How to have "the talk" with your customers
Increase ACV by finally asking customers about willingness-to-pay
Welcome back to the 10th edition of The Gist by Growth Unhinged where I give you one specific action item to grow faster.
In this edition: are you having “the talk” with your customers? (The pricing talk, that is.)
If not, keep reading. I’ll unpack how to increase average contract value (ACV) by sharpening how you price your products based on real-life customer conversations. Let’s dive in before we get cold feet.
The Gist
Ask your customers about willingness-to-pay in order to spot hidden opportunities to optimize pricing and increase ACV. Just don’t *literally* ask them “how much are you willing to pay?” — they’ll low-ball you.
Why you should care
As startups scale from seed to IPO, they find significant growth potential from increasing average ACV among both new and existing customers. I’ve surveyed 1,000+ SaaS startups about how they price their products and found that ACV jumps by more than 100% during the journey from $1M to $100M+ in ARR.
These ACV increases come in the form of price increases, product expansion, selling new packages or add-ons, and charging based on a pricing metric that naturally scales as adoption grows. All require understanding what customers are willing to pay for and how much they’re willing to spend.
🌱 Seed –> Expansion stage (aka post-PMF): +60% ACV
Learnings:
B2B buyers aren't as price sensitive as startups or consumers.
As you get stronger product-market fit, you better understand your ideal customer and who's willing to pay for your product. These folks are willing to pay more for what you're building.
New cohorts of customers don't notice price increases. To them, that's just how your pricing works.
🚀 Expansion –> Growth stage (aka Series C/D/E): +40% ACV
Learnings:
There's probably still room to capture more of the value you create for customers.
You're getting more & more proof points about the ROI you deliver for customers, and you're better at getting in front of execs/decision makers in the sales process.
ACV increases come more from usage & smart packaging (feature-based pricing) and less from pure price increases.
🧑🚀 Growth –> Exit/IPO (aka approaching $100M ARR): +20% ACV
Learnings:
Make sure to consider monetization/willingness to pay when planning your roadmap. Are you building things customers are simply *asking for* vs. want to *buy*?
There will be a regular debate about whether to bundle or unbundle your products. The goal is to make it easy for customers to buy and to present solutions to their needs — not to overwhelm folks with too many choices.
Pricing and packaging will get more complicated across segments, countries, products, add-ons, etc. Start to think about a dedicated pricing FTE as you're approaching $50 million ARR.
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