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.
69 comments
[ 4.0 ms ] story [ 137 ms ] thread1. 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...
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.
B basically any economic reasoning around “demand curve” and “marginal cost” is meaningless in real world situations.
Just because marginal cost for software can be close to zero in some circumstances does not make demand curves meaningless!
The so-called demand curve is as useful for a business as a population-wide heartbeat distribution would be. It makes no sense to talk about “the” curve, since it changes all the time!
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.
- 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.
Customer acquisition cost at least ticks the box of being a net expense, but it's still a one time cost.
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
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?"
I would design the experiments so that one customer only answers one type of question, and they wouldn't even know they are being part of the experiment.
For example: yesterday I bought a coffee, and the price seemed too high, I asked the cashier if they were sure, that the price wasn't right, and that I would like to cancel the purchase.
It turns out she had wrongly understood I wanted 2 coffees, but if this is an experiment you can replicate, and train staff to do this once or twice per day, you've got a distributed and blind trial that doesn't rely on predicitons of subjects of their own perceptions.
https://www.joelonsoftware.com/2007/04/24/deriving-your-dema...
https://www.red-gate.com/library/dont-just-roll-the-dice
It's free, short and easy to read.
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.
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!
You can't "just" "value" your time more than zero. Did money go from a bank account into your pocket to develop this? No right? So it is zero. Do you have to pay rent and food either way? Yes, even if this weren't developed. So you value your time at zero. There's no psychological trick here. This is fine.
If you sell it cheap - you'll never know if users bought it for real value, or just out of curiosity/scarcity.
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
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.
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!
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.
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 $99 and so on).
This might be a good suggestion, but I think the success of that specific product came from being made by a popular developer with hundreds of thousands of followers and subscribers, not from the pricing model.
This is not the only product that made this product super successful, the others are quite expensive so I didn't care to share.
Users are getting fed up with the tiered pricing model and are less hesitant to opt for the "pay once" model. Having a huge audience is one thing, SEO is essential for not so popular developer.
You’ll gain wisdom in a few hours that takes most entrepreneurs decades to cultivate.
Basically you need to see pricing as just a single variable in the offer equation with the goal being to craft the perfect overall offer and not just focus on price.
Will check it out. Thx.
Basic idea is that you should design the product around the price. Do price discovery before you do anything else.
Podcast ep here: https://www.youtube.com/watch?v=A6veeCbKIzw
Reminds me of a SaaS product I was brainstorming some time ago.
Two guys came up with an idea for a niche product they could push to clients using their network. The first and foremost thing they mentioned was the price. It will cost X, charged monthly, we can sell it to Y clients in few first months, and the market depth is Z.
We did a napkin math and started from that.
Why X? Because that was the highest price an average HR dept could pay out of their own pocket without asking higher ups for a sign off.
- Are YOU wanting to make most of the money on this item, or on later upgrades? Or on building an entire company on the ecosystem or method?
- Are there weird payment barriers on the customers (like, they are allowed <$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?
There’s a few good books that you might like.
Forget the funnel, founder led sales.
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.
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.
What does it mean