The Pricing Iceberg for Startups
Moving away from cost-plus pricing isn't easy, but it's doable
TLDR: A lot of startups (rightly so) default to cost-plus pricing or simply being ‘cheaper’ than competitors. Below, I explore how founders can move towards customer value pricing, ultimately justifying premium pricing.
There’s an iceberg analogy I often think of, which says that most of your product's value sits below the waterline - invisible to customers. This hidden value includes your expertise, research and development, quality processes, customer support infrastructure, and the problems you prevent. Meanwhile, only the obvious costs such as software development hours or APIs directly tied to the product are visible above the waterline.
My advice to founders is often: instead of discounting your offerings to compete, deliberately move more of your iceberg above the waterline. Make the invisible value visible through better positioning, storytelling, and customer education.
Here's how this plays out in practice. A startup might initially price low because they only communicate basic features - the tip of their iceberg. But when they start showcasing their team's expertise, the rigorous testing behind their product, their superior customer success rates, or the costly problems they prevent, they can command premium pricing. They're not changing the value - they're revealing it.
This approach requires a fundamental shift in how startups think about pricing. Instead of meeting the lowest price customers will accept, ask: "How can we help customers understand the full value we deliver?" This often means investing more in case studies, testimonials, detailed ROI calculations, and education about industry problems most customers don't even realize they have.
The companies that master this approach not only avoid the race to the bottom on pricing - but they also tend to become the premium option in their category while maintaining healthy margins that fuel growth and innovation.
Samsara - The IoT Fleet Management Play
Samsara's pricing evolution is particularly interesting because they entered a market dominated by legacy hardware vendors charging thousands upfront for clunky systems. The ability to charge less upfront was a key insight. Samsara entered the market by positioning themselves as the affordable, software-first alternative - and their early customers got relatively affordable monthly subscriptions instead of massive capital expenditures.
But Samsara’s real genius was demonstrating ROI through data. Once these customers started seeing concrete results - reduced fuel costs, fewer accidents, improved driver behavior - Samsara had the data to justify premium pricing. Today, the company is recognized as "a premium platform, with a price to match" because they've moved their entire value proposition above the waterline through detailed analytics and proven outcomes. The company now has an entire page dedicated to customer success stories.
Grammarly - The Freemium to Premium Evolution
Grammarly's strategy was brilliant freemium execution. They started with a completely free product that provided basic grammar checking, building massive user adoption. The iceberg strategy was letting millions of users experience the platform’s value before revealing premium features, gradually increasing pricing and benefits over time.
Today, Grammarly’s monthly subscription is $30 USD per user, a price point they can command because users have experienced productivity gains firsthand. The free version still exists, serving as an extended trial that demonstrates the hidden value of better writing.
Flexport - The Logistics Transparency Revolution
When Flexport entered the freight forwarding industry, standard industry pricing was opaque and relationship-based. They initially competed on transparency and lower prices, but their real value was making the invisible visible - providing real-time tracking, predictive analytics, and supply chain insights that traditional forwarders couldn't match.
Their early customers paid less than traditional freight forwarders, but as Flexport demonstrated how their technology prevented costly delays, optimized routes, and provided supply chain intelligence, they were able to justify premium pricing for their tech-enabled services.
The Common Thread
All three of these companies used early customer discounts to build proof points that eventually justified premium pricing. They didn't just compete on price - they leveraged lower initial pricing strategies to demonstrate superior outcomes, then gradually moved their value proposition above the waterline through data, case studies, and measurable results.
Reconsidering your pricing strategy? Don’t just focus on being cheaper than competitors. To achieve bigger growth, and earn premium pricing, widen your lens and make your value impossible for customers to ignore.