Thoughts On Pricing
I was speaking with some gentlemen earlier about pricing a product.
I don’t have much time this evening, so I thought I’d just write up some quick thoughts. I’ve probably covered this in the archives already, so I’ll keep it brief.
Before we get on to how I work out the price of a product, let’s get one thing clear…
Always Price Higher Than The Market
It doesn’t matter what niche you’re in. It doesn’t matter what the income range of the target market is. And it doesn’t matter what you think is good value for money.
You always price at the higher end of the market.
Perceived value is important, and you want to be perceived as the high-end.
Being perceived as high-end scares off people looking to buy on price.
It sets you up better for branding and upsell purposes.
And it helps you create the best product you can.
Not sure whether you can compete with the best?
Buy their products, do a better version and throw it in.
Three Main Factors I Use
I use three factors and come to a round-about conclusion for products I price:
- What is the (perceived/actual) value of the product in terms of life-changingness?
- How much does it cost you to produce the product?
- What do your competitors charge?
This isn’t a science; it’s a bit of an art. But it’s not like we’re talking grandmaster Renaissance painters here.
It’s usually quite straightforward.
Say you are a web designer. You charge by the hour. Everyone in your area charges £40 an hour for web design general stuff.
You’re probably going to look somewhere in that region. But slightly higher, because we’re upmarket.
So £50 an hour.
How life changing is the perceived value and actual value?
For instance, if someone is looking for their logo changed on a website, then £50 an hour is generous but that’s your rate.
If you’re asked to write a Python script that automates their marketing process and allows them to get rid of half their team, then they will make potentially tens of thousands a year from that change. You should charge more than £50 an hour.
Remember, there are guys who pay £5000 for a bootcamp to learn how to talk to girls, so if you think your price is too high, you’re probably wrong.
And finally, what are your costs to produce the service?
If you need £50 an hour, then charge £50 an hour. Taking in your expenses and making a profit so you don’t spend your retirement wandering around local parks searching for pennies, you have to come out ahead.
If you’re commanding too much (you’re not) then you should be seeking better work.
Final Thoughts
Using the three above factors, you’ll probably come to an easy decision. If everyone is charging £100, then that’s probably a good price point. If it costs you £1000’s worth of time to create a £100 product, then you’re doing something wrong.
If your product changes someone’s life in a meaningful way, then it’ll be worth the cost of whatever you charge in most cases.
And if every product is rubbish and you can deliver better results, you should charge more.