Pricing a new subscription product at the low end of normal is a smart way to attract initial customers, but it's not the only strategy to consider, Jason Lemkin, managing director of $90-million venture capital firm SaaStr Fund, said.

The low end of normal is the most friction-free pricing approach because it communicates a balanced message to your target market: your product is good enough to command a fair price, but it needs a small incentive to offset its unfamiliarity. 

"The low end of normal says the right things ... for a brand new app out of nowhere," Lemkin said in a SaaStr analysis. "You want the least friction possible in sales when you're starting out."

Lemkin suggests setting the pricing by looking at the three products you expect to be your top competitors and discount what they charge by 20%. If the price you come up with seems too low, raise it slightly.

If there's nothing like your product in the market, set the price against three products of roughly similar value and apply the 20% discount.

Measure of confidence

Lemkin suggests two alternative pricing models if you believe you're going to market with a product as feature-rich as anything already out there. 

The first is identical pricing, which Lemkin calls an oligopoly approach. "It sends a clear message you're as good as, and indeed better than, they are," he says. "It removes price as a competitive issue. Being cheaper sometimes does say you're cheaper. Being identical says pricing isn't the Issue; pick on the merits and we win on the merits."

The second is what Lemkin calls anchor high pricing — pricing above the market leader because your product is better — more feature rich and trustworthy. "This can work in a strong enterprise play, where there's room for safer, more secure, more enterprise ... competition," he says. "But it has to be true to work."

What to avoid

On the opposite end of the spectrum are pricing models with lackluster messaging, or products with overly cheap pricing. "This just confuses prospects and customers," he said. "If your product really is better than Dropbox or Slack or Zoom, why is it only $2 a month?"

Two other mistakes: 

Transaction pricing. If competing products charge on a per-transaction basis, you might start there. Since it's a model already known to customers, it would create the least friction. But it's not necessarily a good long-term strategy. "The model your competitors have chosen may not actually be the best for your customers," he said.

Implementation fees. Adding a fee onto your subscription charge may be appropriate, as long as your product is enterprise, Lemkin said. But he cautions against imposing a fee to recoup deployment costs. "That's on you until you have at least a mini-brand." 

Once the product's established, charging a fee can be okay, but resist the temptation to add the fee too soon. "It will only confuse many customers in the early days," he said. "I was just asked to pay $2,000 in implementation fees for a $299 a month app I wanted to use. I was almost ready to sign. But that $2,000 sent a message to me: it was going to be hard."

The first 100

Getting the pricing right is always important but it's crucial once you get your product to scale, Lemkin said. Until that point, though, it's most important to price to attract the all-important first 100 customers.

"What matters in the early days is just getting happy, paying customers," he said. "It doesn't really matter if you get pricing right on customers one through 100. What matters is pricing is fair, scales, and doesn't add friction to getting going."

Later, those early customers will just be a small fraction of your customer base. But you need to get them on board and keep them happy until you start scaling. To do that, he says, keep it simple by using the low end of normal, identical pricing or anchor high pricing model. These have the virtue of making sense to your customers. 

"Try to make your pricing in the early days be zero-questions-need-be-asked," he said.