Our customers are the only investors we've ever had
We've had investors since day one, even though they've never asked for shares. They're our customers. And seeing it that way changes how you look at everyday work.
Leer más →How to price a product without just copying the competition
Pricing a product isn't adding up costs and a margin. It's deciding how much what you solve is worth to the person buying it.
Setting a price is scary.
Too high and nobody buys. Too low and you work for nothing.
So most people do the same thing: look at what the competition charges and go a little below.
It's the fastest way to set a price. And one of the worst.
Three ways to set a price
1. Cost-based
You add up what it costs and put a margin on top.
Useful for knowing your floor. Not for knowing your price.
2. Competition-based
You look at what others charge and position yourself.
Useful as a reference. But it assumes your product is the same as everyone else's. And if it's the same, why would anyone choose you?
3. Value-based
You ask how much the problem you solve is worth to the customer.
The hardest and the most useful.
How to think about value-based pricing
Ask yourself:
- How much time does it save the customer?
- How much money does it help them earn, or stop losing?
- What does it cost them to solve it today, without you?
If software saves a club hours of work every month and helps it collect fees that used to slip through, its price isn't compared with other software. It's compared with that problem.
Price isn't what it costs to make. It's what it's worth to solve.
A simple method
- Work out your floor. The minimum so you don't lose money. Never go below it.
- Work out the value. What the customer gains or saves. Your theoretical ceiling.
- Look at the competition. As a reference, not a rule.
- Pick a price between floor and value that's easy to understand and lets you live well.
- Test it with real customers. If nobody ever complains about the price, it's probably too low.
Common framing mistakes
Thinking a lower price will make you sell more. Sometimes it does. Often it just attracts people who buy on price and will leave on price.
Making the price complicated. If the customer needs a calculator to understand it, something's wrong.
Never revisiting it. Today's price doesn't have to be the price two years from now.
The underlying idea
Pricing is a positioning decision. You're telling the market what you are and who you're for.
A fair, clear price attracts the customers who value what you do. And they're the ones who stay.
P.S. On choosing carefully who you sell to: I want fewer, better customers.