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Comment by zaidf | Hacker News Reader

As someone who bought Sascha's book, his pricing made it a no brainier. I bought it in a snap.

So the difference is that Jarrod earned $2,000 more--or roughly 25%.

On the other hand, Sascha(who made less revenue) had 1,234 or almost 5 times more paying customers than Jarrod.

You could argue(without seeming crazy) that it is better to have about 1,000 more paying customers for something like an ebook, even it means losing $2,000. If Sascha's product was something like a SaaS product and each customer had a support cost, the argument for fewer customers would be more reasonable. But for something like an ebook, I'd chase volume even at the expense of a couple grand in revenue.

It'd be interesting to track this in the longer term if the authors launch more products. I'd put my money on Sascha to make more $ from future products and come out ahead of Jarrod at the end.

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You could argue(without seeming crazy) that it is better to have about 1,000 more paying customers for something like an ebook, even it means losing $2,000.

Actually, that does sound pretty crazy to me.

The world is full of entrepreneurs who think having lots of low-paying (or no-paying) customers is worth something.

The thing is, we can easily tell how much a customer base is really worth right now, simply by looking at this month's bank statement. If it's in the bank, it's real value. If it's not, it's just wishful thinking.

Maybe that wish will come true one day. Maybe I can monetize that large customer base and dramatically outperform my higher-priced, lower-volumed competitors. Maybe my product will reach critical mass and go viral. Maybe my business will become the next Google. Maybe I can just skip the whole hard work thing and buy a winning lottery ticket.

Or maybe not.

If the money is in the bank, there is no maybe.

Here why I believe you're looking at it incorrectly:

Suppose there's two businesses, each making exactly $10,000/mo in revenue. One charges $10/mo to 1000 active customers, the other charges $1000/mo to 10 active customers. Which business is "better?"

Clearly there will be two sides, neither of which are "crazy."

If the total market size for both is limited, then business B is better because you're extracting more money from the limited potential number of customers.

If the total market size is large, business A has proven it can get orders of magnitudes more customers, which is MUCH more important going forward. If you can get 1000, you can get 2000, etc., and indeed probably ever cheaper to acquire those customers. Company B still has the very risky, difficult job of solving customer acquisition.

If tech support per customer is high, obviously company B is better.

It is a general rule that over time you can find ways to increase prices (i.e. just do it, have tiers, addons, etc) and decrease cost of acquiring customers. That again makes Company A more interesting because they can start doing that whereas B has just embarked.

Again, in the end one isn't automatically better, but your perspective that "it's crazy" I believe is certainly not true.

Companies where people aren't paying AT ALL I agree are often in fact valueless. But when they do take out their wallet, that's not nothing.

I would agree that without context one can't know which set-up has the most potential. However, such potential is by definition just hypothetical funny money until it's realised, if and when it ever is.

You contend that your business A has proven it can get orders of magnitude more customers. Well, yes, it has: in fact, it's proven that it can get exactly 1,000 active customers instead of 10. But if you're going to infer from that statistic that business A can therefore get 2,000 active customers, then why can't I assume company B can go from 10 to 20 by the same logic?

If anything, I might put more faith in the latter, simply because a lot of people are going to drop $10 without thinking much. Very few people are going to drop $1,000 without careful consideration even if it's someone else's money they're spending, and if I were a betting man I'd rather back the product that I know for sure stands up to scrutiny and still gets bought. But either way, getting to relatively modest milestones like those you mentioned doesn't tell me anything in itself about the total size of the target market, how much of it I could realistically convert in the near future, or how well my product will stand up to competition for those sales.

That being the case, it does sound a little crazy to me to argue that it's actively better to have a higher sales volume even if it means a substantial drop in profits, unless you've at least got strong evidence that the higher numbers are expected to return an overall greater profit within a reasonable period of time.

He's also using a timescale of just 48 hours for the comparison. Over the long term, I would have thought a greater number of customers would have a greater impact on word-of-mouth recommendations and reviews, leading to more sales.

You're assuming a higher price causes lower sales, but I don't think the data supports that. If you were hypothetically faced with such a tradeoff, I understand sacrificing some profits to gain more customers. But if you could have both profits and more customers, why not? I think it's possible.

Assuming customers share at the same rate, the potential growth is much bigger for a larger audience, absolutely. But I'm not sure our customers will share at the same rate—I think mine will share more because they're fans. But this is speculation, and biased.

This theory is called "penetration pricing," and most research shows that it works very rarely, and only in specific circumstance.

It's intuitive, and mostly wrong.

Which is why I recommended the book Pricing with Confidence to Sascha when he made that same argument in the comment thread of the OP. And why I blogged about this book several times:

http://unicornfree.com/2011/will-low-prices-sell-more/ http://unicornfree.com/2011/when-customers-bitch-about-your-... http://unicornfree.com/2011/biz-book-friday-cost-plus-pricin...

It's a fantastic book. Everybody who cares about their business should read it.

I have seen several fiction writers starting to do something like this on amazon (for books in a series):

* sell the first book in a series at a low or free price

* sell additional books in the series at a higher price

I think the assumption is that the initial sale "hooks" the user into the story, as well as giving the reader a taste of the writing style, and the thinking is this leads to additional sales in the follow-on books that would likely have never 'converted' to that first sale.

Would this be a case where "penetration pricing" of the first part of a many-part story would work? One of the special circumstances?

Thoughts?

The sale process & rationale for education and tools is very different from fiction. With a few exceptions, it's much easier & powerful to sell on value (learn this, do this, get better at this, fix this, eliminate this and you will earn more/spend less/get a better job/waste less time) than emotion (find out what happens next!).

That's why you won't terribly mind paying $100 for a compiler textbook, but definitely wouldn't pay $100 for the novel from your favorite author. (Unless possibly it was signed, or charity.)

Sascha's ebook isn't a story, it's a standalone tutorial. There's no burning need to find out What Happens Next.

Meanwhile, when you sell software or educational ebooks cheaply, what you do is attract cheap customers. And pretty much the universal experience of folks selling things to cheap customers is that the cheap customers are more annoying, more demanding, less likely to actually make use of what you sell them (and ergo less likely to buy again), plus price sensitive.

when you sell software or educational ebooks cheaply

Sorry, but I know far too many people who enter new niches with an inexpensive ebook and then once they have built a solid list of customers interested in the niche, they go on to sell products worth thousands of dollars per copy.

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