B2B Pricing Strategy: Effective Models and Tactics for Maximizing Revenue

Expectations in business-to-business (B2B) ecommerce are sky-high, and for good reason—it’s a $7.7 trillion industry that’s expected to surge well into the early 2030s. You can point to numerous factors: the online shopping binge from the early 2020s lockdown, the smart manufacturing boom that followed, or the rise of personalized, customer-friendly B2B since millennial buyers began to take over the space. 

The upshot of that last point is: the pleasurable experience of online B2C shopping is now expected to be replicated in digital B2B. Buyers are drawn to the approaches of companies like Dermalogica Pro and Syra Coffee, who have prioritized alluring content, intuitive self-serve options, and enticing pricing choices you can see right away. 

With so many options and analytics at their fingertips, B2B customers are increasingly selective with how they spend their money. For ecommerce leaders, pricing strategy has taken on new importance: It should be easily adaptable, ready to welcome new customers and seize marketplace opportunities. Effective pricing leads to maximized revenue, enhanced market positioning, and long-term customer retention. 

But coming up with an effective pricing strategy isn’t easy, and it can be especially difficult if you’re coming from the world of B2C. B2B sales cycles are longer, more complex, and tend to be highly nuanced for each B2B customer. But you’re not in this alone: Choose the best ecommerce platform for your business, and you can optimize pricing to keep up with ecommerce trends as they unfold. 

Let’s explore how to do just that.

B2B pricing models 

The ecommerce pricing strategy that’s best for a sustainable pet supplier is probably different from what’s best for a big tech company rolling out a new gadget. What model is best for your business? 

B2B pricing models are driven by the core principles of cost and profit—in other words, your revenue goals. If your prices are too high, you’ll risk losing customers—but if your prices are too low, you’ll leave potential profit on the table. 

We’ve outlined some of the most common pricing models, all of which offer different ways to reach your goals. 

Value-based pricing

Value-based pricing sets prices based on the value proposition offered to the customer. This strategy focuses on understanding and leveraging the customer’s perception of value.

By assessing how much customers are willing to pay based on the benefits they derive, businesses can set higher prices for products or services that offer significant value. For instance, businesses with a key differentiating factor—sustainability, for instance—are better equipped to set higher prices. 

The key challenge is the considerable amount of market research value-based pricing requires to correctly set prices. 

Cost-plus pricing

Cost-plus pricing involves calculating the cost of providing a product or service, including materials, labor, and overhead. A fixed percentage markup is then added to determine the final price. This pricing model is often used in industries with a high degree of standardization and competition.

Competitor pricing

Competitor pricing involves analyzing the prices your competitors set and adjusting your own prices accordingly. The goal is to attract customers via competitive rates.

While market competitor pricing strategies help maintain market share, they may also lead to price wars and reduced profitability if not managed correctly. Apps like Prisync can track competitor pricing and auto-adjust your own prices, helping you optimize profit margins. 

Dynamic pricing

Dynamic pricing uses algorithms and real-time data to adjust prices continuously in response to changing market conditions, customer behavior, and competitor actions. Common in industries with fluctuating demand, such as airlines and hospitality, this model optimizes revenue by aligning prices with current market trends and consumers’ willingness to pay.

Dynamic pricing can maximize your product’s customer base. For instance, it gives customers with smaller budgets the opportunity to buy products at times when they’re at lower price points and to get discounts when they buy them in bulk. 

Freemium pricing

The freemium pricing model attracts a large user base by offering core functionalities at no cost while monetizing through premium versions that offer advanced services, enhanced support, or additional features. This model is common in the software industry, especially among SaaS companies.

Pricing structures and tactics

Flat-rate pricing

Flat-rate pricing charges a fixed price regardless of usage or purchase volume. This pricing model is commonly used in industries with predictable production costs. 

Usage-based pricing

Usage-based pricing is commensurate with consumption.More usage means higher costs. This pricing model is typically used by B2B businesses whose products are used on a recurring basis or require ongoing support. 

Per-user pricing

Per-user pricing charges a fee according to the number of licenses purchased. This pricing model is based on the idea that the more users a business has, the more value it gains from the product or service.

Anchoring and decoys

When people make economic decisions, they tend to consider relative differences rather than think in absolute terms. If customers are shown a $450 product was first listed at $500, they’re more likely to perceive the $450 price as a good deal. As a tactic, this is called price anchoring.

Companies can leverage this knowledge and increase customers’ willingness to purchase a product by anchoring customers at a higher price.

Similarly, decoy pricing persuades customers to spend more by strategically placing certain products alongside others. This is the tactic that makes you feel you might as well buy a large coffee because the medium is only 50 cents less. A B2B company could similarly use a “decoy” middle-tier price to generate more sales for its most expensive option.

Charm prices and odd prices

Our brains make rapid judgements and tend to simplify numbers, and charm pricing plays off these tendencies. Since the 19th century, studies have indicated prices ending in the number nine tend to bring a higher conversion rate. The same has been claimed for prices ending in other odd numbers—hence, “odd pricing.” 

Reducing a price by one cent—say, from $20 to $19.99—plays off the “left digit effect,” which subconsciously pulls many customers toward the latter despite the two prices’ being virtually the same.

How to choose a B2B pricing strategy

Businesses use pricing strategies to execute their pricing models. In B2B, complex sales cycles—and enticing revenue potential—make knowing the ins and outs of your market especially important. 

Pricing strategy development:

• A pricing strategy is a set of guidelines for pricing products or services based on market demand, customer behavior, and competition.
• Understanding customers’ willingness to pay (WTP) is crucial for an effective pricing strategy. 
• Conduct market research, utilize conjoint analysis, run price sensitivity tests, and monitor competitor pricing to determine WTP.

Pricing objectives and goals:

• Clearly outline the objectives of your pricing strategy. 
• Whether it’s maximizing profit, increasing market share, or improving customer acquisition, having well-defined goals guides the development of your pricing approach.

Market research and analysis:

• Gather data on market trends, competitor pricing, and customer preferences.
• This information forms the basis for informed pricing decisions, helping you gain competitive intelligence and understand customer expectations.

Avoiding common B2B pricing mistakes

Pricing and business goals go hand in hand. Unfortunately, B2B pricing can be tricky and complex, undermining your well-intentioned goals. 

Here are some common issues to look out for:

Making pricing too complicated

• B2B businesses can overcomplicate pricing with confusing price structures, and hidden fees and charges.
• Such headaches can frustrate customers and dissuade them from returning. 

Relying exclusively on undercutting competition

• Focusing exclusively on undercutting competitors in your pricing strategy can prove detrimental. 
• This “race to the bottom” often undervalues your product and cheats you out of potential profits. Amazon might lower prices constantly to outmaneuver competitors, but there’s a good chance Amazon’s pricing model and overall goals are vastly different from yours. Focus on your goals and price accordingly. 

Neglecting competitor responses to your price

• Of course, B2B businesses can’t afford to completely disregard competitor pricing. 
• Monitor pricing trends in your space. If competitors are cutting prices due to a glut of overstock on a particular item, you may want to lower prices to avoid warehouse buildup—or at least investigate how the situation impacts your business. Develop actionable responses and deploy them accordingly. 

Misaligning pricing and business goals

• Pricing is intimately linked with business goals because it determines a business’s profit margins and the volume of B2B sales required to break even.
• Establish quantifiable business goals, then fine-tune your pricing so that those goals can be reached with attainable sales figures.

Factors influencing B2B pricing

Market demand

• Market demand refers to the total quantity of a product or service that consumers are willing and able to purchase at a given price within a specific market. 
• Market demand significantly influences pricing decisions because when a demand for a product or service is high, businesses can set higher prices to maximize profits. 
• You can quantify market demand with SEO research tools like Keyword Surfer, social listening practices, and analysis of data and market trends.

Cost of goods sold (COGS)

• Calculating the total cost of producing a product, including materials, labor, and overhead, is a requisite for setting profitable prices. 
• COGS is calculated by determining direct and indirect costs, figuring out beginning inventory and cost of purchases, calculating ending inventory, and applying the COGS formula. The accepted COGS formula used by accountants is (Beginning Inventory + Purchases) – Ending Inventory = COGS.
• COGS helps to determine profitability, optimize inventory, and keep track of expenses. 

Customer segmentation

• Different customer segments have varying price sensitivities and value perceptions. 
• By segmenting the market based on criteria such as industry, company size, and purchase behavior, businesses can tailor their pricing strategies to meet the specific needs of each segment.

Economic conditions

• Economic factors, such as inflation, currency fluctuations, and overall market conditions, can impact pricing strategies. 

Configure, price, quote (CPQ) software

• CPQ software helps businesses configure complex products, set prices based on various factors, and generate accurate quotes quickly.

Data analytics tools

• Data analytics tools are essential for analyzing customer data, market trends, and pricing performance.

Best practices for B2B pricing

Determining the value of your product

• Identify your target market and what problem they need solved.
• Conduct market research to determine how your product measures up to the competition.
• Calculate your costs and determine the perceived value.

Experimenting with various pricing models

• A/B test different pricing strategies and promotions to see how customers respond.

Making data-driven decisions

• Track sales and customer behavior to make data-driven decisions about pricing strategy. 
• Key metrics to watch include customer acquisition cost, customer lifetime value, gross margin, churn rate, and price elasticity. 

Maximizing revenue with B2B pricing

Increasing profitability

A strategic B2B pricing model directly impacts the bottom line by setting prices that cover costs and generate a healthy profit margin. Understanding customer value and willingness to pay allows businesses to adjust pricing strategies for increased revenue and sustainable profitability.

Enhancing market positioning

Well-structured pricing strategies help position a business competitively within the market. By offering the right prices for their products or services, companies can differentiate themselves from competitors, attract more business clients, and establish themselves as leaders within their industry. 

Improving customer retention

Tailored and value-based pricing helps businesses foster loyalty by ensuring customers feel they are receiving appropriate value for their investment, leading to long-term relationships. 

Driving sales growth

Effective pricing strategies drive sales growth by making offerings more attractive to prospects. Competitive and dynamic pricing models can effectively capture market demand, encouraging larger purchases and repeat business, thereby increasing overall sales volume and market share.

Shopify makes pricing easy

We’ve seen ecommerce evolve at warp speed in recent years, as a new generation took over B2B buying amid technological upheaval. Deploying multiple pricing strategies in concert—let alone settling on one while keeping up with industry trends—can feel like a dizzying task.

But it doesn’t have to be.

If you need the tools to implement dynamic pricing, Shopify can give them to you. Want to make self-serve as intuitive as possible for your millennial buyers? We’ve got you covered. 

At Shopify, we’ve evolved alongside the ecommerce revolution, and we’re excited to help you launch the pricing strategy to power you forward.

This article originally appeared on Shopify and is available here for further discovery.