Many start-ups enter the market with the lowest price.
The key goal is to achieve high adoption.
That is OK for the MVP stage.
But be careful and ask yourself:
“How much am I willing to pay for being the cheapest?”
The consequences can be deadly for your start-up:
1️⃣ Customers get used to low prices and react negatively to price changes. As a result, price increases are small and rare.
2️⃣ There is insufficient revenue to reinvest in product development. Over the years, the product value remains stable and does not enable price jumps.
3️⃣ CLTV (customer lifetime value) growth is slow, as there are limited possibilities for up-sell.
4️⃣ Advertising costs are constantly growing. Based on data from Lukas Mehnert up to +20% yearly for some verticals. You try to attract bigger customers, but the sales cycle is much longer. All these factors rapidly increase CAC (customer acquisition costs).
5️⃣ CAC ratio becomes negative, resulting in a low valuation of the company. As a result, investors pull their support from the company.
“Lowering prices is easy. Being able to afford to lower prices is hard.” - Jeff Bezos, founder of Amazon
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