What’s the best way to think about profitability?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

You must know the price elasticity of your product or service. You must know how much it costs to produce. You must know how much it costs to acquire a customer. And if your model is subscription, you must know your churn and lifetime value. From all of that comes the data and knowledge that allows you to optimize price, margins, and profitability. Which, after all, is the goal of a business, all the other bullshit you read on the internet notwit… (read more)

What’s the best way to think about profitability?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitless Prosperity – AVC

Profits are critical to the health of a business, but that doesn’t mean a healthy business has to currently profitable. It needs to be able to be profitable if it wants to be and it needs to be profitable at some point in the future, at least hypothetically. So when you read that a company is losing money, don’t read that as a bad thing. It could be a very good thing. It all depends on why.

What’s the best way to think about profitability?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

Price > CAC + COGS … That means the price you charge must be greater than the cost you must pay to acquire a customer plus the cost you must pay to make or deliver the service. If your product or service is sold on a subscription basis, then you must also know the amount and timing of churn to expect and the lifetime value of a customer (LTV). In a subscription offering, the above formula becomes LTV > CAC + COGS

What’s the best way to set pricing?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

The good news is that it has never been easier to determine the price elasticity curve of a product or service. Here is how you do it: 1. offer the product or service on the web and make the purchase as easy as possible (Stripe and/or Paypal). 2. establish the range of pricing you want to measure, start at a number higher than you can imagine anyone paying and end at a number that is equal to the cost to produce your product or service (the cost … (read more)

What’s the best way to set pricing?

Bill Macaitis (CMO at Slack)
Five Words of Wisdom from SaaS Office Hours with Bill Macaitis

The price a software startup can charge is a function of the difference in net promoter score between that startup’s product and its competition’s. In other words, a startup product with a very high promoter score compared to the competition can charge a premium in the market and vice versa.