Pricing Your Product: it Doesn’t Have to Be so Complicated

http://joel.is/post/30167827294/pricing-your-product-it-doesnt-have-to-be-so

by iSimone • 14 years ago

68 25 14 years ago

laironald• 14 years ago

Nice article. Def just do it and see how people react. Another way to help with assessing price is to build a simple model. For a recent project, I built an excel model which is essentially a few assumptions (read: probabilities and guesstimates) which contribute to "revenue - cost = profit". Now guess what? Divide each of these by estimated quantity sold. This equals... Price to sell for - cost per item. The trick is for that equation to >0. Back to my project... It turns out I calculated cost per item to be $1.70. This gave me plenty of ammo to tell my partners.. Hey, we should sell it for more than $1...

Swizec3• 14 years ago

A good way to start with pricing is picking a few random people, maybe not even your target customers and ask: "How much would you pay for this?"

Make sure you don't give them an anchor. Make sure to ask across a few income ranges (ie. not just poor students).

What you'll often find is that people have a bad sense of how much something is worth and will think your service is worth more than you do.

You can then charge something like the median suggested value. It's what I did for postme.me[1] and it got me sales on the day of launch.

[1] I seriously need to reboot that project, never kill a project that's making sales, even if it's currently "not enough" - just invest more in marketing. Silly Swizec.

asanwal3• 14 years ago

Pricing is def a dark art but this seems like the exact opposite of what to do.

Asking people who are not your target customers what the price should be should get you an answer to price it to be free. These people will not think it is worth more or less than you're thinking as they dont need it. If they offer a price, they're guessing since what you have is not something that solves a pain for them.

Instead, talk to customers early and saying "we are doing x to solve y pain and are thinking of charging $z. What do you think?". If they vomit all over the price, then you know you're too high. If they don't get into price cuz they don't get the product, then you got different problems to solve before pricing.

In general, for these convos, I think going higher with this initial pricing is better as it has price anchoring benefits and it's much easier to go down then up in subsequent convos.

Swizec3• 14 years ago

The point is, you should ask someone how much they'd be willing to pay. Even nontarget customers will give you some sort of ballpark value that's better than guessing in a vacuum.

But of course, target customers are better. I have a feeling most people when starting out, don't even ask those, but just take the "expenses plus a bit of margin = price" formula.

bpatrianakos2• 14 years ago

I've learned from research and experience that you shouldn't ask anyone how much they're willing to pay for anything. You pick the price you want them to pay and adjust accordingly based on your goals. Do you want a lot of sales at a low price or a few sales at a high price? How low can you go while still turning a profit? It's a lot of experimentation and you also have to consider your competition and myriad of small things. But you just can't base your price off of what people say they'd pay. You and your customers will always have competing interests when it comes to price. They want to get as much as they can for as little as possible while you want to maximize profits. You'll know you priced your product right when you hit your revenue goals.

It's actually way more complicated than that but for the love of god just don't ask people what they'd pay. People are terrible about managing hypothetical money and purchases.

larrys3• 14 years ago

"and experience that you shouldn't ask anyone how much they're willing to pay for anything."

My experience, over many years, is the same as well.

People first of all don't even know what they will pay. They can be manipulated into paying more than they were willing to by anchoring and a whole host of negotiating tactics. As another example, just take a look at the way that auctions work. You might decide upfront you will only pay $100 for an item but if someone outbids you the thought of losing the item when you can offer $5 more draws you into bidding more than you would have expected to.

Also look at the way infomercials work in manipulating people to make purchases. "What if we told you this costs $15, well it's $10 and we're going to give you 2 of them". Etc.

bdunn3• 14 years ago

I doubled the price of my B2B product about a month ago, and the results have been fantastic.

Profit has doubled for new accounts, conversions have gone up a bit (I also redid a lot of the marketing site, so I'm sure that has a lot to do with the increased conversions), and no one has publicly complained about the new prices. Anyone who signed up before the change was grandfathered in and will never need to pay more.

Lessons learned: When you're building an app for businesses, we usually do a poor job at gauging the economic benefits that we provide to our customers. I ended up talking to a lot of customers, and afterward was able to segment them into groups of "how does Planscope affect the operation of their business and the revenue they collect?" The resulting plans and prices I have now are based on that segmentation, though I think the top two tiers should still be charged more.

I also have a book (it was discussed here on HN two days ago), and the first two points of this article about motivation and validation are spot on. While I work on wrapping up this book, I've been getting a handful of email receipts a day from PayPal from prepurchases. Building a new product in a complete vacuum sucks, putting together an announcement list is better, but having people send you actual cash trumps all.

BryanB55• 14 years ago

Pre-purchases sounds like an ideal situation. That's awesome if you can get people to do that. Mind sharing more on how you sold them on prepurchase? What is the book you mentioned?

bdunn3• 14 years ago

The book: http://doubleyourfreelancingrate.com

Blog post about it: http://planscope.io/blog/selling-2000-worth-of-my-unfinished...

HN discussion: http://news.ycombinator.com/item?id=4422151

Feel free to drop me a line (email's in profile), I'd be more than happy to answer any and all questions.

shankar1221989• 14 years ago

The real value of the app that one builds is seen only when the customer uses it. And in most cases getting paid customer for a MVP is tough (unless the customer is a known person). Give the app free to the customer for a fixed time, make him use it. And if the product has value, the customer will pay you money. Once you get your initial few customers pricing will take care of itself!

deepGem• 14 years ago

I'm sorry to say this - but the article tells little or nothing about the 'how' of pricing. Picking a random price point and experimenting with that won't work. Here are the issues:

1. The customers who you ask initially need not represent the buying majority. How do you select the set of people who represent the majority segments of your user base in order to determine pricing ? 2. In the first version of your product, how can you distinguish the issues the customers have with pricing v/s product features. As it is, mobile analytics is in such infancy. I can't even figure out my user base demographics. 'Asia' is not the demographic I'm looking for. 2. Even Apple faltered with pricing when they announced a steep price cut to the original iPhone but that's Apple, not a no-name startup. If a no-name startup pisses customers off by changing the pricing, then what's the backup plan.

Pricing, especially for consumer apps is a pretty complicated issue and not as simple as the author makes it sound like.

orangethirty• 14 years ago

A/B test the prices. Start from ridicously high, and work your way down. Why not ridicously low and work your way up? Because you can then tell people you lowered your prices. Also, it also does not anchor your price to a low starting point.

eps• 14 years ago

Joel, this is getting annoying as hell. Again, an authoritve advice on a subject you clearly have very little experience with. I don't appreciate your self-promtion tactics and I find them disingenuous at best and damaging at worst.

pdog• 14 years ago

People are clearly interested in the topic of pricing. Since we're here, can you give us a source of better advice or explain what's wrong with this article?

dchuk• 14 years ago

He runs a company that charges for their product, why are you so wound up about this? He at least has some experience with the topic, and half of the article is quotes anyways.

No one is forcing you to read anything here.

asanwal3• 14 years ago

Without wading into this drama, the below article on pricing experiments is a fantastic resource as it provides a lot of different perspectives on pricing (I'm not affiliated with the site).

http://conversionxl.com/pricing-experiments-you-might-not-kn...

With all things "startup" (pricing, design, customer on-boarding, etc), there are no absolutes. So articles which offer frameworks that help you ask the right questions or think through the process are generally more valuable and this one does that IMO.

bpatrianakos2• 14 years ago

I very much appreciate his self promotion tactics. This isn't disingenuous at all. He's simply sharing his own experiences and giving advice to others who were in the same boat as he was. There's more than one way to skin a cat. What I mean by that is Joel's advice may work great for many people but he's definitely not the final authority nor does he ever claim to be. My totally unprofessional and uninformed opinion of your comment is that it seems to maybe stem not from Joel's writing but probably from seeing a ton of blog posts just like it on HN from others. I get it. I've had HN burnout before too and when it happens you just look at everything on the front page and think to yourself "what a bunch of bullshit. I think we've beaten all these horses to death already". When the balance of reading to to doing tilts toward reading far more than doing this kind of attitude comes about or at least it does for me.

So lay off. I believe you're annoyed but you're not the only one Joel is writing for. The guy is doing a good Jon and a lot of us really appreciate the documenting of his experiences. I personally can really relate to everything he talks about. I'm smart enough to know not to take is as gospel but it's damn helpful nonetheless. Joel isn't running a product pricing blog. It's a blog about his own experiences running a startup so be prepared to read about those types of experiences including how he approached pricing Buffer when you click the link.

It's one thing to disagree with everything he's saying and back it up and another to just accuse him of being disingenuous and self promoting because you've read one too many posts on HN today.

larrys3• 14 years ago

"I very much appreciate his self promotion tactics."

I agree the self promotion is good for Joel. I know who he is because of what he has written even though I've been critical along the same lines as the parent. But the parent's thoughts are important also in pointing out to anyone reading this (who is green) that isn't aware of what is going on here. Then they can decide for themselves how they want to listen to or use the advice.

pankratiev• 14 years ago

Will you give us a post on a subject you clearly have very big experience with?

Joel built the business and he is sharing his experience. Did you do the same? Do you have a successful business?

ricardobeat• 14 years ago

So he is a full-time blogger now? It's a shame to waste all this advice :)

electic• 14 years ago

Sadly, the website is down when I try to click the link. Probably should figure out how to keep a website up first :P

larrys3• 14 years ago

Just a little side tip on something that works for us.

We have a service that we price at $120.

When you purchase that service you are told that it takes about 24 hours to setup. We then offer the ability to purchase 2 to 4 hour setup at an additional $15 or 4 to 8 hour at an addition $10 or 8 to 12 hour at an additional $5.

The majority of people purchase the $10 option. Presumably for the same reason people choose to pay for overnight, two day etc. shipping instead of waiting 3 to 5 days (or whatever the offering is).

When we added this option a while back it was like instant money since we were typically completing the service setup in the 2 4o 4 hour time anyway.

Pricing Your Product: it Doesn’t Have to Be so Complicated

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