---
name: Pricing Model Selection
slug: pricing-model-selection
category: AI Engineering
description: Pricing Model Selection chooses and validates a pricing model for a PRD’s commercial plan. Use it to set tiers, pricing floors, competitive positioning, and willingness-to-pay checks when deciding what to charge.
github: "https://github.com/mattgierhart/PRD-driven-context-engineering/tree/main/.claude/skills/prd-v03-pricing-model"
language: HTML
stars: 182
forks: 10
install: "npx degit https://github.com/mattgierhart/PRD-driven-context-engineering/tree/main/.claude/skills/prd-v03-pricing-model ~/.claude/skills/prd-v03-pricing-model"
installs_to: ~/.claude/skills/prd-v03-pricing-model
source_path: .claude/skills/prd-v03-pricing-model/SKILL.md
collection_size: 25
category_size: 3475
collection_url: "https://dirskills.com/collections/mattgierhart/PRD-driven-context-engineering"
added: 2026-09-07T05:20:13.204Z
last_synced: 2026-09-07T05:20:13.204Z
canonical_url: "https://dirskills.com/skills/pricing-model-selection"
---

# Pricing Model Selection

Pricing Model Selection chooses and validates a pricing model for a PRD’s commercial plan. Use it to set tiers, pricing floors, competitive positioning, and willingness-to-pay checks when deciding what to charge.

**Install:**

```bash
npx degit https://github.com/mattgierhart/PRD-driven-context-engineering/tree/main/.claude/skills/prd-v03-pricing-model ~/.claude/skills/prd-v03-pricing-model
```

## README

# 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:
```markdown
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"

---

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

| Product Type | Typical Model | Why It Fits | Anti-Model (Avoid) |
|--------------|---------------|-------------|-------------------|
| **Fast Follow** | Match market structure | Users expect familiar pricing | Premium positioning (no differentiation) |
| **Undercut** | Flat rate, aggressive discount | Price IS the value prop | Per-user (negates savings) |
| **Clone** | Parity or slight discount | Must compete on terms users know | Innovation pricing (confuses buyers) |
| **Slice** | Usage-based or ecosystem-tied | Value tied to platform activity | Flat fee (misaligned with usage) |
| **Wrapper** | Per-integration or usage | Value = connections made | Per-seat (value isn't user count) |
| **Innovation** | Value-based, potentially premium | Funds education, signals quality | Race to bottom (devalues category) |

## Value Timing → Model Selection

Ask: **When does the customer get value?**

| Value Pattern | Recommended Model | Examples |
|---------------|-------------------|----------|
| Continuous recurring | Subscription (monthly/annual) | SaaS tools used daily |
| Per-transaction | Usage-based | API calls, exports, generations |
| One-time outcome | One-time fee or lifetime | Logo design, course completion |
| Milestone-based | Tiered + upsell triggers | Features unlock as needs grow |

## 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

| Tier | Method | Confidence | When to Use |
|------|--------|------------|-------------|
| **1 (Highest)** | Actual purchase, payment collected | 95%+ | Post-MVP, real customers |
| **2** | Pre-order, payment intent, trial→paid | 70-85% | Landing page tests |
| **3** | Email signup at stated price | 50-65% | Smoke tests |
| **4** | Survey, interview ("would you pay X?") | 25-40% | Early exploration only |
| **5 (Lowest)** | Assumption, gut feel | <20% | Never use alone |

**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:

| Purpose | Free Tier Design | Example |
|---------|------------------|---------|
| **Viral acquisition** | Generous + sharing incentive | Dropbox referral |
| **Product-led growth** | Useful enough to hook, limited enough to upgrade | Notion personal |
| **Market education** | Demo the category value | New category tools |
| **Usage seeding** | Get data/content, charge for output | Canva designs |

**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 | Purpose | Design Principle |
|------|---------|------------------|
| **Free/Trial** | Hook and demonstrate value | First win in <5 minutes |
| **Entry/Starter** | Convert to paying | Lowest price that sustains business |
| **Pro/Growth** | Capture value from power users | Features that scale with success |
| **Enterprise** | Custom needs, high touch | SLAs, SSO, dedicated support |

**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

| Prefix | Category | Example Rules |
|--------|----------|---------------|
| `BR-PRC-` | Price constraints | Price floor, ceiling, discount cap |
| `BR-PKG-` | Packaging rules | Tier boundaries, feature gates |
| `BR-CMP-` | Competitive positioning | Anchor target, undercut threshold |

### 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

| Don't | Do Instead |
|-------|------------|
| Copy competitor pricing blindly | Understand their value timing and cost structure |
| Innovation product at Fast Follow price | Price for value, not market incumbents |
| Free tier without upgrade trigger | Define clear conversion moment |
| Discount to win deals | Maintain price integrity, add value |
| Change pricing weekly | Set, validate, iterate quarterly |
| Gut-feel price points | WTP validation (Tier 1-2 evidence) |

## 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

| Consumer | What It Uses | Example |
|----------|--------------|---------|
| **v0.3 Moat Articulation** | Price as moat element | "Price leadership" defense |
| **v0.5 Red Team** | Pricing risk assessment | "What if competitor undercuts?" |
| **v0.9 Unit Economics** | Price inputs to CAC/LTV | Revenue per customer calculation |
| **GTM Strategy** | Pricing messaging | "91% less than [Competitor]" |

## Detailed References

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