How to price B2B software: a practical framework for founders

Executive overview

Founders consistently underprice because they anchor to consumer software costs rather than the value they create for a business. The fix is to build a value equation with the buyer before naming any number.

Charge roughly one-third of the documented value you deliver. The customer keeps two-thirds and has a clear ROI story for their CFO.

The value equation is 80–90% of pricing done right — everything else is refinement.

The value equation

• Sit with your champion (the internal buyer) and write down exactly what your product will do for them
• Quantify the outcome: cost saved, time saved, or revenue added
• Get the champion to challenge every assumption — the document becomes their internal justification to the CFO
• Example: 100 support agents at $100k fully loaded cost = $10M total. A 20% reduction in workload = $2M saving. Charge $600k–$700k (≈ one-third)
• The same equation gives you the success metrics to prove during a pilot

Cost as a floor, not a starting point

• Never begin with cost-plus pricing — it always leads to underpricing
• Cost is a minimum floor only: if your one-third share of value is below your delivery cost, the business model doesn't work
• Target 80–90% gross margins for software
• Treat cloud credits (AWS, OpenAI, etc.) as real cash costs when modelling margins
• Pricing below cost to grab market share is high-risk; only viable if you have high confidence costs will fall sharply

Competing on differentiation, not price

• Never enter a head-to-head price war — it races to zero for everyone
• Commodity markets destroy margin (airlines average 2.7% net profit)
• Differentiate on functionality, integrations, or a specific niche so comparison becomes apples-to-oranges

Pricing structure and sales channel fit

• Match your pricing structure to what buyers already use: flat monthly fee, per-seat, usage bands, or credits
• Keep pricing simple — complexity kills deals
• Prefer committed recurring revenue (MRR/ARR) over pure usage-based: protects revenue during downturns
• Tactic: run usage-based for 1–2 months, then offer a flat monthly minimum with volume discount on a 12-month commit
• Find out your champion's signing authority and keep pilot pricing just below that threshold
• Rule of thumb for sales team viability: one salesperson should close ~5× their total annual compensation in new ARR
  • At $25k ACV, an AE needs to close ≈ 20 deals/year — workable
  • At $1k ACV, an AE needs to close ≈ 500 deals/year — not a real sales role

Enterprise vs self-serve pricing

• Enterprise pricing is always "contact sales" because the value equation differs per customer; a fixed public price leaves money on the table in both directions
• Offer cheap individual and small-team plans that exclude features enterprises require (SSO, SOC 2, audit logs, data residency)
• Gate those compliance and security features behind enterprise plans — often 10× the price of lower tiers

Free trials, pilots, and guarantees

• Long free trials are counterproductive — the customer has no skin in the game
• Keep pilots short (2–4 weeks) with explicit success criteria tied to the value equation
• Better alternative: sign an annual contract with a 30–60 day money-back opt-out; counts as recurring revenue immediately

When you're completely unsure

• If the value equation is too uncertain, start with a number comparable to other software the customer already buys
• Increase price by 50% with each new prospect
• Stop raising when you're losing more than 25% of deals on price alone — you're in the right range
• Early customers are a tiny fraction of lifetime revenue; closing deals matters more than optimising the first price
• You can always raise prices as the product improves and you add new modules