Pricing the products or services you’re selling to another business can be challenging.
Saying “Ok I’m going to charge $5 for this is nice” sounds nice, but you don’t want to lose out on valuable revenue, especially since you’ve likely put hard work and time into creating what you sell. When selling B2B, it’s critical to understand the characteristics of the business you’re selling to, and also what’s most important to your business based on what you’re selling.
In this post, discover what B2B pricing is, the different models that will help you with your pricing process, and the pricing strategies that will help you establish a final cost.
What is B2B pricing?
B2B (business-to-business) pricing is setting costs for goods and services that are sold from one company to another, instead of to individual consumers. For example, a business selling marketing software to other companies.
It’s important to be mindful of the different pricing models and strategies that go into establishing B2B prices, and we’ll discuss both below.
B2B Pricing Models
A B2B pricing model is the framework and structure for your pricing strategy, like how you’ll end up charging other businesses when they make a purchase. For example, some businesses charge by usage amount, and others charge a flat rate. Let’s discuss the three most popular models below.
1. User-Based Pricing
User-based pricing is when you charge businesses based on the number of users that will have access to or use the product or service being sold. Prices are higher if there are more users, and lower if there are less.
Slack, a business communication service, charges per user, as shown in the image below.
A straightforward, simple model for the selling business.
Buying companies may share a single login for multiple users to avoid higher costs.
Buyers understand what they’re paying for upfront, so there may be less time between discovery and purchase.
You may lose valuable revenue that comes from selling by the value you provide.
2. Usage-Based Pricing
Usage-based pricing charges businesses based on how much they use your product or service, so more usage means higher costs. This allows purchasing businesses to remain in control of how much they spend because they know what costs will be.
Zapier helps businesses save time with various tasks and has multiple pricing plans that differ based on the number of Zaps and tasks you run per month, as shown in the image below.
Appealing to purchasing businesses because they can anticipate costs.
Customers may become frustrated if monthly usage changes and bills vary.
Customers will pay more when they need your product or service most, so you may experience revenue spikes.
If businesses use your product less during specific periods there may be revenue uncertainty.
3. Tiered Pricing
Tiered pricing is selling your product or service at different price points depending on the features included at each level. The lowest cost typically consists of the least amount of features, while the highest includes the most.
HubSpot uses a tiered pricing strategy, as shown in the image below.
This model is often combined with a value-based pricing strategy because if you have product features that are more valuable than others and cost more to produce, you can ensure you charge the correct amounts.
pros of tiered pricing
cons of tiered pricing
You can ensure that features or products that cost more to create or provide more value are priced adequately in higher tiers.
It can be challenging to select which features to include in each tier.
Customers can choose the plan that works best for them, so you can attract qualified businesses for each tier.
Every customer has different needs, so you may drive those away aligned with specific tiers save for one or two needs.
Upselling is attractive to purchasing businesses because they may scale and desire additional features.
4. Flat Rate Pricing
Flat rate pricing means that you offer one product or service and all included features at one price. Basecamp, a project management tool, uses the flat-rate pricing model (as shown in the image below).
Easy to be competitive with your industry because you charge based on your customers.
Calculating value can be difficult as it required significant time to understand your target audience and business data.
2. Cost-Plus Pricing
Cost-plus pricing, also called markup pricing, adds a fixed percentage to production costs for a single unit of what you sell. For example, if it takes: $15 for materials, $30 for labor, and $10 for miscellaneous costs, adding a 25% markup means your cost-plus price would be $68.75.
This strategy is less focused on consumer demands and competitor pricing. It is commonly used by retailers that sell physical products, such as wholesalers selling restaurant products to restaurant businesses or fabric to clothing companies.
Simple to calculate.
You may overprice your goods and lose out on sales if prices are too high.
A transparent strategy as buyers understand what goes into your pricing.
SaaS businesses may miss out on profits as the value of what you create can be greater than production costs.
3. Competitor-Based Pricing
Competitor-based pricing, also called competition-based pricing, is centered around using the going market rate for similar products or services and charging below, at, or above the industry rate.
Requires simple research into your industry competitors and what they are selling.
If your products become extremely popular, you may lose revenue if you stick to charging based on your competitors rather than the value you provide your audience.
Basing prices on the going market rate helps customers understand what to expect, and they won’t be scared away by prices.
This method does not consider production costs so if your products so effort put into creation is not accounted for.
You can adjust prices based on the market; if your competitors change, so can you.
4. Dynamic Pricing
Some companies are larger than others or in different locations, so dynamic pricing is when costs change on a business-to-business basis (no pun intended). It’s important to note that you won’t actually change your pricing for each business — you’ll likely have different categories that companies fall into and charge them accordingly, like enterprise business versus SMBs.
This strategy can also involve changing the prices based on market trends and conditions.
You can apply rules to specific business groups based on their characteristics and market conditions, ensuring you have a suitable option for all audience segments.
Prices that fluctuate based on market conditions may make consumers upset if they can no longer afford costs.
You can easily adjust to competition price changes.
Price fluctuation with the market may make revenue uncertain.
How do B2B pricing models and strategies come together?
As they seem quite similar, it may be helpful to gain a final understanding of how B2B pricing models and B2B pricing strategies work together, so we’ll go over an example.
Say you’re a B2B business that charges other companies based on the number of users that will have access to what you’re selling. This is your pricing model. As you sell in a competitive market, you want to come up with a price relevant to your competitors’ prices, so you charge a price between your two most significant competitors. This is your pricing strategy.
To sum it up, you’re charging businesses per user (pricing model), and the actual prices you charge them are based on the prices your competitors are charging (pricing strategy).
Over To You
To maximize your revenue, study your business needs, understand the characteristics of the business you’re selling to, and select a model and strategy that will help you draw in leads and grow your business.
Originally published Nov 30, 2021 7:00:00 AM, updated November 30 2021