Ask HN: Do you have some advice on pricing a product?

I feel like I can speak on the subject, since I just wrote a book on pricing software.

First, it's often a very bad idea to simply take a competitor's price - both Timex and Rolex would go bankrupt trying to match the other's price.

Here's the short version of what I suggest:

* Write down the pain point that your product solves in 1 sentence. * Write down the types of people who have that pain. * Rank each type by their willingness to pay and their ability to pay. Willingness will be partially based upon how well you can convince them that you'll save / earn them money. Ability will be based upon how much cash is burning a hole in their pockets.

Come up with three tiers, one for each group with the highest value for willingness*ability to pay. You may need to alter it a bit, if any of the groups prove too small.

I have two product pricing teardowns listed at my site ( http://taprun.com ) that might help you think more about pricing.

> - Write down the pain point that your product solves in 1 sentence.

> - Write down the types of people who have that pain.

> - Rank each type by their willingness to pay and their ability to pay.

Imho, this is not making the necessity to segment a market clear enough to OP.

Consider a wash-machine repairman as an example. The pain point is, naturally, "broken wash machine". Which occurs each year in a certain percentages of all households. The naive approach would be to assume that the latter is one big market, and proceeding to rank households based on their willingness and ability to pay a wash machine repairman.

In reality, there are a plethora of potential market segments which are based on criteria that do not in any way relate to price.

In light of a leaky wash machine, for instance, a household's options include:

- Calling in for the warranty if it's not expired

- Simply putting a bucket and continuing on with the broken machine

- Getting the leak fixed by the household tinkerer (or a friend or relative who tinkers)

- Buying a new wash machine

- Going to the laundromat from that point forward

- Etc.

- Calling the repairman

Point being: you want to properly identify which segments are indeed a good fit, prior to ranking them by their willingness and ability to pay.

In addition (in my experience anyway), these two steps are best taken care by interacting (email, chat, phone, face to face) with potential clients: not doing so introduces multiple risks, including coming up with a product that does not match their needs, under- or overpricing it, and -- perhaps most importantly -- missing out on opportunities to identify higher-value niches who you can up-sell things to.

Thank you for your suggestion. The comparison between Timex and Rolex made me smile. Indeed it's not a good way ;)

* The Ultimate plan: 8-10 modules sold and it's paid.

Having a third option will increase sales of the second option. This is why e.g. visual studio has an ultimate edition - to increase sales of the professional edition. Next to ultimate, professional looks like a good deal.

This is interesting, but wouldn't it make a counter intuitive result? => Throwing visitors away by making them think we target high sellers ?

By keeping the logic, 8-10 modules would be around 350 $ / month. But now, I have to justify this difference!

I could offer the possibility to choose how much time per day their instance is resetted, and even setup the service in a dedicated server ...

Well, thank you for the feedback, I'll think about it ! :)

I read about it in this book:

http://en.wikipedia.org/wiki/Predictably_Irrational

Interesting, I added it in my waitlist to read :) Thank you.

Like snarfy, I think that it's a good idea to add a third plan priced higher.

I would have limited the first plan to eg: 3 modules / 1 theme with a reset every 48 hours.

I think that you should move the visit statistics to the second plan too.

Otherwise, good job, looks great!

I initially thought about restricting the number of modules/themes to showcase, but this would require that I modify deeply how the plateforms works, and if I could avoid that, I reduce the risk of bugs ;)

The idea to move the statistics is interesting if I create a new plan.

Anyway, I need to rethink those plans if I want to add the third one :)

Thanks for the feedback!

This is called the "anchoring" effect, a cognitive bias that messes with our evaluation of options (http://en.wikipedia.org/wiki/Anchoring).

Pricing is hard! I've found a lot of the content on the Price Intelligently blog to be helpful.

http://www.priceintelligently.com/blog

They are pricing consultants, but I haven't actually used them, just read their content.

Thanks for the link, there is a few post that seems interesting at first look, I'll take the time to read them :)

Hey, I don't have any input on pricing, but I think you should try and spend a few dollars on a copy editor. There are a lot of grammatical mistakes on your homepage and you could get someone to proofread that for you for very little money.

Thank you for the remark. I'm not a native english speaker but I tried my best to find and fix mistakes, but apparently some where missed!

I'll proof read it. Thank you again.

You could probably pay someone <$20 to proofread the site on eLance or craigslist.

Thank you for the names. I'll also take into consideration Fiverr.

Review these contractors though, many are not native english speakers as well. You might end up with the same grammatical errors and less $20.

Would you like to do it for 15$ ? ;)

Here are some obvious ones.

"Start your 15 days free trial." ---> "Start your free 15 day trial."

"We provide a powerful (yet simple) hosting service with automated resets to showcase your work without thinking about server management."

The fact that this sentence changes font size is odd. Make it all the same or cut it into two sentences.

"Forget users that screws your demos!" ---> "Forget users that screw your demos!"

"We provide both email and phone support with fast reply." ---> "We provide lightning fast email and phone support."

"Let us manage your demos instance and will only have to focus on the sales!" ---> "Let us manage your demo instance so you can focus on sales!"

"...in order to avoid bad users to break your demo websites." ---> "in order to avoid bad users that broke your demo websites." ???? or something similar.

"get access to the error logs (for platinums account)" ---> "get access to the error logs (for platinum accounts)"

"Visits statistics (not yet available)" ---> "Visit statistics (coming soon)"

Stopped reviewing after this, and only reviewed landing page.

I applied all your advice. This is awesome! I can't thank you enough!

Really, thank you for the time you took for me!

What could I do for you in return? Do you have something in mind?

Thanks for the offer, but it's fine. It really only took 5 minutes. Good luck with your startup.

Thank you very much, I really appreciate.

My grammar isn't great either, and I only speak english!

Check out this (relatively short) e-book on pricing.

I found it quite helpful.

http://download.red-gate.com/ebooks/DJRTD_eBook.pdf

Came here to post this as well, excellent advice found on a very short book.

PDF downloaded, I now need to read it :) Thanks for the link!

Cheers!

There are three basic methodologies:

1. Your total costs + some profit $ = Product Price

2. Your comparable competitors price + or - some amount = Product Price

3. A BullShit price you pull out of your ass that you tell people to pay or fuck off = Product Price

Explanations -

3. Apple is a prime example of this pricing model. nuff said.

2. Comparable competitor being the key phrase. I also suggest pricing higher and building a better product. Undercutting can start a nasty pricing war that can cause a lot of unndeeded revenue lost, on both sides.

1. This seems most appropriate for you. You can't just price at what you think the market says they are willing to pay. They may say they are only willing to pay $1/month. That's not going to cover your labor costs unless you have a ton of users. Figure out your labor costs associated w/ maintenance and additional features (don't forget to account for future hires). Price at that amount plus some profit (something like 10% or 20% if you have high labor costs. Don't be afraid to stretch that percentage higher too.) If you can't find a price point that covers your costs, but is in a range that users are willing to pay for, than you don't have a business.

Entrepreneurs often forget that you can build this kickass product that every user needs, but if the customer doesn't have a high enough ROI they won't buy the product.

User != Customer

I think this is bad advice. What you call "BullShit price you pull out of your ass" is called value based pricing. It means pricing your service on the value you bring to the customer, not the amount of work you invested. Because your customer doesn't care! Whether he's a genius coder that threw this together in a weekend, or he's a team of 10 that coded 6 months on this - the customer does not care. If the ROI is higher than the cost, he will buy. If it is not, he won't.

Competition-based pricing only works if the products are completely equal. Like tap water or energy. Most software products are far less equal than programmers think. To us it's all just code. To real customers, even addressing their pain point in clear and concise web copy is worth something, because it saves them time. And that is what you monetize, not the lines of code written.

Your insight is very interesting. I cannot tell exactly my total cost because I'm missing some parameters (maintenance, working on additionnal features, some potential future hires, etc).

Your comment made me think about something I was missing: ROI. I don't state in the home page that this service will help increase their sales! Silly me!

>>> Your comment made me think about something I was missing: ROI. I don't state in the home page that this service will help increase their sales! Silly me!

ROI doesn't have to be an increase in sales. It could be increased efficiency (thus lowering the customers labor costs).

There are lots of sub-categories, such as a marketing ROI. But those sub-categories can always be classified as either lower cost or increased sales.

>>> Your insight is very interesting. I cannot tell exactly my total cost because I'm missing some parameters (maintenance, working on additionnal features, some potential future hires, etc).

Best thing to do is guess. If you hire 2 additional engineers and a marketing specialist, you could forecast an additional $325k in labor every year. Add in your salary, so arbitrary number, lets say you have $450K in labor each year, tack on space rent server costs and other costs at a guesstimate. This'll tell you the minimum costs you are going to have in a year, divide that by a price, and that tells you how many customers you'll need to break even. Or you can divide costs by an expected number of customers and get your price.

Well, I need many users, really many many many with this current setup :p

If you have time, I highly recommend reading The 1% Windfall by Rafi Mohammed[1].

There are dozens of pricing options in the book; however, Rafi's favored model is: try to set a price based on the value the buyer receives.

In your case, it sounds like you are the buyer because you built something that fixes a problem you had. If the pricing is something you will pay, then you're probably in the ballpark with your prices.

Have you surveyed other theme/module sellers to determine the value a service like yours would provide to them? Using your scenario, will other sellers value (pay) for your service at the equivalent of 2 sales/month for the Pro plan and 4-6 for the Platinum? Will you pay that much to a competitor if they build a similar business?

Good luck with your product! If I were a theme or module seller, it looks like something I might try because as a regular theme and module buyer, nothing frustrates me more than to click a demo link only to find demos that do not exist anymore. I almost never buy a theme or module that I can't demo first.

[1] http://www.amazon.com/The-1-Windfall-Successful-Companies/dp...

This post is giving me a lot of reading! All of them are interesting, I just miss the time ;)

Your last line is a great motivation for me, thank you very much for that.

I think I'll prepare a survey/discussion about the pricing by contacting some ThemeForest sellers, I just need to find the good introduction email for that :)

I like to think of price as a reflection of positioning & strategy. If your strategy is to aim at the high end of the market, then your price should reflect that. If you are looking to target the mass market, then you might want to consider value pricing. This sounds fairly niche, so if it were me, I'd thoroughly consider a premium price backed with lots of value in the product.

By a premium price, do you mean a third one?

I aligned the price with what I gain from selling modules, and the platinum one is still a bit too high for my monthly income, that's why I consider it as premium.

But maybe you are talking to a bigger plan ? something more around 250+$ ?

I try to also take into consideration the sellers from Themeforest that starts and doesn't earn a lot.

Think about why you want different plans. Maybe you're better off with just one plan. Then customers don't have to worry they might get the wrong plan. Instead of having plans you could also charge by module and just give a discount on more modules. "Pay for three, get one free". Confusing and complicated payment options can hinder sales. You can also start with one and then add more later depending on what customers need.

At the moment you're artificially differentiating your plans by the possible rest times. But that's your main feature. Don't restrict that at all. It's what makes your product interesting.

I initially thought about charging by modules, it was even the main argument at first.

But this was not adequate because

1. Wordpress theme sellers doesn't care about modules 2. This would require a deep change in the code's plateforms (Wordpress, Prestashop) which is not best suited (this may introduce bugs).

As you said, differentiating the plans with the reset time is a good option. Heck, I even had an hard time thinking what frequency was the best! Not too short (the instance would become impossible to use) and not too long :)

Here's the clickable link :

http://uncovr.it

(I don't know why it's not in the question).

You can't make clickable links in post content.

Indeed, I just read the FAQ (https://news.ycombinator.com/newsfaq.html) and it's explained here :)

Obligatory link on basics of price formation, just in case if you haven't seen it before -

http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

Thank you! :)

You have found the right price when your customers complain about the price, but buy anyway. :)

Exactly, I have that exact situation with https://www.voilanorbert.com :)

That looks very cool. How does it work ?

Thank you very much.

In a nutshell, the manager requests the servers responsible of rendering the demo pages, and those servers contains generic installations that are deployed everytime an user creates a new instance :)

In the global view, this project contains static pages (official website), Play Framework (Java/manager), PHP scripts (cron tasks, some tools) and shells scripts for automating installation. Everything on top of a Apache/PHP5-FPM/MySQL/Debian stack, hosted at Digital Ocean :)

Always price higher than you think. Bringing prices down is much easier than bringing them up.

You are absolutely right. Reading your comment made me think about a video talking about exactly that and says the same thing (sorry, it's was years ago and I can't remember which one ; It was a talk with some Google engineers at a conference I believe).

I think you should ask your potential customers how much they would pay for your service before setting a price. If you havn't interviewed your customers yet, do it.

I plan to set up a nice message introducing the project and asking the point of view of potential customers this week-end :) We'll see what will the results be :)