How to price early stage enterprise products

Welcome to Seed to Sequoia – the newsletter for founders on GTM, strategy, and VC. We’re doing our second annual meet up at SF Tech Week–this one is a talk on how to get acquired. Sign up here.

This post is brought to you by PicoMES. The next generation of manufacturers are building smarter, faster, and with fewer mistakes—and PicoMES is their partner on the shop floor. PicoMES helps innovative factories digitize and streamline assembly operations with modular software that scales as you grow. From digital worker guidance to error-proofed workflows with full traceability, companies as small as 6 operators to those as large as 1800 per shift trust PicoMES to bring startup speed and enterprise-grade reliability to modern manufacturing.

Pricing startup AI and SaaS for enterprises

Enterprises are not just larger SMBs. Enterprise pricing is different and requires a different set of skills. If I was all about SEO optimization I’d write a list of the “72 ways enterprise software pricing is different” but I won’t waste your time. It’s really just these three:

1. Every enterprise customer is different. The decision process is different. It is rigid, unchangeable, and almost always long.

2. Enterprise buying motivations are very different than SMBs. Enterprises buy what they want when they want to, frequently acting irrationally–spending insane amounts or not buying something with obviously insane ROI for obscure, irrational reasons.

3. Experiments are impossible. Sales cycles are long so learning is slow. Deals are huge so blowing one is costly. N is very small and each company is very different, so even if you do experiment you’ll never have any accuracy or statistical significance.

As a result, your initial pricing strategy has to seem confident but be adaptable. You have to preserve high margins, because the enterprise motion is insanely expensive. You need to find and exploit the value metrics that matter the most to your customers, in a straightforward but enterprise-friendly way. Pilots are common, and pilot pricing is fraught with risks.

Why enterprise pricing matters

Before we get into the aspects of pricing for the enterprise, and how to come up with actual prices, it’s first important to recognize how important pricing is for startups selling to enterprise. Let’s take two examples of real YC companies (which will remain nameless).