How to Set Price of Your Product?


Play with price and pick one to start.

This is Post No. 7 in  How to Start a Business  Series.

You should price your product based on these factors.

  1. The value you provide.
  2. What are others charging for similar offerings in your industry.
  3. How polished or robust is your product and its user or customer experience

Also keep in mind that low pricing is not a smart strategy. Ideally, you should not be the lowest priced product in your segment.

I have written about premium pricing, how to charge more and disadvantage of running a cheap business earlier. Go check these posts.

Unless a low price can help you achieve huge scale you should not be going for a low cost pricing model.

A product that is priced cheaply is seen as a low quality offering.

Value Based Pricing: A Rational Approach to Product Pricing

In consulting, in products and also when in doubt – go for value based pricing. If your product can bring $100 value to your customer then price it at $30. This will make sure that your customer gets benefited, gets good value for her buck and comes back for more value. It’s a win-win, so sustainable.

For a SaaS product, based on your cost of user acquisition.

If your cost of customer acquisition is X then, a  simple calculation can be –

Price of your product = X + Y (cost of churn spread across number of consumers) + N (a fix amount to be charged as an add on). This will make sure that you stay profitable.

While pricing a product or while bundling your service – do not give your users too many options.  Because  research has been done which suggests that fewer choices lead to higher sales.

Action for today: Now that you have already getting your product or service ready to deliver. Take time to figure out the value a customer will get after using your product or service. Add your costs and profits to it and decide on a price that you’d like to sell at.

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