Pricing Model Selection

Position in HORIZON workflow: v0.2 Product Type Classification → v0.3 Pricing Model Selection → v0.3 Moat Articulation

Consumes

This skill requires prior work from v0.2-v0.3:

• BR-* product type entry (from Product Type Classification) — Determines which pricing model makes sense
• CFD-* competitive intelligence entries (from Competitive Landscape Mapping) — Competitor pricing, WTP signals
• BR-* moat entries (from Moat Definition, parallel v0.3 work) — Price as potential moat element
• KPI-* outcome entries (from Outcome Definition, parallel v0.3 work) — Success metrics tied to pricing
• Cost structure estimates (from own analysis) — Unit economics to validate price floors

This skill assumes v0.2 competitive analysis is complete and product type is defined.

Produces

This skill creates/updates:

• BR-PRC-* entries (pricing constraints) — Rules governing price floors, ceilings, discounts
• BR-PKG-* entries (packaging rules) — Tier boundaries and feature gates
• BR-CMP-* entries (competitive positioning) — Price anchor targets and undercut thresholds
• Pricing model artifact — Named decision: "We will use [Model] because [evidence]" with tier definitions

All BR pricing entries should include:

• confidence: 2-3/5 (based on WTP evidence tier and competitor benchmarks, not assumptions)
• Evidence source (competitor pricing, customer interviews, cost structure)
• Forward target: "Would move to 4/5 if real customers validate WTP"

Example pricing rule entry:

BR-PRC-001: Entry Price Floor

Rule: Entry tier never below $15/mo (annual) or $19/mo (monthly)
Confidence: 2/5 (source: CAC-estimate + competitor-benchmarks)
Rationale: Below $15/mo, CAC payback exceeds 6 months, unsustainable
Enforcement: Stripe product configuration, pricing page, contract templates
Evidence:
  - CFD-042 (competitor pricing): Similar tools start at $15-25/mo
  - KPI-001 (outcome): CAC estimate $45, need 3-month payback = $15/mo minimum
Enforcement: Set in Stripe, document in pricing page, enforce in sales contracts
Exception: Founding customer 50% discount (must be approved by founder)
Next Target: "Would move to 4/5 if 5+ paying customers validate willingness at $15/mo"

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BR-CMP-002: Competitive Undercut Threshold

Rule: Maintain ≥50% savings vs [Competitor Name] at SMB level (5 users)
Confidence: 3/5 (source: competitor-pricing + 2-SMB-interviews)
Rationale: Price advantage is core differentiator for SMB segment (per product type: UNDERCUT)
Enforcement: Quarterly competitive price audit; triggers price review if competitor drops
Evidence:
  - BR-001 (product type: Undercut)
  - CFD-015 (value hypothesis): SMB would save $12,500/year at target price
  - CFD-042 (competitor pricing): Competitor at $30/user/mo = $1,800/year for SMB
Exception: If competitor drops price, floor (BR-PRC-001) takes precedence
Next Target: "Would move to 4/5 if SMB cohort pays premium for our service over incumbent"

Core Principle

Pricing follows value timing: When and how customers receive value determines the pricing model. Don't copy competitors without understanding their value delivery pattern.

Pricing Model × Product Type Matrix

Value Timing → Model Selection

Ask: When does the customer get value?

Competitive Anchoring Decision Tree

1. Do competitors use per-user pricing?
   ├─ YES → Calculate "SMB penalty" (5-user annual cost)
   │   └─ Flat pricing at 50%+ savings = strong positioning
   └─ NO → Match model, differentiate on value/features

2. Is competitor pricing transparent?
   ├─ YES (Tier 1) → Use as direct anchor
   └─ NO ("Contact sales") → Find proxy or G2/Capterra estimates

3. Should we undercut, match, or go premium?
   ├─ Undercut: When we're simpler/niche and can sustain margins
   ├─ Match: When competing on features, not price
   └─ Premium: Only with clear, provable differentiation

SMB Penalty Calculation

Per-user pricing penalizes SMBs with larger teams. Calculate the arbitrage:

Competitor: $30/user/mo
SMB with 5 users: $30 × 5 × 12 = $1,800/year

Our flat rate: $99/year
Savings: ($1,800 - $99) / $1,800 = 94%
Headline: "94% less than [Competitor] for teams of 5"

Rule: If savings exceed 70%, lead with price in positioning.

WTP Validation Hierarchy

Gate rule: Tier 1-2 evidence required before locking pricing. Tier 4-5 only for hypothesis generation.

Free Tier Design Rules

Only include a free tier if it serves a strategic purpose:

Anti-patterns:

• Free tier that satisfies most users (no upgrade trigger)
• Free tier that requires support (costs without revenue)
• "Free forever" for unlimited users (cannibalizes paid)

Rule: Every free tier needs a clear upgrade trigger tied to value moment.

Tier Design Framework

Structure tiers around value events, not feature count:

Tier boundary rules:

• Entry price = CAC payback in ≤3 months
• Pro upgrade trigger = clear usage milestone (not feature gate)
• Enterprise = only if you can support it (don't fake it)

BR- Output Format

Create pricing BR- entries using this structure:

BR-PRC-XXX: [Rule Name]
Rule: [Imperative statement — what MUST happen]
Rationale: [Business driver — why this rule exists]
Enforcement: [Where enforced — code, contract, process]
Evidence: [WTP validation, competitor anchor, cost structure]
Exception: [Override conditions and approver]

BR- Categories

Example BR- Entries

BR-PRC-001: Entry Price Floor
Rule: Entry tier never below $15/mo (annual) or $19/mo (monthly)
Rationale: Below $15/mo, CAC payback exceeds 6 months
Enforcement: Stripe product configuration, pricing page
Evidence: CAC estimate $45, need 3-month payback
Exception: Founding customer 50% discount (Matt approval)

BR-PKG-002: Free Tier Upgrade Trigger
Rule: Free tier limited to 50 [units]; show upgrade at 40 (80%)
Rationale: Create natural upgrade moment without frustration
Enforcement: Usage tracking + UI prompt at threshold
Evidence: CFD-XXX shows competitors gate at 25-100 units
Exception: None — critical for conversion funnel

BR-CMP-003: Competitive Price Anchor
Rule: Maintain ≥50% savings vs [Competitor] at 5-user level
Rationale: Price advantage is core differentiator for SMB segment
Enforcement: Quarterly competitive price review
Evidence: CFD-XXX (competitor pricing); BR-001 (product type: Undercut)
Exception: If competitor drops price, floor takes precedence

Anti-Patterns to Avoid

Validation Workflow

Before locking pricing:

1. Calculate cost floor: What's minimum price for positive unit economics?
2. Identify anchor: What do customers pay today? (competitor or workaround)
3. Design tiers: Entry + Pro minimum; free only if strategic
4. Test WTP: Landing page with price, measure signup conversion
5. Lock BR- entries: Document as enforceable rules

Output Requirements

Before advancing to Moat Articulation:

• Pricing model selected with rationale (ties to product type)
• Price anchor identified (CFD- reference)
• Entry price point defined with unit economics check
• Tier boundaries defined (or "no tiers" justified)
• Free tier decision documented (yes + trigger, or no + why)
• WTP validation plan created (even if not yet executed)
• ≥3 BR-PRC/PKG/CMP entries created

Downstream Connections

Detailed References

• Good/bad examples: See references/examples.md
• BR- template worksheet: See assets/br-pricing.md