know, what, what are competitors doing? What are adjacent businesses doing? So for us, we looked at, for example, authentication providers which is separate authorization, but we also looked kind of more broadly at SaaS enterprise B2B type type metrics.

So you start looking at, you know, number of active users, number of. Tenants, number of workspaces a number of of seats, those, those kind of kind of things. And, and just one thing that I found kind of interesting when we were going through this process, you know, one of the models that kind of kept coming up when we was talking to particularly large businesses that like to buy software through like the cloud marketplaces.

So AWS, Microsoft, Google Cloud, basics extra, and the metric there is like. CPU minutes or CPU seconds depending on it. And we started like talking along those lines during our discovery with these kind of large businesses, and it was going quite well. But then we started getting this kind of pushback, which is, well, if I have to pay for the CPU minutes during development as well, that doesn't really.

Feel fair, I should be only pay for like production usage. And so we started kind of to work around like, well, if we went down this route as our upper-level metric, we're now gonna have like a way of flagging what's production usage versus development usage. And it all kind kind of got a bit messy that way.

And you know, quite rightly we're being told like, it's not fair if you're make me pay for just kind of experimenting. Prototyping. So we kind of kept iterating on this kind of build of a metric through this discovery. And we, we tested out different things and we ultimately landed on. A metric which is kind of fits sort of three criteria we had.

You know, first off it has to be kind of grokable, so kind of understandable on first read has to be something we could actually measure. There are a lot of things we were thinking about of time-saving is obviously one of those. It is just impossible to measure. So what's something we could technically go and implement?

In the system to kind of understand and track this usage and then what really does scale with the value delivered, not necessarily our costs. And you know, I fell into a bit of a trap quite early on from previous roles where I was like, managing. The AWS bill every month, and it was like $3 million a month we were spending on AWS and Google and previous businesses.

And so I was always very conscious of how expensive it is to run our systems and always fell into this trap of tying the pricing model to that. But actually you wanna decouple it from your actual infrastructure or, or you know, tech costs or, or you know, the actual. Platform costs. And so the metric we kind of landed on is this monthly authorized principles.

So for servos, the principle is not our users, but our users, users kind of doing permission checks against, against their system. And the reason we kind of landed on that is firstly, everyone could understand it. You know, we had kinda these initial discussions where we was talking like, well, how many API calls are you doing?

And these sort of things. And people just kind of either pluck a number at a thin air and say like, I can't estimate that, or I can't forecast that future growth. But monthly authorised principle kind of roughly aligns with monthly active users ultimately. And everyone has a good idea. Pretty much of, you know, what the MAU is in their application in the system.

So it kind of aligned that way. And then it also means something measurable. So Cerbos itself, when you make an authorization check, knows who you're checking permissions for. And so that is something we could actually systematically capture and collect and aggregate up and, and go that way. So through this journey of like talking with our initial persona and then going to the persona we want to target with the, the larger platform play and, and the commercial product as well.

We were kind of seeing that the numbers and the metric that we had to land on something that. Not just developers could understand, but the larger business and 'cause ultimately they're the ones that are gonna be paying for the solution. And then it, it does scale as you use more server So, it kind of, you'll be touching more of your systems, more of your users, more of your user base.

And so the cost of service will go up, but also the value you, you are gaining kind of increases as well. 

Matthew: Okay. That's fascinating. There's a, a few things to call out. So. You used your competitive environment to kind of understand the ballpark or look at how adjacent companies were running their pricing models.

You then, based on your experiences from AWS, looked at your underlying variable costs to see again what the ballpark should be, but really a lot of it, one of my main questions was gonna be around personas and I was same with, same with Nick. I was gonna question you about your freemium tier founder circles, freemium point of contention.

Is it a way to gather data? Is it a go-to-market strategy? Is it a sales strategy? Varying various different opinions, but it sounds like you have demarcated within your pricing tiers. One that is by personas, so you want the developers to come and play within your infrastructure and build, but then those that are on the production side, you mentioned the head of security or head of compliance, you might be involved in this.

That's kind of the persona that A, holds the budget and B, who you're really trying to push onto those paid tiers. Is that fair? Is that a fair comment? I. 

Alex: Yeah, absolutely. Like the whole reason we went with this kind of commercial open source, open core model is. From our own experience of previous companies, like every system is somewhere is gonna have to handle permissions.

And we wanted to have servers be like the de facto go to obvious choice where I need to book permissions in my system and don't have to think about it. And if you look at what like Auth0 did in the authentication space, nowadays, no one really builds their own authentication system. You would go and pull an Auth0 or a Super Tokens or a Clark or one of these other tools and put that in and move on with your life and authorization is kind of the next evolution of that, which, if we put the, the paywall up from day one, we just don't think we would've got that early, early traction. There wouldn't be thousands of users out there companies running on top of sales today. So we wanted to make the core of it open source, easy to use, get going, etc. Then the value on top comes to those other personas.

You know, the implementer in day one is the developer. They, they're not gonna be necessarily paying for it directly. So let's make their experience as good as possible. And you know, these people that these are, are users that are happy to, you know, write the code, learn the language, deploy the service, et cetera, et cetera.

But really when we look at authorization, it, it's a much wider business problem. And then that's where we started then divvying up the packaging to, to put it, to put in the capabilities and the gates in place to make sure that. We then start going into other parts of the team and other parts of business that do hold the requirements and also do hold the budget ultimately.

So it's that kind of like hybrid model of freemium developer get up and running quick and move on your life, and then scale as you kind of go up upper, upper and broader across your application architecture and get more requirements from security teams and compliance and regulated businesses, etc.

Matthew: Makes a lot of sense. I perhaps should have said this sooner, but for those listening it might be interesting. Just Google Trumpet.com forward slash pricing and servos.com forward slash pricing I think are the URLs, just to have a side by side of what they're talking about here because you can see it come to life in their actual pricing tiers on, on their websites.

Nick, I'm keen to flip the same question to you and I'm curious 'cause you guys have a paid a free allocation and then several pages. How do you think about those tiers in your packaging? Like what are they based on personas? Are they based on size of company, is the paid tier for your, you know, junior rep that just wants to get to the aha moment of value and then you do a bottom up sales?

I'm curious to kind of explore your thinking and your tiers. I. 

Nick: Yeah, sure. I mean, I could talk about freemium pricing models for hours. We've done a lot of deep diving on this. Firstly it's sendtrumpet.com, so don't go to trumpet.com 'cause you'll just probably end up buying an actual trumpet which won't help your sales.

So, yeah, freemium is a funny one. So we, we look at it as freemium light. So obviously freemium in my mind is actually someone can use it forever if they want, if they just want it on a very sort of light usage base. What we found with that is people can very quickly find ways to trick the system. And not use it as you intend it, but they don't care about that if they're getting it for free.

Especially salespeople, very clever in their lateral thinking. The other side of that is, interestingly, the first part of your slides when you're talking about usage, seems to be a bit of a trend. We sort of have gone against that because our thesis with Trumpet is. The more digital spaces there are with trumpet at the bottom out in the world.

So we call them pods, our digital spaces. So the more pods that our users are sending out to the world, the more of our viral loops start spinning. And actually a lot of our companies, which is great, which was one of our VC metrics to track, was the more customers we get equals the more pods being sent out by our customers to their users.

Who are then seeing this amazing way to be sold to and are thinking, well, we should sell this way. What's this thing we've just been sent? Oh, it's powered by trumpet at the bottom. Let us go inside up to trumpet. So we never wanted to limit the amount of pods or spaces, digital spaces that our users can send out.

So we have like unlimited template templates and unlimited digital sales rooms. However, having said that, our free one is where we limit it. So what we've done is actually the free tier. You get everything. So you get all of the, all the gated features are ungated and you get to have free rein on our product, but you can only send out 20 digital sales rooms.

And that metric is one, we're constantly looking at how quickly are they getting to 20, are they dropping off at 10 before they get to 20? When are they finding that value? When are they finding that aha moment? Are there ways to trick it still with 20? So that number we are constantly playing with and that's just because we didn't want to become like a Slack or, or something like that where you need to have hundreds of thousands of users.

I. To then filter down to get to paid ones, which is like a huge marketing viral effort to get to that. So we were confident in our product that people would get that aha moment within those 20 digital sales rooms to then go up to our first tier which is still like 29 pounds dollars a month.

Still very cheap. You can pay with that, which was a consideration, is can they pay with their company card? So like we have a lot of account execs or SDRs that just love trying tech out and are just signing up and, and testing it themselves. Then what we did is we started gating the products as our product become more sophisticated.

The, the, the, the extra features I was talking about. So our version of Loom, our version of type Typeform, our version of contracts where they're paying for, is gated because we're gonna save you 200 bucks by using our product, so you shouldn't get those for free as well. So that's sort of how we scale up is by gating.

But all the tiers have unlimited usage very quickly. Another big thing is integrations. So integrations is a key point. We've got over fifty-five integrations into all your different parts of your sales stack. So to unlock those more complex integrations, again, you need to be on a higher price tier because the value you get from having one consolidated tech stack, especially in sales is, is gold dust.

So that's another place where we sort of gate pricing as well. 

Matthew: Awesome. Yeah, it, it's so interesting the. You often hear within startup circles don't do unlimited anything. You're giving away too much value. The value giveaway is disconnected from the price you charge. But it sounds like in your instance where there's this kind of multiplayer social component to Trumpet and the pods, it's in your favor and you can bury that traditional wisdom a little bit and just focus on getting pods out there as far and wide as possible.

I know we're almost at time. I think we have a minute and a half or something left, but I'll, I'll wrap up here. But look, thank you so much for your insights. It's so useful to go slightly deeper into this narrative and hear from you some kind of lived experiences. You've sprinkled a little bit of wisdom on everyone's day to day.

So thank you for everyone that tuned in. If you prefer a written format or you're looking for something to share with your team, we actually wrote a guide and interviewed some of the people on this call to kind of go even deeper into the journey of pricing for your product. I think we'll pop it up on screen or something now, but you can scan this code, but we'll also circulate it via email to, to everyone that joined in.

So, Nick, Morgane, Alex, thank you so much for joining us. Thank you for parting your wisdom, and I'm sure we'll be in touch soon.