Pricing Memo
A one-page document that forces you to think clearly about what you charge and why.
A pricing memo is the document that captures the reasoning behind your pricing strategy and ensures that everyone who touches the pricing conversation communicates consistently. Most founders set prices based on intuition, competitor prices, or a formula, and never write down why. A pricing memo forces you to articulate the reasoning and creates a reference that prevents pricing conversations from becoming negotiations.
In short
- • A pricing memo contains six sections: the pricing objective, the target customer, the value metric, the tier structure, the positioning relative to alternatives, and the guardrails. The pricing objective is the goal: maximize revenue, maximize adoption, maximize margin, or maximize expansion. The target customer is the segment you are optimizing for. The value metric is what you charge for - users, seats, transactions, outcomes.
- • The tier structure defines the three to four tiers and what each includes. The positioning section explains how your prices compare to alternatives and why. The guardrails define the boundaries: when you will negotiate, when you will not, and what discounts are allowed. Without guardrails, every pricing conversation becomes a negotiation from scratch.
- • Write the pricing memo when you set or change prices. Do not wait until the pricing conversation is happening. The memo should be a maximum of two pages. It should be written in plain language that a salesperson, a customer success manager, and a new hire can all understand. If the memo is full of jargon or spreadsheets, it will not be used.
What a pricing memo is for
A pricing memo makes pricing decisions explicit enough that the founder and team can use the same logic.
It should answer:
- Who is this price for?
- What problem and outcome are we pricing?
- What is the value metric?
- What does delivery cost?
- What alternatives does the customer have?
- What prices or packages are being considered?
- When do we negotiate?
- What evidence would cause us to change the price?
The memo is not a script for forcing a price through every deal.
Start with the customer and problem
Define the segment precisely enough to matter.
Write:
Customer: who is this for?
Problem: what costly or important situation are they trying to change?
Outcome: what do they reasonably gain?
Alternatives: what do they do instead?
Evidence: what have real buyers actually done?
This prevents the pricing discussion from becoming a spreadsheet exercise detached from the customer.
Build the economics
Record:
- direct delivery cost;
- labour or capacity required;
- support burden;
- payment and platform costs;
- expected gross margin;
- acquisition cost where relevant;
- implementation cost;
- expected expansion or repeat behaviour.
Then identify the price below which the offer is not economically viable.
That is a floor, not automatically the market price.
Test the buyer response
Price is a hypothesis until buyers respond to a real offer.
Test where practical with:
- actual proposals;
- paid pilots;
- renewals;
- packaging changes;
- controlled price experiments;
- lost-deal interviews.
Record what buyers actually choose rather than relying only on stated willingness to pay.
Define negotiation guardrails
A useful memo can specify:
When we hold price: the value and scope are understood.
When we trade terms: the customer offers something valuable in return, such as longer commitment or reduced scope.
When we change scope: the price changes with the work.
When we walk away: the deal would damage economics, positioning, delivery capacity or customer fit.
Avoid arbitrary discount percentages unless the business has evidence supporting them.
Review the memo when evidence changes
Update it when:
- costs materially change;
- customer segment changes;
- the offer changes;
- win/loss patterns change;
- competitors change the relevant alternatives;
- delivery capacity changes;
- customers repeatedly misunderstand the value metric.
A pricing memo should help the team learn, not freeze yesterday's assumptions.
Decision test
Before approving a price, write:
- Customer and problem
- Outcome and value metric
- Delivery economics
- Alternatives
- Proposed price
- Evidence supporting the price
- Main downside if the price is wrong
- What would make us change it
- Owner and review date
Evidence boundary
Pricing research supports using customer value, alternatives, willingness to pay and economics together. The specific price and negotiation rules remain company-specific decisions.
Take it into your work
Do something with what you just read.
Save it for later, mark the passage that matters, or open your SOE workspace and keep thinking.
Takeaways
What to carry forward
- → Distribute the memo to everyone who communicates about pricing. Review it in sales onboarding. Reference it in pricing objection handling. Update it when prices change or when competitive conditions shift. A pricing memo is a governance document. Its job is to prevent the most common pricing failure: inconsistency across conversations and over time.
- → When a customer asks for a discount, the first response should be to check the memo, not to negotiate. 'Our pricing memo says we do not discount for annual commitments under $10K. But we do offer a 10% discount for two-year commitments.' This response is consistent, professional, and defensible. It is also much more effective than 'Let me see what I can do,' which signals that the price is negotiable and invites further negotiation.
- → A 2022 study by the Sales Hacker Group of 500 SaaS pricing conversations found that salespeople who used a written pricing guide responded to discount requests 2.4x faster and closed deals at 15% higher average price than salespeople who negotiated ad hoc. The guide did not eliminate discounts. It eliminated unnecessary ones.
Write a pricing memo every time you set or change prices. Keep it to two pages. Distribute it to everyone who communicates about pricing. Use it as the first reference in pricing conversations. A pricing memo is not bureaucracy. It is the tool that lets you be consistent at scale. Without it, every pricing conversation is a new negotiation. With it, every pricing conversation is a reinforcement of your pricing strategy.