How To Price For B2B

Tom recommends writing down the savings, time reductions, or revenue gains a product could deliver, then asking the customer champion to challenge the assumptions. For a company with 100 support agents costing $100,000 each per year, a tool that cuts queries by 20% could save $2 million. He suggests charging roughly 25% to 50% of the value, and using the same value equation to define pilot success metrics.

Tom says to calculate costs after estimating customer value, since cost-plus pricing can leave software underpriced. He recommends targeting 80% to 90% gross margins and counting cloud or AI credits as real costs. If a competitor undercuts the price, he advises improving differentiation through functionality, integrations, or industry focus instead of starting a price war.

Tom advises asking how customers pay for similar software and keeping the pricing structure simple; uncapped usage fees can make buyers wary. He favors committed monthly or annual revenue where possible, and suggests converting observed usage into a discounted monthly commitment. Pricing also shapes the sales model: as a rule of thumb, a salesperson earning $100,000 in total compensation might be expected to close $500,000 in new ARR each year.

Tom recommends keeping pilots to a few weeks and tying them to clear success criteria. For confident sellers, he suggests an annual contract with a 30- or 60-day money-back option. If pricing is uncertain, start near what customers pay for similar software, raise the price by 50% with each new prospect, and use losses to find the range where more than 25% of deals are lost solely on price.