Pricing is always a bit of a dark art for start-ups, especially in the early days of commercialisation when entrepreneurs are still exploring the right strategy and will do almost any deal to get those first customers.

The quote below is from an article by Tomasz Tunguz, which does a great job of splitting out the three possible goals a pricing strategy can have: maximise revenue, penetration or profit. It always gives me lots of confidence when talking to a start-up if they can clearly explain why they've chosen a particular pricing strategy and what their goal is. But there's another layer of detail beyond that which sometimes gets ignored - unit economics.

Unit economics is all about how much revenue you make, and how much it costs you to sell to and deliver the base unit of your business. For many software start-ups this will be a seat (or user). As well as a clear pricing strategy on a per seat basis I also question start-ups on what the cost of sales are for each seat, and what on-going direct costs are needed to support that seat. Without a clear understanding of these unit costs a start-up won't know if the base unit of their business is profitable or loss-making. Unit economics are a great indicator of whether a start-up's business will ever turn profitable at scale.