In this episode we answer questions about how to set the price on your product! We answer questions including:
- How do I decide on a price for my new product?
- Should I raise my prices if I think they are too low?
- Should I raise prices on existing customers or only new customers?
All of these questions were submitted by listeners just like you. You can submit questions for us to answer on our website https://www.thestartuphelpdesk.com/ or on Twitter @thestartuphd - we'd love to hear from you!
Episode Notes
Reminder: this is not legal advice or investment advice.
Q1: How do I decide on a price for my new product?
Here's a 4-step formula to consider when pricing your first product:
- First price = Free. Your goal is not revenue. Your goal is usage and getting a chance to learn from your customer.
- Second = $1. Charge something. Goal is to price it low so that it is hassle-free but you learn about your customer's purchase process.
- Third = Fair price. Charge a price that more closely reflects the value your product provides.
- Fourth = 3x your price. Keep increasing the price until you get too many "no's".
A few more best practices:
- You will likely get your first price wrong! Pricing involves plenty of testing.
- In more established markets, find a comparable product and price yours similarly.
- Different customer profiles will have different abilities to pay (fortune 500s compared to SMBs).
Proper pricing is a function of "value". How much value does your product provide to your customer? Are you helping them make money or cut costs? Understanding how your customer values your product allows you to price effectively.
Q2: Should I raise my prices if I think they are too low?
Yes! You should raise prices.
- Price should be high enough that it’s not an easy "yes" from the customer, but still a "yes".
- The key: make sure the value your product provides goes up over time so that the price does too.
- Regularly test your pricing: your customer’s appetite to pay is the ultimate decider!
Q3: Should I raise prices on existing customers or only new customers?
There are a few avenues to consider on this one:
One route: raise prices for new customers only, never raise prices on existing customers.
- This creates great incentives for a customer to buy today: the price will increase in the future, so buying now leads to savings.
- It also creates great motivation for renewals (look how much you’re saving).
- Instead of raising the price for existing customers, consider getting something else instead, such as case studies and referrals.
Another route: you are probably undercharging customers today, so it is OK to raise prices on both new and existing customers.
- OK to raise prices if your costs are going up.
- Some customer churn is OK: your new price means you can make more money per customer.
- Do the right thing: warn customers about a price increase as far in advance as possible. Help with off boarding if needed.
