Ask HN: How do you set prices?
182 comments
(Note: cofounder responsible for pricing decisions many times.)
The closest thing to a "methodology" I've found is asking these four questions and having the users generate their own pricing curve [1]:
Here's a real set of curves this process generated for me recently: http://imgur.com/lPKLk53 ($ values redacted)
The four questions are:
1. At what price would you consider [the product/service] to be so expensive that you would not consider buying it?
2. At what price would you consider [the product/service] to be priced so low that you would feel the quality couldn’t be very good?
3. At what price would you consider [the product/service] starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
4. At what price would you consider [the product/service] to be a bargain—a great buy for the money?
Require a specific $ amount as the answer to each question.
Take ~100 users, ask them all four of these questions, and then compile the results. You really have to do this on a subset of your own qualified potential customers to get any meaningful data.
The neat thing about this is that this creates a price sensitivity curve without anchoring the interviewee with any prior numeric values.
At the end of the day, it's still a gut call about where to place your price point relative to the user's alternatives, and testing is encouraged, but these four questions are a decent start.
[1] https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...
The closest thing to a "methodology" I've found is asking these four questions and having the users generate their own pricing curve [1]:
Here's a real set of curves this process generated for me recently: http://imgur.com/lPKLk53 ($ values redacted)
The four questions are:
1. At what price would you consider [the product/service] to be so expensive that you would not consider buying it?
2. At what price would you consider [the product/service] to be priced so low that you would feel the quality couldn’t be very good?
3. At what price would you consider [the product/service] starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
4. At what price would you consider [the product/service] to be a bargain—a great buy for the money?
Require a specific $ amount as the answer to each question.
Take ~100 users, ask them all four of these questions, and then compile the results. You really have to do this on a subset of your own qualified potential customers to get any meaningful data.
The neat thing about this is that this creates a price sensitivity curve without anchoring the interviewee with any prior numeric values.
At the end of the day, it's still a gut call about where to place your price point relative to the user's alternatives, and testing is encouraged, but these four questions are a decent start.
[1] https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...
It's been consistently shown that what people say they'll do regarding pricing and what they actually do are not correlated.
Rather than asking people, if you can, try just changing the prices and see how customer acquisition changes.
I sell a program online to consumers, so for a while I tried several experiments in pricing, including a "pay what you want". Structure. Eventually I settled on a price that's about half what the highest accepted price was ($10) and the typically "pay what you want" price ($1). Right now I sell for $4 (perpetually listed as 50% off of $8), which brings in about as much revenue as the $10 price. The advantage, though, is that it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising.
So, I would say, if you're in the position to do so, experiment with the prices in the real world and look at how purchasing behavior changes.
Rather than asking people, if you can, try just changing the prices and see how customer acquisition changes.
I sell a program online to consumers, so for a while I tried several experiments in pricing, including a "pay what you want". Structure. Eventually I settled on a price that's about half what the highest accepted price was ($10) and the typically "pay what you want" price ($1). Right now I sell for $4 (perpetually listed as 50% off of $8), which brings in about as much revenue as the $10 price. The advantage, though, is that it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising.
So, I would say, if you're in the position to do so, experiment with the prices in the real world and look at how purchasing behavior changes.
>it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising
This is a very good point and something I haven't considered.
On the flip side, depending on your type of product, I think more customers could lead to an increase in support burden to the point where it is costing you more than the amount of extra dollars you get from the additional amount of customers.
This is a very good point and something I haven't considered.
On the flip side, depending on your type of product, I think more customers could lead to an increase in support burden to the point where it is costing you more than the amount of extra dollars you get from the additional amount of customers.
> perpetually listed as 50% off of $8
Isn't that quite dishonest? I'm fairly sure this is illegal in at least the UK, so I'd assume in plenty other EU countries too. Are you in the US? Is this practice legal there?
Isn't that quite dishonest? I'm fairly sure this is illegal in at least the UK, so I'd assume in plenty other EU countries too. Are you in the US? Is this practice legal there?
That would be illegal in Ireland, and presumably accross the EU.
this practice is so prevalent here in the US I cant imagine it being illegal
You are wrong. Many states have laws against this type of deceptive pricing, and it's against the FCC's guidelines as well: http://www.ecfr.gov/cgi-bin/text-idx?SID=0fe5a1d5614a06c2f27...
and yet we dont care when Manning tech books always have a discount someway somehow. there's almost always a deal of the day. just have patience. I know it's not technically perpetual but it has the same effect.
Joseph A Bank was sued for perpetual sales [1]. The case was dismissed for defects in the plaintiff's case unrelated to the legal theory (they couldn't produce receipts of their supposed purchases), but of course even an unsuccessful lawsuit of this nature could bankrupt a startup.
Of course, without deep pockets, a startup is also unlikely to be targeted for this.
1: http://business.time.com/2012/06/11/can-you-sue-a-store-for-...
Of course, without deep pockets, a startup is also unlikely to be targeted for this.
1: http://business.time.com/2012/06/11/can-you-sue-a-store-for-...
>> perpetually listed as 50% off of $8
>Isn't that quite dishonest? I'm fairly sure this is illegal in at least the UK, so I'd assume in plenty other EU countries too. Are you in the US? Is this practice legal there?
That's weird, are people in the UK not able to see through marketing gimmicks?
>Isn't that quite dishonest? I'm fairly sure this is illegal in at least the UK, so I'd assume in plenty other EU countries too. Are you in the US? Is this practice legal there?
That's weird, are people in the UK not able to see through marketing gimmicks?
Apparently most of us can't, or it wouldn't be worth using them. ;)
Really you could consider it a subset of truth in advertising law though. How can it be a 50% discount if it's never been sold at full price for a significant amount of time?
Really you could consider it a subset of truth in advertising law though. How can it be a 50% discount if it's never been sold at full price for a significant amount of time?
Basically what happened is that I did sell it for $8, then I did a 50% sale and saw an increase in sales. I did the sale on and off a few times then just got lazy and didn't get around to removing the sale flag from the website for a while and eventually I just decided that most people only buy it once, so from their perspective it's on sale now. It also saved the effort of remembering to switch the pricing back and forth every few weeks.
> Rather than asking people, if you can, try just changing the prices and see how customer acquisition changes.
This is essentially the best advice you can get.
IF you have to be safe because you're e.g. in Germany and you can't just change other peoples contracts after they signed up. Just keep the old contract/subscription types and then offer them a migration path sometime in the future.
This is essentially the best advice you can get.
IF you have to be safe because you're e.g. in Germany and you can't just change other peoples contracts after they signed up. Just keep the old contract/subscription types and then offer them a migration path sometime in the future.
> IF you have to be safe because you're e.g. in Germany and you can't just change other peoples contracts after they signed up.
Isn't it the very nature of contracts that you cannot change them unilaterally? I'd be very surprised if there are places where you can legally do that, and I wouldn't call such a thing "contract".
Isn't it the very nature of contracts that you cannot change them unilaterally? I'd be very surprised if there are places where you can legally do that, and I wouldn't call such a thing "contract".
> Rather than asking people, if you can, try just changing the prices and see how customer acquisition changes.
You likely can lose chunk of customers because of big price fluctuations..
You likely can lose chunk of customers because of big price fluctuations..
You can change prices for new customers while keeping the old price for existing customers. Though if it's a price drop, you might want to lower for the existing ones too.
>not correlated.
Eh? So if I told you I had two products A and B and I showed them to potential customers who on average said they would pay $100 for A and $10,000 for B, you wouldn't be willing to bet that when I actually take them to market B would end up retailing for more?
Eh? So if I told you I had two products A and B and I showed them to potential customers who on average said they would pay $100 for A and $10,000 for B, you wouldn't be willing to bet that when I actually take them to market B would end up retailing for more?
> you wouldn't be willing to bet...?
You just compared two (purely hypothetical) things someone said they'd do, you didn't address what @Osiris was talking about, which is the discrepancy between talk and action. The comment is correct, there is a lot of evidence out there that people do not pay what they say, that actions and talk do not correlate very well. So it would be interesting if you had some counter evidence to back your rebuttal, because theories based on logic alone rarely survive contact with actual human behavior.
You just compared two (purely hypothetical) things someone said they'd do, you didn't address what @Osiris was talking about, which is the discrepancy between talk and action. The comment is correct, there is a lot of evidence out there that people do not pay what they say, that actions and talk do not correlate very well. So it would be interesting if you had some counter evidence to back your rebuttal, because theories based on logic alone rarely survive contact with actual human behavior.
He must have meant loosely correlated. I'm sure it varies by product type and user knowledge.
> it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising
Also, those are customers that will not buy your competitors' product.
Also, those are customers that will not buy your competitors' product.
Well, depending on price and features, of course.
I have purchased both TextMate and Sublime, for instance, and now use Atom.
I have purchased both TextMate and Sublime, for instance, and now use Atom.
> perpetually listed as 50% off
Illegal in the UK IIRC
Illegal in the UK IIRC
I second this. I always start my service for free, and tell them at some point I'm going to charge pricing, but the first 100 users don't have to pay EVER.
After I get ~50 - ~300 users, I tell them I'm going to set pricing. I usually do this with a pop up or email. They then have a drop down with "how much would you be willing to pay monthly for this service"
Usually you get some range, say $5/month to $100/month. I usually pick one standard deviation above the average. So in this case, let's call that $60/month.
Then, I usually will A/B test pricing by changing it month by month with "sales" so my current customers don't get too angry.
I've done this three times on my products and several times for others. Thus far, it's worked very well. You don't always want to capture the most customers to make the most profit. This method has you start at the top of what people would be willing to pay and work down.
Plus, you start with a user base for free that share you with their friends. Seriously, this has been the best way to jump start the business.
After I get ~50 - ~300 users, I tell them I'm going to set pricing. I usually do this with a pop up or email. They then have a drop down with "how much would you be willing to pay monthly for this service"
Usually you get some range, say $5/month to $100/month. I usually pick one standard deviation above the average. So in this case, let's call that $60/month.
Then, I usually will A/B test pricing by changing it month by month with "sales" so my current customers don't get too angry.
I've done this three times on my products and several times for others. Thus far, it's worked very well. You don't always want to capture the most customers to make the most profit. This method has you start at the top of what people would be willing to pay and work down.
Plus, you start with a user base for free that share you with their friends. Seriously, this has been the best way to jump start the business.
Sales is a great idea for testing, but how do you make a sale to increase price? My current customers know the price. Word of mouth customers know it too.
For your scenario, you need to start at a higher price point, no?
For your scenario, you need to start at a higher price point, no?
'sales' is a really cool idea
i think someone else in the thread made a comment about 'pissing off' existing customers, but a 'sale' is the perfect solution.
i think someone else in the thread made a comment about 'pissing off' existing customers, but a 'sale' is the perfect solution.
Yup, you do sales with it listed like: ~$60~ now only $35!
That's a good approach overall. Thanks for sharing. There are a couple of problems with sales however:
1. In a way they address a different psychological need for people. It's about getting a good deal or a discount over the "normal" price, rather than considering the price itself... So you're testing different things that in some way conflict.
2. Over time, if people see there's always a sale, they might hold-off from buying?
3. It just gives a slightly "cheap" reputation (think shared hosting as a rather extreme example that comes to mind, or any site that always has tons of coupons on coupon-hunting sites).
1. In a way they address a different psychological need for people. It's about getting a good deal or a discount over the "normal" price, rather than considering the price itself... So you're testing different things that in some way conflict.
2. Over time, if people see there's always a sale, they might hold-off from buying?
3. It just gives a slightly "cheap" reputation (think shared hosting as a rather extreme example that comes to mind, or any site that always has tons of coupons on coupon-hunting sites).
That's a great methodology! But you do you avoid your customers lowballing their numbers since they know you're using the information to set the price they will eventually pay?
Excellent questions. Do not anchor the interviewees.
But anchor yourself. You should certainly know the prices of your competitors (or the closest thing thereto).
But anchor yourself. You should certainly know the prices of your competitors (or the closest thing thereto).
I'm really interested in your second question!
I just released a product recently which HUGELY undercuts the competition. I was able to build it cheaply, over the course of a couple of years, and as a result I never took investment or hired anyone, so I can offer the product at incredibly low rates (compared to the competition).
My worry is that I may be pricing it so low, that I'm actually scaring off potential customers. This is an enterprise product, so they're used to seeing massive licensing fees. I initially thought that offering it at the lowest price I could afford, would mean I would garner the most customers, but now I'm starting to wonder if that's true... I have no experience pricing things, and I'm really considering putting out a survey to existing customers.
I just released a product recently which HUGELY undercuts the competition. I was able to build it cheaply, over the course of a couple of years, and as a result I never took investment or hired anyone, so I can offer the product at incredibly low rates (compared to the competition).
My worry is that I may be pricing it so low, that I'm actually scaring off potential customers. This is an enterprise product, so they're used to seeing massive licensing fees. I initially thought that offering it at the lowest price I could afford, would mean I would garner the most customers, but now I'm starting to wonder if that's true... I have no experience pricing things, and I'm really considering putting out a survey to existing customers.
Note that you don't want to maximize customers, you want to maximize revenue. So even if hugely undercutting your competition gets you the most customers, you may still want to raise prices. If doubling your prices doesn't produce half as many customers (e.g. because you're still undercutting your competition) then you want to double your prices to make more money.
So yes, worry about scaring off potential customers with a price too low, but don't worry about scaring customers with a price that's too high, unless you scare off proportionally more than you increase the price. The way you describe it sounds like you could make way more money by raising your prices.
So yes, worry about scaring off potential customers with a price too low, but don't worry about scaring customers with a price that's too high, unless you scare off proportionally more than you increase the price. The way you describe it sounds like you could make way more money by raising your prices.
> Note that you don't want to maximize customers, you want to maximize revenue.
Now there is a memo that the Silicon Valley web startup economy didn't get...
Now there is a memo that the Silicon Valley web startup economy didn't get...
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This link [1] has a good description of Sandy Kurtzig's "flinch" pricing method with Enterprise customers (I believe she was the first female startup founder to IPO her company). Her book, "CEO" about her startup journey is a good read, it was one of the first books I read that got me interested in business.
[1] http://venturehacks.com/articles/pricing
[1] http://venturehacks.com/articles/pricing
Thanks, this was funny to listen! ... $75K! ... aeh per year!
I just wanted to say that be careful about lowering your price just because you can. You should charge a price that maximizes your profit. Don't charge low just because you can, unless you have a reason (company philosophy, growth, etc.). Business usually exists to maximize profit. If you are priced a lot lower than your competition, double check whether your price is too low.
If not scaring them away, you might just be leaving money on the table for no good reason. Enterprise customers aren't as price sensitive as consumers or smb.
How long is your sales cycle from visitor to paid? If less than 1-2 months, just play around double the price for a month and see what happens.
Having run and advised numerous companies over years, increasing prices is one of the best decisions a startup can do. In 90% of cases there are no ill effects and just increased income which helps buld a better product. Profitability FTW.
Having run and advised numerous companies over years, increasing prices is one of the best decisions a startup can do. In 90% of cases there are no ill effects and just increased income which helps buld a better product. Profitability FTW.
I was once told by a former Seattle based executive that the best way for a startup to price their product was to take what they thought it should be worth and then add a couple of zeros to the end.
There's a school of thought that says that you should only achieve a certain percentage of sales. So if you're getting 90% of deals then you might be pricing too low, and if you're not getting anything then obviously too high. But if you're making 10% of sales and your selling for 100x more than your guess at the price then you're likely doing well.
There's a school of thought that says that you should only achieve a certain percentage of sales. So if you're getting 90% of deals then you might be pricing too low, and if you're not getting anything then obviously too high. But if you're making 10% of sales and your selling for 100x more than your guess at the price then you're likely doing well.
Genuinely asking: Have you experimented with asking people to guess the price for the product? (Wondering if that is a simpler and better question to ask the users.)
Very sensible approach. My question would be: does this product make more sense as a recurring subscription or a one-time cost? Perhaps so many things are subscription based now that it is hardly a question, though.
And then when you've answered all of those, surely the next one is:
5. How willing are you to undercut yourself, due to financial desperation?
Out of that question will pop out a selling price.
5. How willing are you to undercut yourself, due to financial desperation?
Out of that question will pop out a selling price.
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You might consider a different tactic, one where you ask whether they would feel X is a fair price for the product. This can help eliminate bias in responses.
Conjoint analysis is also a common approach. It requires less specific answers from customers about price points, which people are often unwilling to share.
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If you can get enough solid survey responses, conjoint is ideal, but won't give you a lot in terms of a price elasticity curve. That's not necessarily a problem, but I'd recommend a combination of MaxDiff (baby conjoint) and Van Westendorp. Used in tandem you'll get some solid footing on packaging preferences, value props for positioning, and ultimately price elasticity.
Is this after you they have trialed the product/service or when you have just given them an overview of what it does and how it is valuable to them?
This method fails when you are selling a SaaS aimed at large companies with an unknown budget.
There probably isn't one method that works in all cases.
There probably isn't one method that works in all cases.
Dang! i just tried this. Thanks brotha
Great informative answer. Question: is the x axis linear scale?
I should really about this in a more formal fashion, but here's the HN comment version of several years of doing pricing for SaaS companies:
Price higher than you feel comfortable with. Approximately every SaaS team devalues their software because, unlike their clients, they were actually capable of writing it. Your clients don't care that it was "only a few weeks of work" or "really not as good as $UNRELATED_SOFTWARE_YOU_COMPARE_IT_TO" or "not as polished as Apple." Also, if you haven't run a business before, you have no idea how much businesses pay for pedestrian services like e.g. trash takeout, business insurance, monthly bookkeeping, etc.
Concretely, my standard "knowing nothing else" pricing for B2B SaaS is a three plan grid with $49/$99/$249 . If you're servicing informal firms like e.g. many Shopify sellers, you can add in a $29 price point. You don't want to service businesses for below $29 a month; you will suffer enormous pain in doing so and you will find that they churn and burn through software for a variety of reasons unrelated to you, for example because they go out of business, they have such severe cash-flow constraints such that sending you an email asking for a $5 discount is a good use of their time, etc.
You're not going to get pricing right the first time around. No one does. This is fine. Over time, you are likely going to raise prices across the board, as you improve your product, get a tighter focus on which customers benefit from you (which is isometric to improving the product, from the customer's perspective -- c.f. a below comment from tptacek on packaging), and get more confident in your team/offering. There is a simple way in SaaS to make price increases a non-event: grandfather in existing customers at their existing price. If your company is growing, your revenue for the next month is dominated by existing clients but your revenue as T goes to infinity is dominated by new clients, so I tend to just recommend people grandfather indefinitely. Yes, this does result in a couple of early adopters getting $1k a month of services for (in some cases) $19; I consider that a marketing expense to reward people for loyalty.
There are a lot of microtactical things you should build to support experimentation with prices. One is backend infrastructure to allow your CS team to change someone's plan at any time; another is some sort of crediting feature or special one-off pricing (one-time or ongoing), because as T goes to infinity you'll probably want to do both of them. I'll write about them some day.
You can track churn rates by the plan people are on, but I find that that isn't terribly useful early in the life of a business, since you'll have relatively few accounts in any bucket. For this reason, I often have a shadow attribute on plans to do "bucket by relative size of account", such that e.g. folks on Small Business at $49, Small Business (March vintage) at $34, Starter Edition For YC Companies at $45, etc all bucket into the same place for churn calculations.
Prefer giving people free things (exceptional acts of service, for example) to giving people discounts. They'll remember them for longer and you absorb the costs once, early in the relationship, rather than every month. Any recurring discount you issue in SaaS is essentially a liability on your books. (And existing happy accounts are a de facto asset, though GAAP doesn't treat them that way.)
Price higher than you feel comfortable with. Approximately every SaaS team devalues their software because, unlike their clients, they were actually capable of writing it. Your clients don't care that it was "only a few weeks of work" or "really not as good as $UNRELATED_SOFTWARE_YOU_COMPARE_IT_TO" or "not as polished as Apple." Also, if you haven't run a business before, you have no idea how much businesses pay for pedestrian services like e.g. trash takeout, business insurance, monthly bookkeeping, etc.
Concretely, my standard "knowing nothing else" pricing for B2B SaaS is a three plan grid with $49/$99/$249 . If you're servicing informal firms like e.g. many Shopify sellers, you can add in a $29 price point. You don't want to service businesses for below $29 a month; you will suffer enormous pain in doing so and you will find that they churn and burn through software for a variety of reasons unrelated to you, for example because they go out of business, they have such severe cash-flow constraints such that sending you an email asking for a $5 discount is a good use of their time, etc.
You're not going to get pricing right the first time around. No one does. This is fine. Over time, you are likely going to raise prices across the board, as you improve your product, get a tighter focus on which customers benefit from you (which is isometric to improving the product, from the customer's perspective -- c.f. a below comment from tptacek on packaging), and get more confident in your team/offering. There is a simple way in SaaS to make price increases a non-event: grandfather in existing customers at their existing price. If your company is growing, your revenue for the next month is dominated by existing clients but your revenue as T goes to infinity is dominated by new clients, so I tend to just recommend people grandfather indefinitely. Yes, this does result in a couple of early adopters getting $1k a month of services for (in some cases) $19; I consider that a marketing expense to reward people for loyalty.
There are a lot of microtactical things you should build to support experimentation with prices. One is backend infrastructure to allow your CS team to change someone's plan at any time; another is some sort of crediting feature or special one-off pricing (one-time or ongoing), because as T goes to infinity you'll probably want to do both of them. I'll write about them some day.
You can track churn rates by the plan people are on, but I find that that isn't terribly useful early in the life of a business, since you'll have relatively few accounts in any bucket. For this reason, I often have a shadow attribute on plans to do "bucket by relative size of account", such that e.g. folks on Small Business at $49, Small Business (March vintage) at $34, Starter Edition For YC Companies at $45, etc all bucket into the same place for churn calculations.
Prefer giving people free things (exceptional acts of service, for example) to giving people discounts. They'll remember them for longer and you absorb the costs once, early in the relationship, rather than every month. Any recurring discount you issue in SaaS is essentially a liability on your books. (And existing happy accounts are a de facto asset, though GAAP doesn't treat them that way.)
Thanks for the comment. But Github (to take one example) has pricing that starts from $7 a month. This despite of having a free tier. What's your opinion on that? Is it because they target developers and not businesses at that price point? Even their organisation plan starts at I think $11.
If Github priced it so low, I guess they wanted to capture that segment of developers who would pay $7 a month but no more. It makes me want to price my product too at $7 a month at a lower tier. Any comments on this please?
If Github priced it so low, I guess they wanted to capture that segment of developers who would pay $7 a month but no more. It makes me want to price my product too at $7 a month at a lower tier. Any comments on this please?
I think GitHub intends to have approximately every software developer in the world use GitHub, which is not the planned endgame for most software companies.
I do not think, if your customers number less than hundreds of thousands, that getting the custom of folks for whom $9 is a lot of money is a worthwhile use of your time. Devs consistently overestimate the impact on their marketing/etc of having cheapskates use them, and underestimate the real operational costs. (These customers are disproportionately pathological; they contact support rudely, with inane questions, at a rate orders of magnitude higher than good customers.)
I do not think, if your customers number less than hundreds of thousands, that getting the custom of folks for whom $9 is a lot of money is a worthwhile use of your time. Devs consistently overestimate the impact on their marketing/etc of having cheapskates use them, and underestimate the real operational costs. (These customers are disproportionately pathological; they contact support rudely, with inane questions, at a rate orders of magnitude higher than good customers.)
The other thing is the $7 price point is for an individual / enterprise. You can't have a team collaborating which means that isn't the price point any business is paying.
Joel Spolsky has written a great article on software pricing: https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-... This article was part of the reading list at Stanford's Startup Engineering CS184 course.
Another resource with lots of actionable advice: A Gigantic List of Psychological Pricing Strategies: https://www.nickkolenda.com/psychological-pricing-strategies...
Another resource with lots of actionable advice: A Gigantic List of Psychological Pricing Strategies: https://www.nickkolenda.com/psychological-pricing-strategies...
That write-up by Joel is great as an intro to economics course in 15 minutes, but even after all the analysis he makes the very valid statement that it depends on the strategy of growth you have in mind. If you are trying to cash out right away, you don't care as much about longroots longevity / word-of-mouth / gradual-grow / customer feedback loops. If you are going for a long-term recurrent-returns kind of loop, then you want to go for what will be conducive to growth & also act psychologically well as a "price for a valuable thing/connection/pathway/service" Because if you sell me your awesome product too cheaply, although I will be appreciative, the average consumer will assume some sort of defectiveness. Thanks for that link, it is helpful when contemplating this stuff.
Hey Everyone - Patrick Campbell here, CEO/Founder of Price Intelligently. We've been in the pricing trenches for the better part of five years now working on the pricing for anyone from Atlassian and Autodesk to Lyft and Blue Bottle Coffee.
Pricing is ultimately a process, similar to product or marketing development. We've written extensively on it at priceintelligently.com, but here's a bunch of topics you should look through that will ultimately give you a solid foundation. The biggest thing to keep in mind is that there aren't any tips or tricks that are going to help you win - you need to quantify your buyer personas and price based on them accordingly. If you ever have any questions, always up for getting on the phone - patrick[at]priceintelligently[dot]com.
Value based pricing 101 - overview of how you should be thinking of your pricing (not based on costs or competitors): http://www.priceintelligently.com/blog/bid/162160/Value-Base...
Pricing Process: Here's a 130 page ebook we wrote on how to collect the data you'll need, how to structure things, and a bunch of other pieces. This isn't the final cut of the ebook, but given the conversation I thought I'd share early (no lead form): https://cdn2.hubspot.net/hubfs/120299/Price-Intelligently-Sa...
Here's also a webinar recording that walks through the above process if you prefer to watch: https://pi.wistia.com/medias/79lpgnqd2f
Survey design is absolutely crucial. We've sent around 20M using our pricing software at this point, but here are some lessons we wrote through at the 5M mark: http://blog.profitwell.com/lessons-from-sending-5m-saas-cust...
Pricing is ultimately a process, similar to product or marketing development. We've written extensively on it at priceintelligently.com, but here's a bunch of topics you should look through that will ultimately give you a solid foundation. The biggest thing to keep in mind is that there aren't any tips or tricks that are going to help you win - you need to quantify your buyer personas and price based on them accordingly. If you ever have any questions, always up for getting on the phone - patrick[at]priceintelligently[dot]com.
Value based pricing 101 - overview of how you should be thinking of your pricing (not based on costs or competitors): http://www.priceintelligently.com/blog/bid/162160/Value-Base...
Pricing Process: Here's a 130 page ebook we wrote on how to collect the data you'll need, how to structure things, and a bunch of other pieces. This isn't the final cut of the ebook, but given the conversation I thought I'd share early (no lead form): https://cdn2.hubspot.net/hubfs/120299/Price-Intelligently-Sa...
Here's also a webinar recording that walks through the above process if you prefer to watch: https://pi.wistia.com/medias/79lpgnqd2f
Survey design is absolutely crucial. We've sent around 20M using our pricing software at this point, but here are some lessons we wrote through at the 5M mark: http://blog.profitwell.com/lessons-from-sending-5m-saas-cust...
Is Price Intelligently an automated service, or do you provide consultants/analysts to do the analysis?
I bet you've just given some folks a SaaS idea that might be worth tackling with full-on automation.
[deleted]
On the one hand, I'm also curious, it's always interesting to see how things work.
On the other hand, if you're evaluating it in terms of use, why do you care? Your criteria should be, does it set good prices or not?
On the other hand, if you're evaluating it in terms of use, why do you care? Your criteria should be, does it set good prices or not?
I spoke to them, and was offered a consultancy-based service (5 digits). They do have some tools, but I don't think that's their main offering. Maybe I missed something though. I wasn't offered any SaaS tool however.
I think you do definitely care, because of the initial cost/commitment. I'd be happy to try a <=3 digit/month service for a few months and see how it performs. It's a whole different ballpark to bring in consultants for a 5 digits project though...
To clarify, I don't say anything about the value they bring. It could easily pay for itself in lots of cases. But it's still a much harder decision to make, and you need to have pretty good faith that it's really going to pay for itself.
I think you do definitely care, because of the initial cost/commitment. I'd be happy to try a <=3 digit/month service for a few months and see how it performs. It's a whole different ballpark to bring in consultants for a 5 digits project though...
To clarify, I don't say anything about the value they bring. It could easily pay for itself in lots of cases. But it's still a much harder decision to make, and you need to have pretty good faith that it's really going to pay for itself.
Just watched the webinar linked to. For me, one of the most interesting points, was the competitive advantage that freemium pricing combined with value based pricing can bring. Profit Well seems to be a case in point - there are a bunch of options for Stripe (et al.) analytics at the moment but it's got to be tough to compete with a fairly full featured freemium offering...
Use good invoicing/billing software that allows you to discount on a per customer basis.
Start with two price points: one targeted at price sensitive customers, call it price A, and one targeted at price-insensitive customers (think enterprise), call it price C.
Set price A lower than you think - you can always add features and raise later to the point that people start to scream.
Set price C at much higher than you think - use volume discounting to offer discounting where needed, but this is your anchor point for conversations with big customers.
Consider whether price A is your acquisition channel or if you will have a "free" tier. If you don't have a free tier, you can feel fine with a lower than optimal price for tier A, as this is your conversion channel to price C.
Eventually you'll want a tier between A & C (call it B) to anchor pricing and encourage people to choose A or C. Refer to research on movie popcorn prices.
Start with two price points: one targeted at price sensitive customers, call it price A, and one targeted at price-insensitive customers (think enterprise), call it price C.
Set price A lower than you think - you can always add features and raise later to the point that people start to scream.
Set price C at much higher than you think - use volume discounting to offer discounting where needed, but this is your anchor point for conversations with big customers.
Consider whether price A is your acquisition channel or if you will have a "free" tier. If you don't have a free tier, you can feel fine with a lower than optimal price for tier A, as this is your conversion channel to price C.
Eventually you'll want a tier between A & C (call it B) to anchor pricing and encourage people to choose A or C. Refer to research on movie popcorn prices.
> Set price A lower than you think - you can always add features and raise later to the point that people start to scream.
Set price A higher than you think. It is easy to lower the price later or to give -30% to customers and have them think it's a bargain. A higher price tag will confirm that your product is valuable and useful and you've got a market.
If they don't want to pay, you need to make a better product, or sell harder, or market it better. You don't want to fight for cheapness, cheap customers are cheap, annoying and they won't cover the costs to run the service.
Set price A higher than you think. It is easy to lower the price later or to give -30% to customers and have them think it's a bargain. A higher price tag will confirm that your product is valuable and useful and you've got a market.
If they don't want to pay, you need to make a better product, or sell harder, or market it better. You don't want to fight for cheapness, cheap customers are cheap, annoying and they won't cover the costs to run the service.
Agree. My experience in pricing was that we were locked in to the initial price we set. (And the CEO did it by accident. Oops.) No one could stomach raising it.
Then again, we didn't actually try raising it and face backlash. It's possible we were just too cowardly to try and fail.
Then again, we didn't actually try raising it and face backlash. It's possible we were just too cowardly to try and fail.
I tried something similar... Our CEO set the price of our email service too low (oops). But unlike you we faced the music and doubled the price only a year after. The backlash was much smaller than I anticipated. We marketed the price hike by adding some requested features and made the payment term half as long so the price seemed to be the same. This made it easier for our customers to swallow. Of course we lost customers, but not enough to make a difference (about 5%).
Don't agree with this at all. Pricing should never be up to the client and their ability to pay. And also, you will have to keep track of every customer and their individual prices which would be a mess to keep track of.
You have to remember that most industries are very incestuous with people moving between companies within that industry. So what happens if someone from a price-sensitve customer (price A) moves jobs to a price C company and tells the new company the low price that their old price-sensitve company was getting? Price C company will demand that price (as I would) and then you're in trouble.
I make things simple. I charge the same price for everyone with discounts for volume. That's it. Nice and clean.
You have to remember that most industries are very incestuous with people moving between companies within that industry. So what happens if someone from a price-sensitve customer (price A) moves jobs to a price C company and tells the new company the low price that their old price-sensitve company was getting? Price C company will demand that price (as I would) and then you're in trouble.
I make things simple. I charge the same price for everyone with discounts for volume. That's it. Nice and clean.
Is there a way to match pricing to how busy it is? like i want to charge customers $100 to post an ad to sell their used tesla BUT if its slow then i wanna be able to reduce it to , say, like $50 maybe even free when its damn slow, like during the weekday or something. maybe automate it ?https://onlyusedtesla.com/
Pricing sounds so simple but it is a surprisingly complex thing to get "right". I read an article from Sequoia recently that I thought was very well written. Not sure if it's relatively new or if it's been there for ages. I recommend it anyways, great read.
# The Sequoia Guide to Pricing https://www.sequoiacap.com/article/pricing-your-product/
# The Sequoia Guide to Pricing https://www.sequoiacap.com/article/pricing-your-product/
Annoying they have no date. The Internet Archive has first saved it on 2016-03-11.
https://web.archive.org/web/*/https://www.sequoiacap.com/art...
https://web.archive.org/web/*/https://www.sequoiacap.com/art...
TL;DR - Price is not a function of cost, and is ideally set before your product is built. Do not attempt to set a price unless you have a profile for your target market. Then, price according to what your customer is willing to pay.
IMO, this is a marketing question and here's a good entrepreneurial process for profiling the market and your target price. First, ask yourself these questions:
* What actual value does the product give to the customer?
* What are the competitors / substitutions to the product?
* What makes this product sustainable?
* What does the customer currently pay for comparable solutions - in money, time, and effort?
This should give you a good feel for what your customer is willing to pay. Then, set some financial profit targets which is your total revenue - total expenses (don't factor investment money as revenue). Finally, bend your product / process to this target price (not the other way around).
I would encourage any engineer to research courses on Marketing and Entrepreneurial Finance. The best marketers merge the engineering process (i.e. research, statistic, and financial analysis) with psychology (i.e. the feels).
Anyways, good question and it should not be taken lightly. I've stalked HN for some time now, but this question caused me to finally create an account.
IMO, this is a marketing question and here's a good entrepreneurial process for profiling the market and your target price. First, ask yourself these questions:
* What actual value does the product give to the customer?
* What are the competitors / substitutions to the product?
* What makes this product sustainable?
* What does the customer currently pay for comparable solutions - in money, time, and effort?
This should give you a good feel for what your customer is willing to pay. Then, set some financial profit targets which is your total revenue - total expenses (don't factor investment money as revenue). Finally, bend your product / process to this target price (not the other way around).
I would encourage any engineer to research courses on Marketing and Entrepreneurial Finance. The best marketers merge the engineering process (i.e. research, statistic, and financial analysis) with psychology (i.e. the feels).
Anyways, good question and it should not be taken lightly. I've stalked HN for some time now, but this question caused me to finally create an account.
(I was responsible for pricing)
We built developer tools and we figured that by using them people were at least 10% more productive (pretty easily verified). We leased (we offered to sell it as well but priced it unattractively) and priced an annual lease at about 1-2% of an engineer's salary. So about $1500/year.
It wasn't an easy sell back in the day and it's almost an impossible sell today. People want everything to be $8/month which is 10-15x less than what we were charging. Good thing I'm retired, eh? :)
One side not, amusing maybe, is that before I did business to business sales I was under the impression that a dollar is a dollar no matter who you area. Boy, was I wrong. We quickly figured out which customers were pleasant, gave us good bug reports, read the docs, and which customers were sort of lame, and which customers were complete assholes. It was not very long before we had the "nice guy price" and the "asshole price". It was eye opening to me, I had no idea how much everything is negotiable and how much that was influenced by how pleasant people were or were not.
We built developer tools and we figured that by using them people were at least 10% more productive (pretty easily verified). We leased (we offered to sell it as well but priced it unattractively) and priced an annual lease at about 1-2% of an engineer's salary. So about $1500/year.
It wasn't an easy sell back in the day and it's almost an impossible sell today. People want everything to be $8/month which is 10-15x less than what we were charging. Good thing I'm retired, eh? :)
One side not, amusing maybe, is that before I did business to business sales I was under the impression that a dollar is a dollar no matter who you area. Boy, was I wrong. We quickly figured out which customers were pleasant, gave us good bug reports, read the docs, and which customers were sort of lame, and which customers were complete assholes. It was not very long before we had the "nice guy price" and the "asshole price". It was eye opening to me, I had no idea how much everything is negotiable and how much that was influenced by how pleasant people were or were not.
Do you have customers who value and use the product/service now? Do they value it? Consider talking to the customers who need and value it.
When I ran my consulting business, I was always afraid to raise the price. I discussed this fear with one of my customers, and he told me that I was too cheap, and that I should raise the price by 50%. He depended of the service, and wanted me to stay in business. I did raise the price 50%, and I don't think I lost a single customer.
To answer your original question, I don't know of any specific tools for pricing. How a company decides to price a service tends to be pretty confidential. It's also normal to base pricing on how much competitors charge. For something new, it is tough. Get customers interested, sell it for more than it costs to make (before you run out of money), figure why customers like it, and eventually you'll have a pretty good idea of what to charge.
When I ran my consulting business, I was always afraid to raise the price. I discussed this fear with one of my customers, and he told me that I was too cheap, and that I should raise the price by 50%. He depended of the service, and wanted me to stay in business. I did raise the price 50%, and I don't think I lost a single customer.
To answer your original question, I don't know of any specific tools for pricing. How a company decides to price a service tends to be pretty confidential. It's also normal to base pricing on how much competitors charge. For something new, it is tough. Get customers interested, sell it for more than it costs to make (before you run out of money), figure why customers like it, and eventually you'll have a pretty good idea of what to charge.
How I did it for an ebook:
1. Set up Google Ads for your product to drive some traffic to an hidden web page
2. Set up A/B testing for your product with a range of different prices. I set up six web pages with prices ranging between $5 and $100.
3. When users click 'Buy now', have a page saying that the product is not available but record the number of people who clicked it.
4. Calculate which setup generated the most income.
1. Set up Google Ads for your product to drive some traffic to an hidden web page
2. Set up A/B testing for your product with a range of different prices. I set up six web pages with prices ranging between $5 and $100.
3. When users click 'Buy now', have a page saying that the product is not available but record the number of people who clicked it.
4. Calculate which setup generated the most income.
I'm not entirely sure why but this seems a bit unethical to me. It is quite clever but maybe you should make it more clear that you are doing a survey and not actually selling your book.
It seems unethical because it is. Making what appears to be a genuine offer to sell at a given price then saying "haha, sorry, just wasting your time to help me but without paying you for it, I'm not selling" is unequivocally a dick move.
The only valid signal for willingness to pay is ACTUAL WILLINGNESS TO PAY. Ideally, you'd even collect (and discard) a credit card number. Asking people to take a survey gives inaccurate results
At that point why not just sell the thing? The per unit cost of an ebook is under a penny, who cares if it sold for $6 or $9.. if they pay, give them the download.
There were a few reasons why I chose to say 'This product is not yet available yet' rather than sell it. First, I was going to do a full product launch and didn't want to release the product into the wild yet. Second, as comments stated below, if one person bought it at $100 and realized someone else bought it at $5, they would be angry. They would ask for their money back. If I were going to eventually charge $50 for the product (which I did), the people who bought it for more would be pissed.
You could give it to all your first customers for the lowest point offered. That is, they said they would pay $60 but you only charge them $20. Tell them why. Tell them this is basically an introductory price and it will go up, but because they helped you they are special. Of course, this limits the N you get for your testing, but it gets rid of the ickiness of it all.
Tell them to check back in a week and learn how much attachment you product has.
A/B testing prices. Never heard of that before, seems interesting. I have heard of people creating landing pages to get a mailing list of people interested.
Are you collecting their email's, sending them to a page or social page to check back when your product is available?
Someone picking a higher price, and you end up pricing it lower that sounds like a plus. If someone picked lower then you actually price it, wouldn't they have been false advertised to? Unless they actually knew it was a survey up front then that seems more fair.
Are you collecting their email's, sending them to a page or social page to check back when your product is available?
Someone picking a higher price, and you end up pricing it lower that sounds like a plus. If someone picked lower then you actually price it, wouldn't they have been false advertised to? Unless they actually knew it was a survey up front then that seems more fair.
A/B pricing has just as good of a chance of destroying your business. Far more "everyday" users than you'd expect will Google your company for coupon codes, discount opportunities, etc. The very moment that someone sees a $20 price for them, and finds out that other people are paying $10-15 - you've just lost a customer.
People like to think they're being clever by A/B testing their prices. The fact is enough people are smart enough to figure out that their "A" slot is worse than the "B" slot you've given other people.
People like to think they're being clever by A/B testing their prices. The fact is enough people are smart enough to figure out that their "A" slot is worse than the "B" slot you've given other people.
A/B testing prices is huge. In fact it is so common that loads of web scraping products get totally caught out with it (as ecommerce retailers tend to give the best prices to new customers, ie ones without tracking cookies set).
This actually totally broke one startup I knew (that was trying to build an API for ordering products from loads of ecommerce sites).
This actually totally broke one startup I knew (that was trying to build an API for ordering products from loads of ecommerce sites).
This goes back to the days of newspapers, classified ads, and late night infomercials detailing how you can get rich from thousands of tiny little ads. One trick was to advertise a product at a specific price, saying "Send in your check or money order for $99 to P.O. Box..." and state that delivery was in 6 to 8 weeks. If you got enough orders, then purchase the product at a bulk rate and fulfill the orders. If not, send the payments back to everyone with some apology. Rinse and repeat with different ads at different price points until you find what generates the most profit.
Pricing can be one of the most complex topics in business. About twenty years ago I read through what I consider to be THE book on the subject, "The Strategy and Tactics of Pricing":
https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Prof...
What I learned was invaluable. I do have to warn you, the book lays it all out. This is excellent, of course. However, what happens is your level of confusion as to how and why to price using a certain approach will grow as you progress through the book.
Somewhere past the middle things start to coalesce and your choices become clearer. Again, this depends on the nature of the product.
Please note this is not a critique of the book at all, it's excellent, this is a complex topic and it is only natural to be confused before reaching clarity.
https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Prof...
What I learned was invaluable. I do have to warn you, the book lays it all out. This is excellent, of course. However, what happens is your level of confusion as to how and why to price using a certain approach will grow as you progress through the book.
Somewhere past the middle things start to coalesce and your choices become clearer. Again, this depends on the nature of the product.
Please note this is not a critique of the book at all, it's excellent, this is a complex topic and it is only natural to be confused before reaching clarity.
(I consult on topics like this for startups)
A lot of the comments are focused on figuring out price points, i.e. how much.
You should also spend time figuring out the right pricing metric, to make sure that as your customer gets more value out of your product, you continue to get a fair share of that value.
By pricing metric I mean things like per user, per server, per API call, etc.
Take for example a SaaS app that helps you create project proposals.
If you charge per user at $10/month, and one user generates 1,000 proposal a month, effectively that user is paying 1 cent per proposal.
In this case the proxy for value for your product is number of proposals.
The user is getting a lot of value from your product, but you're getting a flat share of that value. Regardless of how many proposals the user create, you still only get $10.
So in this example, it makes more sense for you to charge by proposal first and foremost.
Gets more complex as you think about secondary metrics but that's the principle.
A lot of the comments are focused on figuring out price points, i.e. how much.
You should also spend time figuring out the right pricing metric, to make sure that as your customer gets more value out of your product, you continue to get a fair share of that value.
By pricing metric I mean things like per user, per server, per API call, etc.
Take for example a SaaS app that helps you create project proposals.
If you charge per user at $10/month, and one user generates 1,000 proposal a month, effectively that user is paying 1 cent per proposal.
In this case the proxy for value for your product is number of proposals.
The user is getting a lot of value from your product, but you're getting a flat share of that value. Regardless of how many proposals the user create, you still only get $10.
So in this example, it makes more sense for you to charge by proposal first and foremost.
Gets more complex as you think about secondary metrics but that's the principle.
If you're new and don't really know what you're doing, price it just below what alternatives are charging. Make it a non-issue, learn as you go and adjust. Don't get too fancy. If you are able to attract & delight customers you will have nearly unlimited flexibility to adjust pricing.
If you are experienced and have a strong vision on the service you are offering and how it should be priced, you can think about premium or non-traditional pricing schemes.
If you are experienced and have a strong vision on the service you are offering and how it should be priced, you can think about premium or non-traditional pricing schemes.
This is probably not great advice. Prices do more than determine how much money you'll make from a given group of customers; they also select which customers you'll be servicing. The two most important pricing lessons startup founders need to learn are segmentation and qualification. You should select a market segment that's attractive, and your pricing scheme should in part serve to ensure that you're not wasting time being responsive to the demands of people outside that segment.
The list of things you can do to repackage your product to go after different market segments is very long and very few of the bullets on the list involve changing code. I think the most important thing to do is to select a group of customer prospects deliberately and then make something those people want, rather than making something for the whole world and trying to optimize the number of people who buy through prices.
You can cost yourself customers/clients by pricing too low.
The list of things you can do to repackage your product to go after different market segments is very long and very few of the bullets on the list involve changing code. I think the most important thing to do is to select a group of customer prospects deliberately and then make something those people want, rather than making something for the whole world and trying to optimize the number of people who buy through prices.
You can cost yourself customers/clients by pricing too low.
Yes. Running a boostrapped organization for 7 years now, I always wish we had priced higher. The few times where we've priced offerings too high, it was always easier coming down in cost rather than going up, and we learned a lot from those early customers who would pay a premium.
Service based but somewhat related. I've recently decided in my consulting efforts; if the customer doesn't try to negotiate the price I'm way too cheap. Supported anecdotally by two interactions with the same customer - a colleague of mine from another company went in at a price for some work that I considered way too low. The response from the customer was "when can you start?" I recently quoted what I considered to be a perfectly reasonable rate for some work and that was the start of the negotiation. We had a good exchange of analogies to support our differing positions!
That's another great point. If you're going to make money from long relationships based on recurring payments, it's good to know that it's extraordinarily difficult to raise prices on an existing customer. If you sell to large companies, you'll find they have entire departments dedicated to ensuring that never happens.
I've had several experiences raising prices. It's not that hard. On new customers it's trivial.
I agree with this.
We've been looking at pricing services suggested in this thread, and we've been self-selecting away from the extremely expensive services (e.g. Price Intelligently [1]), as that indicates that the service is targeted towards large enterprises, and not small SaaS companies.
Conversely, if the services were priced lower, that would probably scare off large enterprises.
[1]: http://www.priceintelligently.com/
We've been looking at pricing services suggested in this thread, and we've been self-selecting away from the extremely expensive services (e.g. Price Intelligently [1]), as that indicates that the service is targeted towards large enterprises, and not small SaaS companies.
Conversely, if the services were priced lower, that would probably scare off large enterprises.
[1]: http://www.priceintelligently.com/
Large enterprises also tend to require more sales and support effort, longer sales cycles, chasing after receivables, etc. All other things being equal, you have to charge more per unit for enterprises. (This has changed somewhat with lines of business just putting some things on credit cards but it's still a reasonable rule of thumb.)
That's absolutely true, but you can serve both. Look at Github- they have Github, which is low cost and self serve, and Github enterprise.
Absolutely. And that's one model. It has its challenges. You have to find the right differentiation. Will anyone pay the premium for the enterprise version? And where are your development efforts going? It's not straightforward but it's certainly a valid approach.
Dangerous advise as you may end up painting yourself into a corner.
There are lots and lots of cases where competitors have been in a niche for a long time and they now use aggressive discounting to experiment with (what's left of) customer acquisition. You price below them, you will die starving. Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.
There are lots and lots of cases where competitors have been in a niche for a long time and they now use aggressive discounting to experiment with (what's left of) customer acquisition. You price below them, you will die starving. Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.
> Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.
It depends on your perspective. When you're small and growing it's actually the opposite.
If you grandfather your existing customers (ideally, indefinitely), then it's quite easy to raise prices. Assuming there is still demand at a higher price range, which in many cases there will be, since your product gains traction and improves over time (so you can also justify charging more).
As your customer base grows, it's also harder to lower prices. Would you cut the cost of all your existing customer base? That immediately cuts into your recurring revenue, and you don't know if it's going to bring more customers to balance out over time.
It depends on your perspective. When you're small and growing it's actually the opposite.
If you grandfather your existing customers (ideally, indefinitely), then it's quite easy to raise prices. Assuming there is still demand at a higher price range, which in many cases there will be, since your product gains traction and improves over time (so you can also justify charging more).
As your customer base grows, it's also harder to lower prices. Would you cut the cost of all your existing customer base? That immediately cuts into your recurring revenue, and you don't know if it's going to bring more customers to balance out over time.
Incumbents tend to spend the rest of their lives raising prices.
Call for Pricing is code for "starting at $1000"
Call all your competitors and pretend to be a customer. Get quotes from all of them.
Position yourself based on their pricing. If you're trying to be high end, charge more. If you want to be seen as affordable charge slightly less.
Call all your competitors and pretend to be a customer. Get quotes from all of them.
Position yourself based on their pricing. If you're trying to be high end, charge more. If you want to be seen as affordable charge slightly less.
Do people think this is OK generally? There are some products I would really like to know the price of but pretending to be a customer to gain competitive information seems ethically questionable.
"I'm interested in your product, can you send me though a price sheet?"
No lies necessary.
No lies necessary.
false dichotomy. can be higher end and cheaper.
true, but that requires you to educate the market and do more convincing.
customers make a lot of conclusions (right or wrong) based on price.
same reason 'healthy' things are priced higher, even if their cost would be lower than the comparable 'unhealthy' thing.
customers make a lot of conclusions (right or wrong) based on price.
same reason 'healthy' things are priced higher, even if their cost would be lower than the comparable 'unhealthy' thing.
I’ll take a different tack than most other comments. Assuming you’re B2B
Step 1: Determine how much value your product creates for your customer
Step 2: Set your price at a majority chunk of that
Example: How much money would you be willing to pay for a lead list that could make you $100 in sales? Assuming you have no internal cost to acquire (for sake of simplicity), if you paid $90 for that list, you’d make a 11% ROI. What sort of ROI do your customers need in order to bite?
Example: How much money would you be willing to pay for a lead list that could make you $100 in sales? Assuming you have no internal cost to acquire (for sake of simplicity), if you paid $90 for that list, you’d make a 11% ROI. What sort of ROI do your customers need in order to bite?
Ha - @TransferWise... we approach this slightly differently.
Most of the discussion here is about - setting to price to optimise for an objective. e.g. how to optimise for revenue, profit - or cash that you can invest in marketing.
Ultimately all these approaches seek to optimise for growth - depending on the definition / time frame / risk profile.
So what you think about growth as an OUTCOME, not an OUTPUT of the model.
We describe ourselves as a mission driven startup - with the mission of making the worlds money move at the touch of the button, instantly for almost nothing.
We invest in making international payments faster, cheaper and less of a pain.
As we reduce our costs, our price drops (obviously money isn't free and we need to have a small margin to cover our costs and continue to invest in the platform)
Hence - there isn't anyone here thinking, lets drop price by 1% and see if we get 1% more volume. We've built a conviction that if we continue to invest in aggressively dropping price customers will switch to us.
Note - if we approach this in a very data centric way will not move with the speed and aggression we are on this. Also our authenticity on this mission would be questioned by our customers.
This authenticity, and conviction - on not focussing on maximising the amount of value we can extract from our customers - is what driven our Word of Mouth growth rate. More on this here - https://www.slideshare.net/pnilan/slides-from-jam-london
Most of the discussion here is about - setting to price to optimise for an objective. e.g. how to optimise for revenue, profit - or cash that you can invest in marketing.
Ultimately all these approaches seek to optimise for growth - depending on the definition / time frame / risk profile.
So what you think about growth as an OUTCOME, not an OUTPUT of the model.
We describe ourselves as a mission driven startup - with the mission of making the worlds money move at the touch of the button, instantly for almost nothing.
We invest in making international payments faster, cheaper and less of a pain.
As we reduce our costs, our price drops (obviously money isn't free and we need to have a small margin to cover our costs and continue to invest in the platform)
Hence - there isn't anyone here thinking, lets drop price by 1% and see if we get 1% more volume. We've built a conviction that if we continue to invest in aggressively dropping price customers will switch to us.
Note - if we approach this in a very data centric way will not move with the speed and aggression we are on this. Also our authenticity on this mission would be questioned by our customers.
This authenticity, and conviction - on not focussing on maximising the amount of value we can extract from our customers - is what driven our Word of Mouth growth rate. More on this here - https://www.slideshare.net/pnilan/slides-from-jam-london
Working with a PhD student to do economic analysis is overkill for an early stage startup.
I would use the methods outlined by other commenters to create a set of potential price points. Pick the highest one and revise downward (or upward) as needed.
If you're solving a real pain point, there's a set of early adopters who will pay a high price for your solution. If this isn't true then I would examine product / market fit.
Mistakes to avoid:
1. Doing a "name your price" promotion.
2. Thinking you've found the golden ticket of pricing and sticking with it. Pricing should be scrutinized early and often.
3. Charging too little. At least some users and reviewers of your product should be commenting that perhaps your pricing is too high. You're charging too little if no one is complaining about pricing. Of course, you've charged too much if everyone complains.
Finally, how you present the value of your product is perhaps more important than the pricing. See here: https://www.wsj.com/articles/SB10001424052748704240004575085...
I would use the methods outlined by other commenters to create a set of potential price points. Pick the highest one and revise downward (or upward) as needed.
If you're solving a real pain point, there's a set of early adopters who will pay a high price for your solution. If this isn't true then I would examine product / market fit.
Mistakes to avoid:
1. Doing a "name your price" promotion.
2. Thinking you've found the golden ticket of pricing and sticking with it. Pricing should be scrutinized early and often.
3. Charging too little. At least some users and reviewers of your product should be commenting that perhaps your pricing is too high. You're charging too little if no one is complaining about pricing. Of course, you've charged too much if everyone complains.
Finally, how you present the value of your product is perhaps more important than the pricing. See here: https://www.wsj.com/articles/SB10001424052748704240004575085...
Damn, I knew I was charging too little. Not only noone is complaining about price, but some explicitely says it's not expensive.
Here's a neat trick I've used a few times when facing this exact issue.
First, set up a survey on Google Surveys (https://www.google.com/analytics/surveys/) and select the most appropriate audience for your concept. Set the first question as a screener of who you think this product is for. So if your business wants to sell to pet stores, you might set the audience to "Small Business / SMB owners" and have the screener question be "Do you own a pet store?" and screen out anyone who says "no."
Then, briefly describe your product and ask a straightforward question about how much they would pay for it. So, something like "What is the maximum you would pay for a service that handled the logistics of mailing pet food to your customers?" Then make the answers to that question your possible price points - "$9.99/month", "$19.99/month", etc. Make sure to include a "I would not pay for the service" or "$0" option - this is an excellent gauge of whether or not your service is actually something people will pay for. If you run a pricing survey like this and 95% of people say $0, that's pretty telling.
When you look at the results, you'll see a clear curve from the higher prices to the lower prices / not interested option, but you'll be able to see what a relatively targeted group would pay. So if 40% of people would pay $9.99/month, and 10% would pay $79.99/month, that tells a story you can interpret into a basic pricing strategy.
Depending on your budget, run 3-5 of these with different prices, different pricing anchors, different wordings, etc. - get as much data as you can.
I used this method for my last startup, when we were trying to figure out how much a specific niche would pay for our product. The pricing research we did through these surveys led us to a conclusion of about $29 per product, which was actually much higher than we had anticipated (we were going to sell it for $9), so we priced it 3x higher than we were going to. Very long story short, we made the right choice - people bought it and we had very few complaints about pricing too high. We even raised prices eventually after adding new features.
Now obviously, there is a delta between what people say they will pay and what they will actually pay, but this method might help get to a starting point, or add a layer to your existing research.
Admittedly, I do this sometimes when I have random dumb ideas for companies and I want to see if there's a market for it without really committing anything.
First, set up a survey on Google Surveys (https://www.google.com/analytics/surveys/) and select the most appropriate audience for your concept. Set the first question as a screener of who you think this product is for. So if your business wants to sell to pet stores, you might set the audience to "Small Business / SMB owners" and have the screener question be "Do you own a pet store?" and screen out anyone who says "no."
Then, briefly describe your product and ask a straightforward question about how much they would pay for it. So, something like "What is the maximum you would pay for a service that handled the logistics of mailing pet food to your customers?" Then make the answers to that question your possible price points - "$9.99/month", "$19.99/month", etc. Make sure to include a "I would not pay for the service" or "$0" option - this is an excellent gauge of whether or not your service is actually something people will pay for. If you run a pricing survey like this and 95% of people say $0, that's pretty telling.
When you look at the results, you'll see a clear curve from the higher prices to the lower prices / not interested option, but you'll be able to see what a relatively targeted group would pay. So if 40% of people would pay $9.99/month, and 10% would pay $79.99/month, that tells a story you can interpret into a basic pricing strategy.
Depending on your budget, run 3-5 of these with different prices, different pricing anchors, different wordings, etc. - get as much data as you can.
I used this method for my last startup, when we were trying to figure out how much a specific niche would pay for our product. The pricing research we did through these surveys led us to a conclusion of about $29 per product, which was actually much higher than we had anticipated (we were going to sell it for $9), so we priced it 3x higher than we were going to. Very long story short, we made the right choice - people bought it and we had very few complaints about pricing too high. We even raised prices eventually after adding new features.
Now obviously, there is a delta between what people say they will pay and what they will actually pay, but this method might help get to a starting point, or add a layer to your existing research.
Admittedly, I do this sometimes when I have random dumb ideas for companies and I want to see if there's a market for it without really committing anything.
this advice runs against a lot of the usual recommendations about ignoring what people say and focusing on what they do. It may well be that basing price on what people say they'd pay results in leaving money on the table.
Sure, we ran real pricing tests and adjusted accordingly once we were launched. This exercise was useful pre-launch, when we had a lot of ideas, but no clear picture of what our potential customer base would pay.
At the same time - never forget that a lot of the "usual recommendations" are wrong :)
At the same time - never forget that a lot of the "usual recommendations" are wrong :)
of course, but I was thinking more towards the A/B testing approach to finding the demand curve that's commonly touted and follows reasonably scientific principles. My concern with customer-driven pricing is that customers will not be able to fully envisage what your offer will be and the effects it would have on their business, or might suggest a lower price than they would realistically pay. I'm glad it worked out well for you though :)
I saw what Envato elements did with their pricing. They started off at $19 a month, and declared that their prices would increase as they came out of beta, had a full launch, etc. but the older customers would retain their lower prices. Their pricing was to go up from $19 to $49, so there was a lot of incentive for early customers to lock into the lower price.
If you look at the pricing page now, the price is fixed at $29. So maybe mentioning the $49 price point was just a marketing trick to lure customers in to the lower price. They also give a discounted price of $19 at cybermonday, etc.. What do you think of this approach? Can approaches like this be considered ethical?
If you look at the pricing page now, the price is fixed at $29. So maybe mentioning the $49 price point was just a marketing trick to lure customers in to the lower price. They also give a discounted price of $19 at cybermonday, etc.. What do you think of this approach? Can approaches like this be considered ethical?
If you read the book "Thinking fast and slow" (excellent book btw), one of the concepts is a baseline price. For example, if nobody knows the worth of your product, they tend to compare with an alternative - the closest competitive product or substitute. This gives you an idea of what you can charge. That defines your product price range. You cannot avoid the comparison because everyone googles, and if they can't find the equivalent, they will find the closest. This approach is not really scientific but I find that I can relate to this very easily then reading "X% says they will pay $100 for this" in a survey. Hope this helps.
More importantly, if people can do (or currently do) what your product does costing $X and you charge $Y > $X and unless you offer them a good advantage (faster/easier/less defects) then they will think hard about adopting your product
I recommend nice book "Don't just roll the dice" by Neil Davidson.
http://download.red-gate.com/ebooks/DJRTD_eBook.pdf
http://download.red-gate.com/ebooks/DJRTD_eBook.pdf
I've been focusing on pricing for years and just delivered a presentation on "bad pricing pages" this afternoon. [0]
Pricing can be very complex, but here are three points that many folks don't know:
* The best price for you will often depend upon your goal (maximize profits, break into a new field, prevent competition, etc)
* Economics textbooks lie! Lower prices don't always correlate to more sales. Sometimes buyers will see a low price and assume the buyer is junk.
* The way you present your prices is often at least as important as the actual prices themselves.
[0] https://taprun.com/talks/
Pricing can be very complex, but here are three points that many folks don't know:
* The best price for you will often depend upon your goal (maximize profits, break into a new field, prevent competition, etc)
* Economics textbooks lie! Lower prices don't always correlate to more sales. Sometimes buyers will see a low price and assume the buyer is junk.
* The way you present your prices is often at least as important as the actual prices themselves.
[0] https://taprun.com/talks/
My #1 advice on pricing (esp for bootstrapping SaaS/software) is to think about your Customer Acquisition Cost (=CAC) first, as in: how many customers will you reasonably be able to acquire given your marketing/sales plan and at what cost? Don't cheat here, but consider the fully loaded cost of doing sales+marketing and divide that number by the number of customers you'll be getting within the same cost period.
That'll give you a lower boundary of what you absolutely will have to charge to break even + an idea of the multiples on this you'll need in order to become a successful business.
That'll give you a lower boundary of what you absolutely will have to charge to break even + an idea of the multiples on this you'll need in order to become a successful business.
You do not have to necessarily have a single price.
You can present different prices through A/B testing and see which one is more profitable.
Then, devise a way to make sure all features pull their weight. Get rid of the features nobody uses or improve them, but don't invest on development and maintenance of features nobody needs (feature creep).
Feature creep translates directly into unaccountable product people and software rot. Software rot translates into checked out engineers that either hate their job or don't care about the project, and heavy/inefficient organizations.
You can present different prices through A/B testing and see which one is more profitable.
Then, devise a way to make sure all features pull their weight. Get rid of the features nobody uses or improve them, but don't invest on development and maintenance of features nobody needs (feature creep).
Feature creep translates directly into unaccountable product people and software rot. Software rot translates into checked out engineers that either hate their job or don't care about the project, and heavy/inefficient organizations.
IMO, be aggressive to a fault.
Most service providers (esp. w/ repeating customers/ recurring revenue) will under price.
Key assumption: competition is thin/weak/lazy/etc.
Aggressive pricing is part of doing business. The "value" of a given service is EXTREMELY hard to pin down to a specific #. Thus, aggressively-high pricing is the best way to go.
If the feedback from (potential) customers consistently returns to price, then lower prices.
Otherwise, consistently provide a great service at a medium-high price until your competitors start grabbing your market share.
Most service providers (esp. w/ repeating customers/ recurring revenue) will under price.
Key assumption: competition is thin/weak/lazy/etc.
Aggressive pricing is part of doing business. The "value" of a given service is EXTREMELY hard to pin down to a specific #. Thus, aggressively-high pricing is the best way to go.
If the feedback from (potential) customers consistently returns to price, then lower prices.
Otherwise, consistently provide a great service at a medium-high price until your competitors start grabbing your market share.
We once did a Dutch auction promotion. The strike price was a 30% of our regular subscription price. We then decided to offer the strike price to all users, not only the winners and that was the month by revenue, three times our MRR at the time. Two years later our MRR is getting close to that record revenue.
We decided not to change our regular price, but probably setting it at 2 times the strike price could be a good regular price point based on the Dutch auction information gathered.
We decided not to change our regular price, but probably setting it at 2 times the strike price could be a good regular price point based on the Dutch auction information gathered.
At the high end is the marginal benefit to your customer. At the low end is your competitor price or your own cost of production. A lot of hot air is in between, and that is where it gets complicated.
Some general considerations are your market strategy, your financial situation, your customer's finances, pain that you would solve, whether your solution results in growth or strategic advantage vs. back-office savings, ... and neither last or least, the emotional wins of the buyer.
Some general considerations are your market strategy, your financial situation, your customer's finances, pain that you would solve, whether your solution results in growth or strategic advantage vs. back-office savings, ... and neither last or least, the emotional wins of the buyer.
This is literally what we do.
There's a lot of methodologies out there you can look at, but in our experience - pricing is an art. How you price is unique to every company, and it's interconnected with product, marketing and positioning. Lesson #1: don't think about pricing in a silo.
Beyond that, there's all sorts of ways of thinking about it. Get in touch if you want to run through some of them for 30 mins (gratis).
https://fantasticmrwolf.com
Good luck!
David
There's a lot of methodologies out there you can look at, but in our experience - pricing is an art. How you price is unique to every company, and it's interconnected with product, marketing and positioning. Lesson #1: don't think about pricing in a silo.
Beyond that, there's all sorts of ways of thinking about it. Get in touch if you want to run through some of them for 30 mins (gratis).
https://fantasticmrwolf.com
Good luck!
David
This is relevant to my interests.
Building an enterprise-oriented product, pricing is really a baffling mystery. Especially since I can't find a good single-factor usage control.
Building an enterprise-oriented product, pricing is really a baffling mystery. Especially since I can't find a good single-factor usage control.
I recommend the book Monetizing Innovation. It'll equip you well to talk about and think about pricing and value.
In my opinion, the hardest part of the problem is getting away from the psychology that pricing "uncomfortably high" is somehow cheating people. It isn't - your product is more often than not more valuable than the sum of its parts.
In my opinion, the hardest part of the problem is getting away from the psychology that pricing "uncomfortably high" is somehow cheating people. It isn't - your product is more often than not more valuable than the sum of its parts.
This is a really good question. I have made a few web services and never had a good answer. Always felt like guess work. My instinct was to try to answer this question: How expensive is the problem my product solves? You start from there and then go down because customers are not going to perceive or feel that cost equally. So even if I make a tool that could save someone weeks of work or replace some existing $500 standard solution, I may still only charge $20 for it.
I agree with the sentiment that it's better to start higher and then come down though. You really are in a sense picking your audience. This is why I am very cautious about "free" services. It isn't just the fear of how the company might actually be trying to monetize by selling my data or using ads. Rather it's fear of the sort of community attracted by the promise of free stuff.
I agree with the sentiment that it's better to start higher and then come down though. You really are in a sense picking your audience. This is why I am very cautious about "free" services. It isn't just the fear of how the company might actually be trying to monetize by selling my data or using ads. Rather it's fear of the sort of community attracted by the promise of free stuff.
Product mix is more important than hitting the single "best" price.
Each customer has an amount that they want to pay. If you want to maximize profits you need to allow customers to pay as much as they are willing. This means that you need a product mix that allows the higher spenders to increase utilization up to their spending limit.
Think about how Amazon sells AWS or how a high earning mobile game has zillions of product bundles.
If you really need a single best price and are doing something with 10,000+ users, you can check out a tutorial I wrote here for mobile app price optimization: https://docs.improve.ai/docs/basic-price-optimization
Each customer has an amount that they want to pay. If you want to maximize profits you need to allow customers to pay as much as they are willing. This means that you need a product mix that allows the higher spenders to increase utilization up to their spending limit.
Think about how Amazon sells AWS or how a high earning mobile game has zillions of product bundles.
If you really need a single best price and are doing something with 10,000+ users, you can check out a tutorial I wrote here for mobile app price optimization: https://docs.improve.ai/docs/basic-price-optimization
Economist here: other than doing a field test with a given price (break even + some margin determined more or less ad hoc) you just set a price and see what the market says. If too low you'll sell a ton, if too high you will sell few or none.
Just take the equilibrium point for the Marshallian demand curves of the 'industry' you are located in.
Of course, once you achieve monopoly status, you can set the price at the intersection of your marginal costs and marginal revenue to maximise profits.
Of course, once you achieve monopoly status, you can set the price at the intersection of your marginal costs and marginal revenue to maximise profits.
Are you aware of any ways to actually estimate demand curves? It seems like a really powerful way to price products, but no one appears to do it.
Test different price points. Derive price elasticity of demand. Optimize price. That's the theory.
In practice? Pick a random number that doesn't sound too stupid. Try raising your price. Keep doing that as long as it works.
In practice? Pick a random number that doesn't sound too stupid. Try raising your price. Keep doing that as long as it works.
In Theoryland, which resembles the real world but entirely resides in theory, you could adjust your prices periodically until you slowly integrate to the point where your profits (or revenues, if you wish) are maximised.
Why this is in Theoryland is because you cannot adjust prices and get feedback so easily in real life. But hey, the logic checks out!
Why this is in Theoryland is because you cannot adjust prices and get feedback so easily in real life. But hey, the logic checks out!
> It seems like a really powerful way to price products, but no one appears to do it.
In a closed system. There are too many factors obfuscating the landscape in real markets (most notably consumer access).
The only tidbit is, in a new market you can overcharge.
In a closed system. There are too many factors obfuscating the landscape in real markets (most notably consumer access).
The only tidbit is, in a new market you can overcharge.
> There are too many factors obfuscating the landscape in real markets
On the one hand, yes, but on the other hand, machine learning gives us a powerful set of tools to analyse these factors, which we could use to come up with a model that learns from the market to predict consumer surplus (but you're right about the naive economist approach).
On the one hand, yes, but on the other hand, machine learning gives us a powerful set of tools to analyse these factors, which we could use to come up with a model that learns from the market to predict consumer surplus (but you're right about the naive economist approach).
If it is SaaS based, the guys over at Price Intelligently are a smart group to work with..
To be honest I have no experience in pricing anything but myself (as an employee) but I would recommend to not put too much effort into it. Thinking about pricing often amounts to zero-sum thinking which drives you to fight about the breadcrumbs instead of focusing on the creation of value (for everyone). I mean I get that pricing is a necessary means of coordination but please don't succumb to the fallacy that it is a game that needs to be won AGAINST someone. If you create value, simply have an open discourse with your customers and you will find a viable strategy.
[deleted]
We've continually raised the price on our product as we grow and add features. It was nerve wracking at first, but now are confident enough in our product that we feel good standing behind our pricing.
We are targeting larger, more stable customers, and have historically found the ones that say our pricing is too expensive are the ones that require much more support and maintenance. Have no issue seeing them go to cheaper competitors - while our target clients don't bat an eye at our pricing (which is still probably too low for that segment).
We are targeting larger, more stable customers, and have historically found the ones that say our pricing is too expensive are the ones that require much more support and maintenance. Have no issue seeing them go to cheaper competitors - while our target clients don't bat an eye at our pricing (which is still probably too low for that segment).
I ask these questions and it works well:
1) What is a price for this product that would be too low for you to trust?
2) What is a maximum price for this product that would that would still seem like good value?
3) What would be a maximum possible price for a this product?
They can help to get you to a good starting point regarding your pricing strategy.
Also this is a great article about it:
https://training.kalzumeus.com/newsletters/archive/saas_pric...
1) What is a price for this product that would be too low for you to trust?
2) What is a maximum price for this product that would that would still seem like good value?
3) What would be a maximum possible price for a this product?
They can help to get you to a good starting point regarding your pricing strategy.
Also this is a great article about it:
https://training.kalzumeus.com/newsletters/archive/saas_pric...
A recent thread on find the pricing through experiments: https://news.ycombinator.com/item?id=13756302
They recommend Amplitude if you can't build everything yourself. They say it lets you have cohorts and compare behavior between cohorts, so it probably helps compare common metrics. I don't know if it makes suggestions for experiments or helps to run them.
They recommend Amplitude if you can't build everything yourself. They say it lets you have cohorts and compare behavior between cohorts, so it probably helps compare common metrics. I don't know if it makes suggestions for experiments or helps to run them.
I have an app that is market-priced. The more paying customers, the higher the price goes. This is fun for a hobby site but probably not suitable for a real business.
hey everyone,
this is Burc Tanir - the co-founder and CEO of a competitor price tracking software called Prisync (http://prisync.com/). my answer is more for products sold through e-commerce, or more specifically online retail. in e-commerce worldwide, most of the companies want to have the lowest prices - of course, while remaining profitable - but it’s hard to be sure about that without knowing the competitors' dynamic prices. with our solution that works for e-commerce companies of all sizes, it's possible to be the lowest in an efficient way.
also, other than automating competitor price tracking, we previously crafted an in-depth article to give more detailed information on this topic, so feel free to check that out too:
https://blog.prisync.com/ecommerce-pricing-strategies/
this is Burc Tanir - the co-founder and CEO of a competitor price tracking software called Prisync (http://prisync.com/). my answer is more for products sold through e-commerce, or more specifically online retail. in e-commerce worldwide, most of the companies want to have the lowest prices - of course, while remaining profitable - but it’s hard to be sure about that without knowing the competitors' dynamic prices. with our solution that works for e-commerce companies of all sizes, it's possible to be the lowest in an efficient way.
also, other than automating competitor price tracking, we previously crafted an in-depth article to give more detailed information on this topic, so feel free to check that out too:
https://blog.prisync.com/ecommerce-pricing-strategies/
I recommend the book "priceless." It goes through the psychology behind how you set a price. E.g. Why there are expensive wines on a wine list.
https://www.amazon.com/Priceless-Myth-Fair-Value-Advantage/d...
https://www.amazon.com/Priceless-Myth-Fair-Value-Advantage/d...
Great book for this: Monetizing Innovation (https://www.amazon.ca/Monetizing-Innovation-Companies-Design...)
I think first you want a market strategy - are you competing on price or quality (features, speed or whatever.) Then the rest of the market is a guidepost for this - if competing on quality, accept you will make less sales but have higher margins.
I'm starring this to read every single comment once I get home cause this is a huge stumbling block for me. My current strategy is to take my right thumb and suck a number out of it and due to my nature I tend to undercut myself quite badly.
Just a tip: remember that the price is always the output of an algorithm based on the product you offer. Always think "What should the price of this product be?" rather than "What should I offer to reach this price tag?".
I wrote about pricing tiers many years ago: http://sachinagarwal.com/setting-pricing-for-a-startup-the-r...
(Worked many years in product pricing for startup to IPO company)
To even begin on a baseline of how you're going to price a product, you need to understand the unit economics of your product. I think too many people fall into the economics trap and apply a theoretical approach into revenue management, when in reality it's more about understanding your business model, how you expect to grow, and the finances; then you apply economic models.
Understanding the financial aspect will allow to create at least a cost based pricing model or margin based pricing; from there it can grow into a value based model where you figure out the value proposition for each customer/market segmentation.
But, obviously all of this is developed mid-stage, and early stage just figure out what gets the customers in the door.
There are a lot of good resources online about this subject.
To even begin on a baseline of how you're going to price a product, you need to understand the unit economics of your product. I think too many people fall into the economics trap and apply a theoretical approach into revenue management, when in reality it's more about understanding your business model, how you expect to grow, and the finances; then you apply economic models.
Understanding the financial aspect will allow to create at least a cost based pricing model or margin based pricing; from there it can grow into a value based model where you figure out the value proposition for each customer/market segmentation.
But, obviously all of this is developed mid-stage, and early stage just figure out what gets the customers in the door.
There are a lot of good resources online about this subject.
Found this book laying around at work; maybe it's of use:
http://download.red-gate.com/ebooks/DJRTD_eBook.pdf
http://download.red-gate.com/ebooks/DJRTD_eBook.pdf
You can set initial price based on your cost and expected/preferred margin. And you can always use discount/promotions later to mark down the price, based on the market and feedback, etc.
Just finish my SaaS product pricing last week. Exit strategy plays here. You can set the price by % of the customer value or the cost + margin if you don't want to hack the business model.
If you have enough volume* you can do simple a/b testing to find the demand curve.
*this is probably less than you might think; at low volumes you can run a for a week then b for another week.
*this is probably less than you might think; at low volumes you can run a for a week then b for another week.
Have you done a/b testing in one of your startups?
It's a fool's errand at low volumes. Whatever you find out isn't statistically significant.
It's a fool's errand at low volumes. Whatever you find out isn't statistically significant.
> ... at low volumes whatever you find out isn't statistically significant.
Depends on what volume you are measuring.
In my case I have an abysmally low conversion rate, so I can in fact have a low volume of sales relative to the number of visitors and still have statistically significant results.
Depends on what volume you are measuring.
In my case I have an abysmally low conversion rate, so I can in fact have a low volume of sales relative to the number of visitors and still have statistically significant results.
I'm a huge fan of A/B testing, and use it regularly. (Even wrote an open source implementation with a backend running on AWS Lambda), but have a bit of a moral / public perception / potential backlash fear of running pricing A/B tests... How do you deal with this? (Or you don't?)
I am not sure what you mean by a moral issue. Money and goods exchange hands (or not) in a mutually agreed on transaction. I don't think there is an issue so long as there is no intentionally targeted discrimination.
If someone is unhappy with their purchase and lets me know, I nearly always give a refund (where possible; the App Store prevents this). Sometimes I've given my software away for free if someone asks nicely.
I have never had any backlash to running pricing A/B tests.
About once a year I will run prices at 0.5 and 1.5 the normal price for a week or two to make sure I am still on the right point of the demand curve. Sometimes it moves and I will stick with a new price.
If someone is unhappy with their purchase and lets me know, I nearly always give a refund (where possible; the App Store prevents this). Sometimes I've given my software away for free if someone asks nicely.
I have never had any backlash to running pricing A/B tests.
About once a year I will run prices at 0.5 and 1.5 the normal price for a week or two to make sure I am still on the right point of the demand curve. Sometimes it moves and I will stick with a new price.
> I don't think there is an issue so long as there is no intentionally targeted discrimination.
Is random discrimination fine? I'm genuinely asking. I don't know the answer, but somehow it still feels morally shaky to me or unfair.
Yes, we do give refunds or discounts retrospectively in many cases, and try to be nice and fair and open. But there's just something a bit awkward with randomly charging people more (or less) for the exact same product, at the exact same time. I think most people will feel manipulated if they discovered it, even if they eventually paid the lower price.
Is random discrimination fine? I'm genuinely asking. I don't know the answer, but somehow it still feels morally shaky to me or unfair.
Yes, we do give refunds or discounts retrospectively in many cases, and try to be nice and fair and open. But there's just something a bit awkward with randomly charging people more (or less) for the exact same product, at the exact same time. I think most people will feel manipulated if they discovered it, even if they eventually paid the lower price.
Given my approach; a single A/B test once a year, one week at 0.5 price and one week at 1.5 price, less than 2% got a half-off discount, and less than 2% paid the higher price (actually, since sales usually drop for the 1.5 price, it's likely closer to 1% of sales pay the higher price).
>pricing A/B tests moral dilemma
You could call the lower price "on sale".
You could call the lower price "on sale".
That would pollute the test, IMO. As things like JCPenny's failed pricing experiments show, price-consciousness and deal-consciousness are two different things, and can lead to some stupid behavior where customers only buy overpriced goods that are marked as being on sale, rather than buying the same thing at the same price without the sale tag.
Adding on to this:
A "randomly selected sale participation" note.
A "randomly selected sale participation" note.
I recommend the book "Monetizing Innovation". It won't give you an answer, but it will equip you to understand value and think about pricing.
Slightly off topic but I think I'd pay for slack if I could have the premium features on all of the conversations I have with people...
Currently, they work with a PhD student to do some economic analysis, but they're not really happy with it.
That's the sign of a risk-averse team.
That's the sign of a risk-averse team.
Golden rule - always price higher than you think. It's 100x easier to discount pricing than it is to increase pricing.
Start with breaking even. Sell first. Then set prices. Raise prices only when you have more demand than product.
you charge what your customers are willing to pay. no micro economic theories or price psychology is going to change that. if you charge too low though, people will wonder where the catch is. so dont charge low unless its easy to judge the quality.
to find out what they are willing to pay, ask for budget.
to find out what they are willing to pay, ask for budget.
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My dad's sage advice: Think of a number, then double it. People will always pay more.
Hey Finbarr! Is this related to our chat? :)
Even if not, some great advice here! Thanks! ...but I think most of it is B2B focused primarily. I'm curios (and can't find much info) about subscription pricing for consumers in particular... And especially for products that aren't as wide spread as Spotify or Netflix.
Even if not, some great advice here! Thanks! ...but I think most of it is B2B focused primarily. I'm curios (and can't find much info) about subscription pricing for consumers in particular... And especially for products that aren't as wide spread as Spotify or Netflix.
You can do surveys. You can call potential customers and ask what they would pay.
Invisible Hand, works like magic.
Email me Ill help.
I can't find anything that wasn't enterprise focused ("Call for pricing!"). Are there any services that your company uses that you're happy with? Ideally, it would help calculate common metrics & make suggestions for pricing experiments (& help run them!).