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What Y Combinator’s Top B2B Startups Know About Pricing That You Don’t

B2B Software Pricing Models

Imagine you’re a B2B startup founder. You’ve spent months building your product, poured your energy into it, and finally, after all the hustle, you land your first big sales meeting. The potential customer is interested, your champion is on board, and they ask the golden question: “So, how much does it cost?”

And then…you freeze.

What number do you say? Is it too high? Too low? This is a moment many founders dread. You don’t want to scare them off, but you also need to sustain your business. And let’s be honest—asking for thousands or even hundreds of thousands of dollars can feel intimidating, especially when you’ve been living off ramen noodles and GitHub subscriptions.

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But here’s the thing: pricing doesn’t have to be guesswork. It’s not about pulling a number out of thin air and crossing your fingers. It’s about understanding the value you bring to the table and charging for it in a way that benefits both you and your customer.

“The most important thing when pricing your B2B software is to calculate the value that it brings to the customer.”

The Value Equation: Your Secret Weapon

Think of pricing like a value equation, a tool that helps you figure out what your product is truly worth to your customers. Let’s say you’re selling a software tool that can help a company save time and money—two things they care about deeply. For instance, you might offer a customer service automation tool that cuts down 20% of the workload for a team of 100 agents.

Do the math: if each agent costs the company $100,000 per year (salary + overheads), that’s $10 million in total costs. Your product reduces that by 20%, meaning you save them $2 million. That’s real value!

“It is important to choose a pricing strategy that is easy for your customers to understand.”

Now, here’s the magic part: instead of pricing randomly, aim to charge between 25-50% of the value you’re delivering. In this case, $700k sounds fair. The customer keeps $1.3 million in savings, and you walk away with a healthy $700k. Both sides win.

But here’s the kicker—you need to work with your champion to actually spell this out. They need to take this value equation to their boss or CFO and say, “Look at the savings we’ll get.” It’s not just about selling; it’s about giving them the tools to justify their decision.

“You should price your software at about a third of the value that it brings to the customer.”

Don’t Fall for the ‘Cost-First’ Trap

Now, I know what you might be thinking: “Shouldn’t I base my price on my costs?” The answer? Absolutely not—at least, not primarily. Costs are your floor, not your ceiling. Many startups fall into the trap of adding a small margin to their costs, but that almost always leads to underpricing.

For example, if your costs (like AWS fees, OpenAI credits, etc.) add up to $200k, and you’re pricing at $700k from the value equation, you’ve got a nice margin. But if you’re only pricing at $150k and your costs are $200k, guess what? You’re in trouble. You’ll be in the red, and your business won’t be sustainable.

“It is important to consider the cost of providing the service when setting a price.”

The Competition Dilemma: Price Wars Are a Losing Battle

But what if a competitor swoops in, undercutting your price by half? Your first instinct might be to lower your price, to match or beat them. Here’s the truth: don’t. It’s a race to the bottom that no one wins.

Instead of slashing prices, focus on how your product is different. Is it faster, more reliable, or better integrated with other tools? If you can show that your product offers more value or unique features, you won’t need to compete on price alone. Just remember: the airline industry is a prime example of how competing purely on price erodes margins—2.7% net profit margins are not what you’re aiming for!

“You should not price your software below cost unless you have a really good plan to dramatically reduce costs in the short to medium term.”

Keep It Simple and Structured

Now, let’s talk about how to structure your pricing. Should you charge a flat fee? Usage-based? Monthly or annually? It might feel like there are a million options, but here’s a simple rule: keep it as straightforward as possible. Complexity can kill deals.

For most B2B startups, recurring revenue (monthly or annual contracts) is the golden ticket. It offers predictability, especially during uncertain economic times. A smart way to do this is to start with usage-based pricing, see how much they’re using, and then lock them into a more predictable monthly fee after the first few months.

You can even sweeten the deal by offering a volume discount. If a customer is spending $15k a month on your service, offer them a flat $12k per month if they commit to a 12-month contract. It’s a win-win—they save a bit of money, and you get long-term stability.

“If there is competition in the market, you should try to differentiate your product rather than engaging in a price war.”

Don’t Be Afraid to Experiment

Here’s something founders often forget: pricing isn’t set in stone. In the early days, your goal isn’t to get it perfect—it’s to get it out there. If you’re unsure, start with a reasonable number that aligns with other similar products in your industry.

Then, test it. The next time you pitch, increase it by 50%. Keep doing this until you start losing deals based solely on price. If you’re winning every deal, you’re likely underpricing. You only need to lose about 25% of deals based on price before you’ve found the sweet spot.

“You can use a variety of pricing strategies, such as flat fees, per-seat pricing, and usage-based pricing.”

Embrace the Early Sales Journey

The truth is, the first few sales are going to be the hardest. But they’re also the most valuable. Don’t worry too much about optimizing prices perfectly at the start. Just focus on getting those first few contracts signed.

Over time, as your product improves and you build trust with your customers, you can gradually raise your prices. The logos of happy customers on your homepage will do wonders to support this!

Pricing is an art as much as it is a science. But if you follow these principles, you’ll start to feel more confident in asking for the right price—one that reflects the true value of your product and sets your business on a sustainable path.

“You should play to your strengths as a startup when pricing your software.”

The Takeaway: Own Your Value

At the end of the day, the most important thing to remember is that you are delivering value. It’s not just about software—it’s about solving a problem that is costing your customers time, money, or both. Price confidently, back it up with your value equation, and don’t be afraid to ask for what your product is worth.

Because you know what? The world needs what you’re building.

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Ready to take your B2B startup to the next level? Discover the strategies that successful B2B startup founders are using to scale faster and smarter.

🛑 Disclaimer: The B2B pricing model discussed in this post is derived from insights provided in a Y Combinator video and is intended to offer a high-level framework for understanding how to price your B2B product or service. The information provided offers a high-level framework to help guide your understanding of how to price your B2B software effectively. However, pricing strategies should always be tailored to your specific business context, market conditions, and customer needs. We recommend conducting thorough research or consulting with financial professionals before implementing any pricing model to ensure it aligns with your company’s goals and financial health.

 

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