You’ve heard of Product-Market Fit. PMF has become common parlance within startup culture. It has even spawned similar terms, my favorite of which is founder-market fit—you get the idea.
Your startup is full of lots of “fits”. This is called strategy—making lots of interlocking decisions that make your organization uniquely suited to pursue a particular market opportunity. Here are some other example “fits”:
- Culture/market fit. Do you have a playful culture and sell into the enterprise? This might not be ideal.
- Product/location fit. Does your product development require access to the unique San Francisco talent market or are there other lower-cost options that will be better options?
I’m sure I could, and you could, list many more. The inherent complexity of optimizing this multi-dimensional puzzle is exactly why strategy is hard (and fun). That’s not really the point though.
The “fit” that made me write this was Pricing-Vision Fit. We’ve been thinking a lot about pricing for our product, dbt Cloud, recently and it really forced me to think about pricing fundamentals.
If you’ve ever bought or sold a house, you realize that prices are set by this weirdly peer-referenced process whereby the main determinant of your home’s value is what the house next door sold for. The “invisible hand” and all.
When pricing software, you typically take the same approach: what do your competitors charge? Do you want to price at a premium or a discount to them? Buyers evaluate vendors in the same way: relative to their other options.
Since dbt Cloud is really not quite like anything else in the BI stack, we had an unusual opportunity to just “pick a number”. We could have set any price for dbt Cloud, and the market would’ve responded in different ways. We’ve had companies tell us that they would’ve paid much more than $100 / month for Cloud, and we have others tell us that it’s not worth $0 to them.
We could have just focused on the bigger companies and sold them expensive software. Why didn’t we do that?
This is the thing I came to realize: the way you price your product reflects your fundamental view of how your industry will unfold over the coming decade (or more).
When you set a base price of $1,000 / month to use your software, you’re saying “my industry in the future will look much like my industry today”. Why? If you were betting on a fundamental change in the market, you’d be going all-in to get the whole market. And a base price of $1,000 / month creates too much friction to capture the entire market—you’ll be excited to get a couple of thousand customers at that price point. Certainly a good business, but hardly a paradigm shift for an entire industry.
If you believe you’re doing something fundamentally new, and if you want that thing to be used by every single person whose life it could improve, you set a low base price. You give those your basic users an incredible product that improves their lives, and you let them have nearly all the surplus. By doing that, you create loyal advocates and a low-friction adoption process. Facebook wouldn’t have 2B users if it charged $10 / month.
This strategy is common in many B2B verticals. AWS and GCP sell this way, as does Github, Trello, etc. These companies all clearly believed from their outset that they were redefining a space and wanted to own a huge chunk of it.
This is quite rare in our market, in BI. I think that reflects a smallness of vision—a vision anchored in the history of the industry, where only large companies or particularly tech-forward companies were part of the addressable market. If there are only actually 10,000 companies you can sell to, you’re going to want to extract a lot of money from each of them.
We disagree with that small vision. We think the BI market of the future looks very different from the BI market of the past. We believe that in the next decade dbt could touch millions of users. And we aligned our pricing with that vision.
dbt Core is an incredibly capable data transformation tool, and it’s 100% open source. dbt Cloud is a suite of hosted functionality that helps companies deploy dbt in production. It has a capable free tier and a generous basic tier at $100 / month. These prices are us saying “we believe the future of this product is very, very large.”
What are you charging for your product, and what does it say about your vision for the future?
Last modified on: Mar 10, 2023