Willingness-to-Pay Before You Build
You don't choose whether to have the pricing conversation — only when. Have it before you ship.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 94%
Schottenstein's pricing discipline rests on one forcing idea: the willingness-to-pay conversation is inevitable, so the only real decision is whether you have it before you build or after your sales team is already failing to sell. Her method combines a relative-value anchor (what is this worth as a fraction of the adjacent spend customers already make?) with a four-price-point probe, run across dozens of customers by a joint product and product-marketing team, and treats the first pricing change as a deliberate, low-stakes elasticity experiment run while the company is still small.
Origin
Julia Schottenstein at dbt Labs, explicitly building on Madhavan Ramanujam (referred to in the episode as the author of the book on pricing and innovation, Monetizing Innovation), whose core claim she quotes: you don't get to decide if you're going to have a willingness-to-pay conversation, only when. The four-price-point probe is a variant of the classic Van Westendorp price-sensitivity approach.
Core principles
- 01You only get to decide when the pricing conversation happens, not whether
- 02Pricing is never fixed — it evolves and gets more complex over time
- 03Run your first pricing change while stakes are low, precisely to learn elasticity
- 04People will not tell you what they will pay, so ask relatively, not absolutely
- 05Be more concerned with value creation than value capture
How to run it
- 1
Have the conversation before you build
Move the willingness-to-pay discussion upstream of the product. The alternative is discovering, after your sales team is in-market, that people are not excited about what you built and will not pay for it.
Pro tip Zero-interest-rate-era habits — investors happily funding GitHub stars and usage with no revenue path — pushed this conversation dangerously late for a whole cohort of startups.
Watch out Most startups do not do this early enough in their company journey.
- 2
Anchor on relative value, not absolute price
Customers will not share explicitly what they will pay. Instead ask what your product is worth relative to an adjacent spend they already make and understand. dbt customers frame it as being 20 to 35% as valuable as what they spend on their cloud data warehouse.
Pro tip Pick an anchor line item the customer already budgets for and can reason about without disclosing their internal numbers.
- 3
Run the four-price-point probe
For each customer, suss out four thresholds: what price point is very cheap or a no-brainer, what is fair or comfortable, what starts to feel expensive, and what would be simply too expensive. Collect the distribution, then decide where to land.
Pro tip Run this across dozens of customers, not a handful, so you have a distribution rather than anecdotes.
Watch out Do not ask 'what would you pay' directly — you will get useless answers.
- 4
Staff it as an all-hands-on-deck cross-cutting effort
Pricing is simultaneously a finance exercise (modelling business impact in spreadsheets), a customer research exercise (product plus product marketing running the conversations), and a product exercise (effecting and communicating the change). You cannot solve it in spreadsheets alone.
Pro tip dbt paired product and product marketing on the interviews specifically because the output feeds both modelling and messaging.
- 5
Treat the first price change as an elasticity experiment
Ship the change, then track conversion rates and churn rates very carefully. The point of doing this while the company is still smaller is that the stakes are lower and the lesson is cheaper — pricing will only get more complex from here.
Pro tip The target for a first change is often simply to have your pricing catch up to how people already value the tool.
Watch out Delaying your first pricing change until you are large means running your first elasticity experiment at maximum stakes.
- 6
Deliberately capture less than you create
Hold a value-capture ratio well below the value delivered as a policy, not an accident. dbt's customers say the product is worth 20-35% of their cloud data warehouse spend, and dbt charges a very small fraction of that, by design.
Watch out This is a long-game bet on ecosystem and adoption, and it pays back slowly. It is not a growth hack.
In the wild
dbt Labs made its first pricing change in company history in 2022. It was an all-hands-on-deck, cross-cutting effort: finance modelling in spreadsheets, dozens of customer conversations run jointly by product and product marketing using the relative-value anchor and the four-price-point probe, plus the product work of effecting and communicating the change. The core problem they were solving for was having pricing catch up to how people actually valued the tool.
→ They tracked conversion and churn rates carefully and were largely happy with the change. More importantly, they learned their customers' price elasticity while the company was still small enough for the stakes to be low.
Common mistakes
Funding stars and usage instead of revenue
The zero-interest-rate environment let companies grow GitHub stars and usage while never confronting how they would make money, which pushes an unavoidable conversation to the worst possible moment.
Solving pricing in a spreadsheet
Modelling tells you the business impact of a price, not whether anyone will pay it. You have to go talk to customers and test the waters.
Asking customers what they would pay
People are not very willing to share explicitly what they will pay. Relative-value framing and the four-price-point probe extract the same information indirectly.
Is it for you?
Best for
B2B software product leaders and founders approaching a first pricing change, or deciding what to build with monetisation still undefined
Not ideal for
Products with no adjacent budget line to anchor relative value against, or consumer products where per-customer interviews at dozens-scale are unrepresentative
From the transcript
“he shares that you don't get to decide if you're going to have a pricing or willingness to pay a conversation you only get to…”
“we also tried to employ some of the tactics that we tried to sus out what what do people view as very inexpensive what's a…”
“they often talk about how it's either 20 to 35% as valuable as what they spend on their cloud data warehouse but we charge our…”
“last year we did our first ever pricing change in the company history and you learn a tremendous amount when you have that event because…”
“we have this value it's one of our core values that says we're more concerned with value creation than value capture”
From the episode
M&A, competition, pricing, and investing
Julia Schottenstein (dbt Labs)