The Ultimate Guide To Product Pricing
When I started Ghost Blog Writers the show American Pickers was gaining steam.
The show is intriguing for the antique treasures the guys find.
But one thing that also piqued my interest was the business side.
The guys on the show were always pretty straightforward with their customers. The customers knew that something might be worth a certain price at retail, but that they were unlikely to get that retail price.
The owner didn’t have a store. They didn’t have the connections for selling to collectors.
So that was the tradeoff.
For the most part, the guys seemed to be looking for about 40-60% margin. They would offer $50 to the owner and later look to sell it for $100.
There was some variation there. Sometimes they would be at 75%. Other times 25%. And obviously sometimes they hit home runs or lost money.
But they were always pretty fair about it with everybody involved.
You Gotta Start Somewhere. Why Not 50%?
Anyway, when I started Ghost Blog Writers I had no idea what to charge for a blog post.
Since I had been watching American Pickers I figured those guys knew what they were doing with the 50% margin so I figured I would just follow that logic.
I had been writing blog posts for awhile and it would take me about one hour to write a 600-800 word post. Some less. Some more. That was about the average at the time.
I figured that $25/hour was pretty good. So I started with $25, but here is the key. I wanted to look at Ghost Blog Writers as a business and I knew the business needed profit.
So I doubled the price to $50 to include the 50% margin.
The reason for that is if you’re a solopreneur and you want to grow beyond a solopreneur that you’ll have to hire people in the future. You’ll have to make sure they’re fairly compensated.
In any business setting, the incentive has to be appealing to all parties. In our case the money has to be worthwhile for the writers, the business and the clients.
And things really haven’t changed since then. We’re at $65/post right now. We’ve tested it at different levels over the years, but always kind of come back to that price. It may change in the future, but it’s been working up to this point.
The Competition’s Pricing Model
Another good place to start is with some good old fashioned competitive analysis.
In business and in life there is really no reason to reinvent the wheel. Most innovations come through incremental change, not big bangs.
Sometimes a big bang will happen, but even those don’t happen overnight and there is usually a lot of testing along the way.
Anyway, chances are your product or service is at least similar to a handful of other companies out there. They have prices set. Chances are good that their pricing is fairly similar.
You can build your pricing based on their pricing.
A good way to look at it is to get a half dozen on a spreadsheet. Look at them all at once. See what is actually included in the product or service and why variances in the price might be there.
This does a couple things…
First, it allows you to see how your product is the same or different. You can look for gaps in the market that you can fill that customers might find appealing.
For example, you might find that most dentists in your area basically provide the exact same service. Cleanings and x-rays for $150. Not much variation.
You could change your offering to cut out the frequent x-rays and focus on the people with the best tooth brushing habits. Kind of like those good driver insurance programs. You offer a good tooth brusher program.
Cleanings for $50. X-rays every other year.
Second, by looking at the competition you get a starting point for your price. If you’re not going to change your offer you can price it the same and look to beat the competition in other ways. You can beat them with better sales and marketing. Getting customers that don’t know that either business exists.
Or you can beat them on quality. Maybe your company is more efficient and you can make more profit off the same price.
One of the keys with pricing in any business is testing.
Just because you set a price on something today doesn’t require that you keep it there tomorrow.
One key to this strategy, though, is that if you sell your product or service to someone say on a recurring basis then it’s not always good to increase the price.
Like anything, it depends.
Let’s say you have a software product on a recurring model. You start charging $25/month or whatever. You realize that the price is fine. You earn profit and everybody is happy.
But as time goes on you see that the demand is high. You can double the price and still get happy customers. You can totally do that and everybody will be happy.
The tricky part would be increasing the price for the early adopters.
But let’s look at a different situation.
You’re a web designer. You work with a handful of clients. You start with an initial retainer or hourly rate. Things work fine, but you see demand increasing for your services.
You increase your rates for new clients, but also let your current clients know that your price is going up for new clients. You appreciate their business. You need to increase your rates, but you’ll still offer a discount from what you’re charging new clients.
Maybe it’s 10-20% off the new price.
On the flip side of all this is the reality that your price may need to decrease. Remember, starting out with a price is still kind of a guess. You can do research and comparative analysis, but in the end it’s still a guess.
And that’s fine.
Just give yourself some room for margin. If it doesn’t work you don’t have to keep working for too little. People understand and don’t expect you to work for free.
Pricing is obviously very important in business. It’s a challenge oftentimes and a struggle.
But I think sometimes we just overthink things.
A good place to start is with your competition. See what they’re charging. Look at them all together and form your own price based on what you want to offer.
Look at it from your side of things and from your customer’s side of things. You know they’re comparing prices so you might as well do the same.
And also look at it from a practical standpoint. Look at how long it takes you to do something or how much money it costs to do something. Then give yourself margin.
The final takeaway is that with a little work you’ll be in a place to set the price and begin. And you can fine tune things as you go.