Not long ago I was working with a very small company, maybe 8 people total, and the big question came up, very hard question to answer, especially when it isn't a thing doesn't exist...
What do we charge for this?
This is a huge problem, a good problem, and one that if you solve it incorrectly either leaves money on the table (they would've paid more) or lose a sale (too expensive) – both not great outcomes. So how do you know, really KNOW what the best price point is ...for something that hasn't even been sold yet?
Searching around the ole internet, you'll find a lot of strong opinions on this. From limits (never charge more than X) to steadily increasing (raise it until they say no!), make it a percentage (always xx% or more!) and this post is not that. It also won't solve everyone's product pricing dilemma although it should help. What this is -- a real example of how this small company not only landed on a price, it was backed up by actual data (and money changing hands!) and also solved for "what should we build first?" implementation of this product.
First off, we knew what it cost to produce the thing. Let’s say $25 each. So we knew we had to charge more than that. Also, due to customer interviews, our demographic was more niche so an assumption was we could charge a lot more than $25. But how much more? Could we charge 50, 100, 500? How many of them at a time? What could the market allow? What WOULD it allow? We went back to the customer interviews.
During several of the interviews a dollar amount came up. This was important because, unsolicited, the customers were giving us a range they expected. Bonus, it was above the $25 it cost. Way above. So that gave us very loose, almost subjective evidence our first assumptions were in the right direction (niche, and high value). Most interviews have a problem of leading the witness and giving the customers a range -- but this? This was a customer saying if it existed, right now, they would pay X.
This was solid gold, and we took the extremes, 50-1000 …and did another round of interviews with qualified buyers. The answer we got was around 6 for 250. Was this number real? Would people actually pay this amount or was it just a polite, courtesy number? The business side of the house pushed -- “People want this, they love it! We need it done so we can sell it!” So, I issued a challenge.
Call up the last 10 people and take their money.
Four (!!) people put their money down, each was completed via manual process, start to finish. Each of the 4 customers were beyond happy and started to tell their friends and introduce us.
We now had a real number to start with, knew exactly what to build/automate and the customers were on our side. Wins all around and stronger evidence we were on the right path! We ran with this immediately (actionable data!) and started looking into what almost everyone does, create tiers of offerings, which we did. 100, 250, and 500. With a bit of that anchoring, we expected customers to pick the middle one – and that was the assumption we were really testing now.
All of this took a few weeks, thanks to a highly engaged team that had no problems reaching out to potential customers, asking them some questions and reporting back. Oh, and as for the various tiers? We were wrong, an overwhelming percentage went for the top tier, signaling they wanted more. A wonderful problem to have.