EP08 – How to Price your Product

How to Price your ProductPricing is one of those sticking points for some Entrepreneurs.  They get so caught up in “Oh my god, what if I don’t charge the right price for my product!?”

We can tell you from experience that you don’t need to get hung up on pricing.  You can make your best guess as to what you think people will pay, and then it’s all about testing things out afterwards.

A very common theme in business is that it’s never perfect the first time around.  And this rule definitely extends to choosing a price for your products.

Keep in mind that there are two “worst case” scenarios here.  Either you price your product too high, or too low.  In the case that it’s too low, you’ll get lots of customers – if this is the case then I’d recommend that you make sure to get the email addresses of each of your customers.  This will allow you to get more sales from them in the future.  In the case that you price it too high, you’ll get next to no customers.  Either way, you can ALWAYS adjust your prices.

In the 2+ years I’ve been selling my products (and changing their prices) I’ve never had ANYONE complain about a price change.  Whether it be an increase or a decrease.  And even if someone did complain about the change, you can always refund the difference or give them a coupon code.  Problem solved.

How to Find your Initial Price

Alright, so now that we’ve covered the really important parts about price, let’s dive into how to figure out the price that you’ll be launching with.

Survey the Land

Look at where you’re going to be selling and see what comparable products are being sold for.  If you’re launching a product on Amazon then do some searching for similar products and check out the price ranges.  I’d recommend looking at the “best-selling” section for your niche to see if any patterns stand out.

If you’re selling on other platforms like udemy, then do the exact same thing.  And don’t just look at the prices either, you can look at the feedback being left by previous customers to get a sense of how valuable they thought the product was.  There are normally golden nuggets in the customer reviews section.

If you’re just straight up launching your product on your own website then you’ll need to use Google to get the job done.

But above all else, remember, it doesn’t have to be the perfect price.  So do the research, find a number that makes sense and then move onto the next task.

If you want to stand out as a HIGH value product, then set your prices higher than your competitors.  If you want to be the “cheap” alternative, then set your price low.  And also remember that the price of the product is something that your customers will use to JUDGE your product first and foremost.

There are plenty of people who want to pay the premium level price so they can brag to their friends and say that they bought the “most expensive” version.  In my experience, those types of customers are less of a pain to deal with.  When you discount your product heavily, you tend to attract the people who will complain about everything under the sun.

I’d recommend reading some of the articles that Dan Kennedy has written on pricing strategies.  The man has so many years of experience in Entrepreneurship, it’s hard to ignore his advice.

Value Driven Pricing

One way to help figure out how much you should charge for your product is to use value based pricing.  This is where you see how much total value your product brings to the table, and charging a percentage of that value.

For example, if you’ve done your numbers and you know that for every prospect that comes to your doorstep, you’ll receive $1,000 in revenue on average.  Then someone comes to you and says, “Hey I can help you bring in 10 additional customers every month.”  How much would you pay for their service?

Well, you know by your numbers that 10 new customers would be worth an additional $10,000 in revenue.  So you’d likely be willing to pay up to $3,000 a month for that service without batting an eyelash right?

Another example would be in pricing a piece of software that saves your company time.  If a company uses a certain product, and it saves the director of IT 10 hours a month, then you can figure out exactly how much money you’re saving the company.  Again, charging a percentage (say 30%) of that total value of saved time would be best to make the sale.

Pro Tip: When talking to potential customers about the price of your product, it’s important to let THEM answer the questions related to the amount of time/dollars they will save.  If you allow them to come to the conclusion that your product will be putting X dollars in their pockets, then it will be more impactful when you say that you’ll only charge them X * 0.3.

Price Anchoring

Another relevant pricing strategy is price anchoring.  Let’s say that you’re running a service based business and you offer some sort of marketing solution to your customers.

If your potential customer is in the market to hire a marketing manager, then they know the going rate.  They’ve got something to “anchor” themselves to in terms of cost.  So with that knowledge in their mind, if you come back at them and say that your service is a fraction of the cost of a marketing manager, then it’s a no-brainer.

This is a common strategy that’s used when preselling a product.  It’s important to find a price for your potential customer to anchor themselves to, and then come in with an offer that’s a fraction of that price.

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2 thoughts on “EP08 – How to Price your Product

  1. Hi Trevor,

    First of all, I absolutely LOVE your podcast. I’ve trying to start up my business now for over a year and it’s slowly getting there. Your tips & tricks from the podcast have helped me a lot. I’m not in the process of developing my 2nd App and I’m thinking about the pricing. What I just did (literally 3 minutes ago), I simply asked my current users how much they would be willing to pay. I’m very curious about the responses I’ll receive 🙂

    Anyway, just wanted to give you my compliments and “keep up the good work”. Perhaps in the future (when I’m big and successful like you 🙂 I can come to your show and share my journey from employee to entrepreneur. Like you, I took (and still am taking) a big risk. I quit my job while my wife was pregnant with twins. But I’ve never looked back so far and I’m having the time of my life doing this.

    Thanks again and cheers,
    Guido

    1. It’s not an easy journey, but it’s so rewarding once you manage to “hit your stride”.

      I look forward to hearing more from you Guido

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