[HN Gopher] Ask HN: How to Price a Product
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Ask HN: How to Price a Product
I'm 11 years experienced software engineer. I have been showing
interests in frontend design and development and my day job is
around it. I built a working concept that converts designs to
interactive code. However, the tech is not usable at this stage, no
documentation and looks bad, but works as expected. I'm aware of
selling services as SAAS. I'd like to sell the tech as a product
containing a software, product manual, usage instructions with
samples. The target users are designers, initial feedbacks were
some points to address and they are curious and interested. Having
said that it's not SAAS, not subscription based, I'd like to know
how to put a price on it as a product.
Author : imvetri
Score : 95 points
Date : 2024-08-07 12:02 UTC (4 days ago)
| tazu wrote:
| If you have access to target customers (hopefully you do), I'd
| recommend a short questionnaire using Van Westendorp's Price
| Sensitivity Meter [1]. I've had success using it in the past, and
| you only have to ask four questions:
|
| 1. At what price would you consider the product too expensive?
|
| 2. At what price would you consider the product too cheap (low
| quality)?
|
| 3. At what price would you consider the product expensive enough
| to make you nervous?
|
| 4. At what price would you consider the product to be a bargain?
|
| You can then graph the results and pick the optimal price (for
| starting, at least).
|
| [1]:
| https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...
| apwheele wrote:
| In https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2020.360
| ..., assuming the demand curve slopes downward, a quite
| reasonable guess as to the optimal point on the demand curve is
| ([Max willing to pay] - [marginal cost])/2.
|
| So if doing the market research here in this post, #1 in your
| above list is the main thing. You want to find the reasonable
| upper bound before the demand goes to 0 on the price curve.
|
| For one time sales, like in this scenario, it is a fairly
| simple way to price things.
| jaggirs wrote:
| Why does it subtract the marginal cost? According to the
| formula the more it costs to make the product (per
| customer/sale cost) the cheaper you should sell it.
| wnc3141 wrote:
| doesn't that slope imply monopolistic markets?
| littlestymaar wrote:
| Marginal costs makes no sense for software...
|
| Neither does it in most aspects of modern economies BTW, as
| it's zero or very small almost everywhere on the supply curve
| except in local places when the business is at capacity, and
| then the marginal cost is ridiculously high locally before
| returning to zero.
|
| Economics are really the only domain where someone (here
| Maurice Allais) can receive the "nobel price" and then see
| his results completely ignored later on, it will never cease
| to amaze me.
| PeterisP wrote:
| There is quite a lot of software (mostly in B2B market)
| that has a very high marginal cost, where the cost of doing
| sales and customer-specific customization can easily
| dominate the fixed cost of making the pre-sale software.
| littlestymaar wrote:
| - what you're talking about here isn't software, it's
| consulting service and (at least in all companies I
| worked with) this is usually billed separately from the
| software license itself (Edit: now that I'm thinking
| about it, in fact this is even mandatory in my country
| because of accounting rules: you can do amortization of
| software cost but not of service cost so you have to bill
| them separately, and I'd be surprise if such rule was
| unique to my country actually given that many countries
| have rules about amortization of software investments)
|
| - if you end up with a recurring license afterwards
| (which is what were're talking about here because SaaS
| works this way) then it's not even marginal cost, it's a
| fixed up front cost and then you have a stream of
| revenue. You know it's fixed costs because you don't have
| to pay it again when you're billing the customer for the
| second year. Same if your license includes a per-
| seat/per-CPU price.
|
| And the problem with the idea of "marginal cost" is that
| in practice almost every cost is a fixed cost.
|
| For instance, let say you have two guys that are
| dedicated to the customization of your product per
| client. You call this customization "marginal cost" but
| in reality it's fixed cost, as their salary is due
| whether or not you have a customer's product to customize
| this week.
|
| And I'm not being original here, as I said it's straight
| from the work of 1988 econ Nobel prize Maurice Allais.
| garrickvanburen wrote:
| This is my preferred method of understanding price sensitivity,
| and I use it frequently in my work helping clients find the
| right price.
|
| Be advised, a prerequisite is having trusted camaraderie with
| the prospective customer. By which I mean, dont open with these
| questions.... You nay need to wait for the second conversation
| to ask them, having used the first conversation to build the
| trust.
|
| Happy to discuss further
| mym1990 wrote:
| Instead of "nervous", I would lean towards hesitant.
|
| The actual question is: "At what price would you consider the
| product starting to get expensive, so that it is not out of the
| question, but you would have to give some thought to buying
| it?"
| jbs789 wrote:
| Noticeably, this is geared around the customer (rather than
| your costs)! This is the right way around. Then if the price
| doesn't cover your cost, you don't have a business.
| Tade0 wrote:
| For that I can recommend _Don 't Just Roll the Dice_ by Neil
| Davidson:
|
| https://www.red-gate.com/library/dont-just-roll-the-dice
|
| It's free, short and easy to read.
| benjbrooks wrote:
| You may consider starting with what you consider to be a
| reasonable price and doubling the price for every subsequent
| customer until they start to churn during pricing discussions.
| This is particularly useful if you're doing B2B sales, less so if
| you're putting the price on a landing page.
| shw1n wrote:
| Imo all pricing comes down to value, cost, and market.
|
| Value (being how helpful is it to the customer) sets the upper
| bound.
|
| Costs (what it costs you to run or make) sets the lower bound.
|
| Though my product is a SaaS (https://dopplio.com) I think the
| process is similar:
|
| We started with the price of alternatives solutions as well as
| competitors, and realized we could offer 1/10th the price of both
| while being sustainable.
|
| So we started there and adjusted up a little as costs ended up
| being a bit higher than expected.
| hajrice wrote:
| Just tried your product. It's brilliant. 10/10. Super easy to
| understand - just wish your explainer video actually used the
| product instead of being those cheap caricature videos :-)
| shw1n wrote:
| Appreciate it!
|
| We wanted the video to explain the concept moreso when we
| started b/c that's what users seemed to have trouble
| understanding
|
| But perhaps we need to update it as this has become more
| common
|
| If you ever want a demo just book on the site with me!
| brailsafe wrote:
| Might want to tighten up the vertical spacing between sections
| on small screens
| shw1n wrote:
| Good call -- I think the whole site needs a redo in general
| w/ more use cases!
| rr808 wrote:
| I've tried selling products to developers and its really tough
| because everyone out there expects it for free. I suspect the
| only way to make it work is to make it free for a while until it
| gets enough adoption then you can license for corporate usage
| while still free for most people.
| doctorpangloss wrote:
| The beginning of every startup is people who value their time at
| zero. That is you right now.
| kentlyons wrote:
| Assuming you want to maximize income (and in turn, profit), this
| becomes a math problem based on data. Income = Price * Conversion
| Rate. So assuming a constant number of people coming in to your
| funnel (which should be the case since it is ~independent of
| price), you can keep increasing price (which likely decrease
| conversion rate, but not always) until Income goes down. To
| start, you don't know conversion rate, so set price very low (0
| is a good start for a few reasons), and every N sales, increase
| it by 20% until income stops going up.
| sfilmeyer wrote:
| I get the point you're making, but I can't resist pointing out
| that if you start with 0 and increase regularly by 20%, you'll
| still always be at 0.
| kentlyons wrote:
| Yep - obviously corner cases are left up to the reader! The
| other way to think about this is to work backwards from your
| guess of a final price. So that would give you the size of
| each step. Likewise 20% is a pretty random number and can
| also be tuned. The key insight is the data and math should
| drive the decision.
| SkyPuncher wrote:
| Personally, I'd focus on getting users first and building out the
| value. Throw a 'beta' label on it and get it out there.
| aristofun wrote:
| As much as you can while users still buy it.
|
| If you sell it cheap - you'll never know if users bought it for
| real value, or just out of curiosity/scarcity.
| nadermx wrote:
| There are a few factors I consider.
|
| How many hours will this save my users, how much competition
| there is, and where they live.
|
| Take for example my pdf converter site https://www.pdf.to, can't
| charge $100/m for this even if it was to save hundreds of hours
| to users given that the niche is more of a commodity at this
| point and full of competition, so the price has to be around $7/m
| to be competitive.
|
| But even that is too much for someone if they aren't in the US so
| localized prices are a must as well, since its unlikely someone
| in Vietnam would view $7/m as reasonable the price there is
| closer to $2/m.
|
| But someone in Denmark might view $7/m as too little due to their
| exchange rate so for them it's closer to $10/m
| d675 wrote:
| just curious, approx much does this earn?
| nadermx wrote:
| Between all the .to's a few k a month
| djbusby wrote:
| Well done!
| NickC25 wrote:
| A few questions you should answer:
|
| 1. Who would you ideally like to sell it to? I know you said
| designers, but the question is - are you selling it directly to
| them, or to companies that employ designers or a design team?
| Selling it directly versus through an employer is different
| economics.
|
| 2. If you were buying the software as an end user, what would YOU
| consider fair value for it? Are you going to be putting in lots
| of time to continue developing the software, or is this a side
| hustle, or just a "hey buy this tool and you'll like it, it does
| XYZ really well and that's it, but I can't continue to build it
| myself" sort of thing? Ask yourself that, and price accordingly
| to make sure that this is a worthwhile venture for you.
|
| 3. What's the market for similar competing products? What do they
| sell for? If they are SAAS or subscription based, what is the
| lifetime value for a given user or customer? Do they rent the
| SAAS for a month (or for a specific task) and then unsubscribe?
| Or is this a tool to boost a designer's daily output that will
| simply integrate into their workflow? If so, see if you can
| understand HOW it boosts a workflow in terms of pure output, and
| then work backwards. If your product saves a designer 1 hour of
| time each day, and they use it each day, that should be a good
| indicator of where to start.
|
| 4. Are you competing against free software?
|
| These have probably been echoed verbatim but just my $0.02.
| afryer wrote:
| https://personalmba.com/4-pricing-methods/
|
| This reference book is great, and makes the case that there are
| roughly 4 broad types of pricing strategies:
|
| 1. Replacement cost: How much would it cost to replace/build from
| scratch?
|
| 2. Market comparison: How much are similar products/services
| selling for?
|
| 3. Discounted cash flow / net present value: How much money will
| this make for the customer in the future discounted to today's
| dollars?
|
| 4. Value comparison: How much 'Value' is the product worth to the
| customer?
|
| So, the 'Value Comparison' can usually support a much higher
| price than the replacement cost, market comparison, or DCF. It's
| worth learning just how 'Valuable' the product/service is to the
| customer.
|
| The personal mba has a section outlining how customers typically
| 'Perceive' Value.
|
| https://personalmba.com/perceived-value/
|
| The most valuable offers do one or more of the following:
|
| 1. Satisfy one or more of the prospect's Core Human Drives
|
| 2. Offer an attractive and easy to visualize End Result with
| clear economic values.
|
| 3. Command the highest Hassle Premium by reducing the time,
| money, and effort the customer has to spend getting value from
| your product.
|
| 4. Satisfy the prospect's Status Seeking tendency by providing
| desirable Social Signals that help them look good in the eyes of
| other people.
|
| Good luck!
| neerajdotname2 wrote:
| At NeetoCal(https://neeto.com/neetocal) I'm offering as much free
| as possible. The free users help me understand if there is
| product-market fit or not. If the users want certain features
| then they let us know and we implement them.
|
| If I put pricing day one then I'll miss out on all the feedbacks.
| Of course it all depends on how dire you have the need for money.
| NeetoCal doesn't need money immediately since the consulting
| company is there to provide the revenue.
| kilokilo22 wrote:
| Try asking
| kilokilo22 wrote:
| You should use yourself as the customer: you ask yourself how
| much you're willing to pay for the product.
| shahzaibmushtaq wrote:
| Sell your product on a "pay once" model like https://shipfa.st/
| which made this product a total success.
|
| Price your product less costly and increase the price in batches
| when the product crosses a certain number (1-100 customers for
| $49, 101-500 customers for $99 and so on).
| XCSme wrote:
| > which made this product a total success
|
| This might be a good suggestion, but I think the success of
| that specific product came from being made by a popular
| developer with hundreds of thousands of followers and
| subscribers, not from the pricing model.
| djbusby wrote:
| Having an audience is a key first step. If the
| product/service isn't "done" yet I'd spend time on audience
| as a priority over features and pricing.
| pgt wrote:
| When they complain, but still pay, the price is right.
| cromulent wrote:
| https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-...
| orasis wrote:
| Start with reading Alex Hormozi's $100M Offers.
|
| You'll gain wisdom in a few hours that takes most entrepreneurs
| decades to cultivate.
|
| Basically you need to see pricing as just a single variable in
| the offer equation with the goal being to craft the perfect
| overall offer and not just focus on price.
| Beijinger wrote:
| https://www.amazon.de/100M-Offers-People-Stupid-English-eboo...
|
| Will check it out. Thx.
| imwm wrote:
| The book Monetizing Innovation, to me, has been the smartest
| approach to pricing I've encountered:
| https://www.amazon.com/Monetizing-Innovation-Companies-Desig...
|
| Basic idea is that you should design the product around the
| price. Do price discovery before you do anything else.
|
| Podcast ep here: https://www.youtube.com/watch?v=A6veeCbKIzw
| garrickvanburen wrote:
| Price first!! Yes. Price is a key feature!
| creer wrote:
| Lots of great questions already raised. A few more:
|
| - Are YOU wanting to make most of the money on this item, or on
| later upgrades? Or on building an entire company on the ecosystem
| or method?
|
| - Are there weird payment barriers on the customers (like, they
| are allowed <$XX to be reimbursed, or $XXXX on dept budget with
| no further approval, Or XX at the end of the budget cycle in a
| spend it or lose it fashion, etc - see several HN threads on
| these things.)
|
| - For corporate purchases, selling a product WITH support can be
| much easier or worthwhile for the customer. And support worth as
| much or more than the initial box. How will support work?
|
| - Different pricing issues in different countries or for
| different versions?
| j45 wrote:
| Positioning (who it's for), marketing and sales at a certain
| price are some of the hardest parts of business.
|
| There's a few good books that you might like.
|
| Forget the funnel, founder led sales.
| jll29 wrote:
| You could ask a set of potential customers what it would be worth
| to them.
|
| You could calculate the cost savings that your tool provides to
| their buyers, and charge a little less than that (e.g. 20%).
|
| You could look for similiar tools than yours (not direct
| competition - interpret similarity broadly here), and price by
| analogy.
|
| The best pricing practice might be if you combine the three
| above, and they give roughly similar estimates.
| ocean_moist wrote:
| Price it as high as your users are willing to pay.
| amne wrote:
| In 2024? you anchor!
|
| You make the tool convert to brainfuck for 9.99 and for 39.99 you
| can also have C. For everything else it's a 9.99 extra/month,
| except JS. You make JS (replace JS with the main language you're
| targeting) available only as part of a bundle at 29.99
| extra/month but only if they've already got the 39.99 option.
|
| There, priced.
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