How to get your product pricing right – Lessons from Segment

After we found product market fit @Segment in Dec 2012, we nearly ran out of money because we were so scared to ask customers to pay. It took two gracious customers, a cocky sales advisor and a lot of fernet to learn the true value of our product. A 🧵 with 📸 1/18
The underlying challenge was two-fold: (1) analytics.js was an open source library and we came from the open source mindset, so our anchor was $0, (2) we were all fresh out of college, had a few hundred bucks to our names, and had never sold anything. 2/18
So without _really_ thinking about it, we decided to make Segment free for a while after launch in December 2012. 3/18
But even with just four co-founders and no staff, our slim $100k of company cash at launch was slowly but surely burning down. 4/18
With about 10 weeks of cash left, we decided to launch our paid plans, so that we could show some revenue growth headed into a fundraise. 5/18
We emailed every customer (businesses, mind you) apologizing profusely and saying that the price was going to rise to $10/month. 6/18
It was such a ridiculously low ask. God bless Eduardo from Maxistore @esoubihe who emailed us back saying “You better raise your prices, this is too low for me to believe I can trust you with my customer data long term.” 7/18
We raised the highest plan to $50/mo or something 🤣🤣 8/18
Revenue grew enough for a fundraise (a story for another day), but of course that only raised the revenue expectations! Now we needed many millions in revenue. 9/18
I tried desperately to sell all the inbound signups from bigger companies, but somehow I couldn’t quite close any. 10/18
So we hired @Mitch_Morando as our sales advisor, and he immediately blew our minds: “This is an enterprise software product. You’re charging $120/yr? You should be charging $120,000/yr.” 11/18
We went to our first sales meeting together, with @natfriedman who was CEO of Xamarin at the time. Before we went in, Mitch threatened: “If you don’t ask for $120k/yr then I quit as your sales advisor.” My stomach turned over. A 1000x increase?? 12/18
We sat down with Nat and his team. All I remember is the end of the conversation where he asked what our pricing was. I said “$120,000 a year” and turned a deep, deep red. 13/18
Nat very, very graciously replied that he saw the value in $12k/yr. I pushed for $18k/yr and he agreed. 14/18
I was completely shocked. 150x higher price than what we thought was reasonable before. And Nat had explained how he valued the product, which we could reference next time. 15/18
Most importantly though, by trying to ask for higher prices, we got customers to explain what they really valued about the product, and articulate that value quantitatively back to us. Our pitch got massively better, and we finally understood what we were selling. 18/18
After we found product market fit @Segment in Dec 2012, we nearly ran out of money because we were so scared to ask customers to pay. It took two gracious customers, a cocky sales advisor and a lot of fernet to learn the true value of our product. A 🧵 with 📸 1/18
The underlying challenge was two-fold: (1) analytics.js was an open source library and we came from the open source mindset, so our anchor was $0, (2) we were all fresh out of college, had a few hundred bucks to our names, and had never sold anything. 2/18
So without _really_ thinking about it, we decided to make Segment free for a while after launch in December 2012. 3/18
But even with just four co-founders and no staff, our slim $100k of company cash at launch was slowly but surely burning down. 4/18
With about 10 weeks of cash left, we decided to launch our paid plans, so that we could show some revenue growth headed into a fundraise. 5/18
We emailed every customer (businesses, mind you) apologizing profusely and saying that the price was going to rise to $10/month. 6/18
It was such a ridiculously low ask. God bless Eduardo from Maxistore @esoubihe who emailed us back saying “You better raise your prices, this is too low for me to believe I can trust you with my customer data long term.” 7/18
We raised the highest plan to $50/mo or something 🤣🤣 8/18
Revenue grew enough for a fundraise (a story for another day), but of course that only raised the revenue expectations! Now we needed many millions in revenue. 9/18
I tried desperately to sell all the inbound signups from bigger companies, but somehow I couldn’t quite close any. 10/18
So we hired @Mitch_Morando as our sales advisor, and he immediately blew our minds: “This is an enterprise software product. You’re charging $120/yr? You should be charging $120,000/yr.” 11/18
We went to our first sales meeting together, with @natfriedman who was CEO of Xamarin at the time. Before we went in, Mitch threatened: “If you don’t ask for $120k/yr then I quit as your sales advisor.” My stomach turned over. A 1000x increase?? 12/18
We sat down with Nat and his team. All I remember is the end of the conversation where he asked what our pricing was. I said “$120,000 a year” and turned a deep, deep red. 13/18
Nat very, very graciously replied that he saw the value in $12k/yr. I pushed for $18k/yr and he agreed. 14/18
I was completely shocked. 150x higher price than what we thought was reasonable before. And Nat had explained how he valued the product, which we could reference next time. 15/18
Most importantly though, by trying to ask for higher prices, we got customers to explain what they really valued about the product, and articulate that value quantitatively back to us. Our pitch got massively better, and we finally understood what we were selling. 18/18