# Most startups are undercharging

**Author:** Dalton Caldwell
**Type:** Video
**URL:** https://www.ycombinator.com/library/7M-most-startups-are-undercharging
**YouTube ID:** RxjZbmr1d1w

---

Dalton Caldwell, Y Combinator partner and founder of imeem and Mixed Media Labs, on pricing and how most startups
undercharge.

## Transcript

most of the time people are way under charging for their product for some reason the ideas out there that you should either not charge for your product or you charge such a tiny fraction of what you could be charging that that you're you're not set up for success so to give you an example I've seen startups charge 1/10 or 1/100 of what they should actually be charging for whatever reason I think there's ideas out there that investors want you to never charge or they or think I don't

where these ideas come from but a lot of the time the first advice we give to people is to dramatically increase their prices as fast as possible a lot of the times startups apply to I see saying that they are competing on price and the way that they're winning versus competitors is that their product is cheaper the reason that is so dangerous is you don't actually know if your product is good or it's solving a real problem for people and you could just be getting trying to get people that want the cheapest possible product

and so if you are charging a fraction of other options for your thing it could be that you're actually getting bad data about whether or not anyone wants your thing right and so so that's one way that you know that you're in trouble is that your entire customer acquisition strategy is like your product is way cheaper than everyone else's usually a good product that we see become successful does not charge less than competitors it actually charges a premium it's because it stalls such a

huge problem for their customers that they will happily pay a premium versus other options on the market because it's such a great product right that's a sign that you've made something that people want is that the market pays a premium not a massive discount to what other options are that's a really good sign for you instacart it was expensive Jordache was expensive air B&B I think was expensive Dropbox was expensive it wasn't like doordash was hey we're like other things and we're like a tenth of the cost that

was never the pitch so I'm sure there are examples of those but generally speaking of our hugely successful companies they are either serving a market that has never been served before and so it's expensive or it's actually more expensive than direct competitors I mean zapier charged money and IFFT did not so it was they had a perfect substitute that cost more money

you

## Transcript

most of the time people are way under charging for their product for some reason the ideas out there that you should either not charge for your product or you charge such a tiny fraction of what you could be charging that that you're you're not set up for success so to give you an example I've seen startups charge 1/10 or 1/100 of what they should actually be charging for whatever reason I think there's ideas out there that investors want you to never charge or they or think I don't

where these ideas come from but a lot of the time the first advice we give to people is to dramatically increase their prices as fast as possible a lot of the times startups apply to I see saying that they are competing on price and the way that they're winning versus competitors is that their product is cheaper the reason that is so dangerous is you don't actually know if your product is good or it's solving a real problem for people and you could just be getting trying to get people that want the cheapest possible product

and so if you are charging a fraction of other options for your thing it could be that you're actually getting bad data about whether or not anyone wants your thing right and so so that's one way that you know that you're in trouble is that your entire customer acquisition strategy is like your product is way cheaper than everyone else's usually a good product that we see become successful does not charge less than competitors it actually charges a premium it's because it stalls such a

huge problem for their customers that they will happily pay a premium versus other options on the market because it's such a great product right that's a sign that you've made something that people want is that the market pays a premium not a massive discount to what other options are that's a really good sign for you instacart it was expensive Jordache was expensive air B&B I think was expensive Dropbox was expensive it wasn't like doordash was hey we're like other things and we're like a tenth of the cost that

was never the pitch so I'm sure there are examples of those but generally speaking of our hugely successful companies they are either serving a market that has never been served before and so it's expensive or it's actually more expensive than direct competitors I mean zapier charged money and IFFT did not so it was they had a perfect substitute that cost more money

you
