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PRICING IS COMPLEXLots of parameters and options
Many Pricing OptionsSubscription AdsPer usage B2B2C (free for C, paid byUpfront fee B)Pricing plan BiddingCommission FreemiumSuccess fee Free trialTiered pricing Money back guaranteeDynamic pricing (think:airline) …Pay what you wantVirtual economies And combinations of theUp-sell services above Interesting resource (collection of pricing pages of web apps): http://leanstartup.pbworks.com/w/page/15765232/Pricing%20pages
The Basics: Factor in the costShould go without saying price > cost
Costs are often UnderestimatedThink about • Marketing costs (Google, Facebook ads) • Affiliate cost • Support costs • Infrastructure • Admin, accountancy, legal • Taxes • …Fixed vs variable Is there “economies of scale” effect?
Viable Business Case?Not only about the cost# potential customers / projects /licenses?Calculate potential revenue & profit• At what price do you have a viable business• With halved assumptions?Create a simple financial planhttp://www.slideshare.net/FinanceCoach24/120417-workshopfinancialplan
BUT DON’T BASE YOUR PRICING STRATEGY SOLELY ON COST
What Type of Value are you Delivering?Help customers make money?Help them save money?Reduce their risk?Help them save time?Provide them non-monetary benefit?
Ask your customersLearn what your market really valuesE.g. “Give me 3 compelling reasonswhy my product is a good fit for you”And get you marketing copy for free
Look at the CompetitorsCheck the price of top 3 competitorsBut also• How much competition?• How do you differentiate?• How much transparency? Internet makes it very easy for prospective customers to compare you to others that they can buy from Less transparency => less price sensitivity
WHAT HAPPENS WHEN YOU SET A LOW PRICE? Thanks Linda M. Lopeke http://www.smartstartcoach.com/
YOU DILUTE YOUR BRANDYou just told your prospect: “Im not your best option (and Iknow it)”Pricing is an essential part of your product and marketing.Sometimes raising the price can result in more sales
YOU TURN OFF HIGH QUALITY CLIENTS And get stuck with “clients from hell”
YOU RISK LOSING MONEY Always more costs than you thinkAnd if you do well, you can lose serious money
IT TAKES LONG TIME TO MAKE MONEY Low margins Same time & effort to sell high and low
HOW TO DIFFUSE PRICE OBJECTIONS Thanks to Neil Patelhttp://www.quicksprout.com/2012/10/01/how-to-handle-pricing-objections/
Explain the value and Free trial or moneylist what they get back guarantee• show $ made or saved • Crazy Egg free trial hadDetailed case studies 59% higher conversion rate than 30 day money• exactly what you back guarantee provided & the results• testimonials with photo, Payment plans company name, their • 4 payments of $67 ($268) name and title converted 52% better than $197Show how you arebetter than competition Offer bonusesExplain – people want (early stage) Explainto pay what’s fair. that you had to quitDon’t want to be work / work part timescrewed over
But don’t make it too complex!Hmmm… maybe I should go for mayo
PRICE TESTING Thanks to Twilio!http://www.slideshare.net/twilio/twilio-monetizing-saas-jeff- lawson-cloudstock-december-2010
Steps1. Figure out value generated2. Determine your costs3. Determine your competitor’s prices4. Calculate minimum and maximum • Min: cost + 1 • Max: 25% of money made; 20% of money saved; • Competitor +/- 20%5. Consider other pricing strategies • But keep it simple!6. Test with potential customers • Before launch (e.g. free private beta) • Start high, increments 10%7. Segment