- How to uncover a ballpark price point that fits your founder context
- How to pick a specific starting price for your product
- Why it helps to start lower and then iterate upward
Value is what you get.
$10,000 @ Tradesy.com
Part 1
At What Price?
How much money do you want to make every month?
How many sales will it take to do it?
Different price points will lead to different burdens on you as a founder.
- $1-$10 - A huge amount of sales required.
- $10-$100 - A lot of sales required.
- $100-$1000 - A lot of building required.
- $1000+ - A huge amount of building required.
To achieve your monthly goal (at some point) you'll need to pick a ballpark price point and take on the "baggage" that comes with it.
It's helpful to think about this up front because some price points make it realllly difficult to hit your goals. I'm looking at you $1.
I've listed a number of scenarios below for $1k, $5k, and $20k monthly revenue goals.
I recommend you scan through these and take note of the trade-offs.
This can help you be intentional about your price point, customer type, and product type up front - which in turn make it more likely for you to hit your targets.
Note: This is an art not a science. We're just looking for ballpark price points right now. For example if you want to earn $20k/mo it is quite difficult to do that with a single sale $1 price point.
π¨= Less effort to build π¨π¨π¨π¨π¨= More effort to build
π= Less effort to sell πππππ= More effort to sell
Earning Goal - $1k/mo
$1k/mo from One-off Sales (eBook, Mobile App, etc.)
You'd have to win 25 new customers every month.
π¨π¨+π = πThat could work.
You'd have to win 1,000 new customers every month.
π¨+πππππ = πSo much sales effort - every single month!
$1k/mo from Monthly Subscriptions (Membership Site, SaaS App, etc)
Win 25 new customers per month - for 4 months.
π¨π¨+π = πThat sounds pretty good.
Win 100 new customers per month for 5 months.
π¨+πππ = πUgh, what a slog.
Earning Goal - $5k/mo
$5k/mo from One-off Sales (Course, Desktop App, etc.)
You'd have to win 25 new customers every month.
π¨π¨π¨+π = πA bigger build, the product would need to live up to the price point, but it could work.
You'd have to win 100 new customers every month.
π¨π¨+ππππ = πIt's a LOT of customers to find every month... but maybe?
You'd have to win 1,000 new customers every month.
π¨+πππππ = πHoly moly. No no no.
$5k/mo from Monthly Subscriptions (Membership Site, SaaS App, etc)
Win 16.6 new customers per month for 6 months.
π¨π¨π¨+π = πYeah, that could work.
Win 30 new customers per month for 6 months.
π¨π¨+ππ = πSmaller build, easier sales price point, less expectations, might be worth the extra hustle.
Win 100 new customers per month for 2 years.
π¨π¨+πππππ = πWow, that's a lot of sales for one indie founder.
Earning Goal - $20k/mo
$20k/mo from One-off Sales (Course, Desktop App, etc.)
You'd have to win 20 new customers every month.
π¨π¨π¨π¨+ππ = πIf you were hot stuff, had a great sales funnel and offered lot of value - that could work.
You'd have to win 40 new customers every month.
π¨π¨π¨+πππ = πIt's similar to above but with an easier to swallow price point.
You'd have to win 20,000 new customers every month.
π¨+πππππ = πDo you want to play the app store lottery?
$20k/mo from Monthly Subscriptions (Membership Site, SaaS App, etc)
Win 10 new customers per month - for 1 year.
π¨π¨π¨π¨π¨+ππ = πIf you didn't mind the high stability requirements, the large build, the customer hand holding, dealing with imposter syndrome and you deeply knew the market - it could work.
Win 22 new customers per month - for 1.5 years.
π¨π¨π¨π¨+πππ = πThe classic SaaS selling to small business path. Not easy, but not impossible.
Win 33 new customers per month - for 5 years.
π¨π¨π¨+ππ = πA smaller build, an easier price point to sell at, lower churn built in. If you didn't mind the 5 years slow burn - it could work.
Note: Did you notice how subscription products make hitting monthly targets SO MUCH EASIER? It's because monthly recurring sales add up quickly. With subscriptions you need WAY less customers.
Part 2
Set a Starter Price
Ok, that's helpful and it gives us a taste of how different price points effect things. BUT it still doesn't show us how to select our very first price point.
To help answer THAT question, let's have a look at The Great Pyramid of Buyer Types.
Buyer Types
Buyer Types:
- Only Free Buyers - Will never pay anything.
- Cheapest Price Buyers - Will only buy the cheapest product.
- Value Driven Buyers - Will look for value and pay for it.
- Only The Best - Will only buy premium.
- Gold Toilet Buyers - Will only spend ridiculous amounts.
You'll note there are a LOT more people willing to pay less than pay more. But, I also hope you'll note there is a sizable chunk of the market where folks are value driven buyers.
Of course in some markets there will be less value driven buyers than others, but none the less, there will be some amount of people in every market with a value buyer view point.
To further clarify, here's what the great pyramid looks like in the context of the car market:
Car Market - Buyer Types
- Only Free Buyers - Use public transport.
- Cheapest Price Buyers - Use a bicycle or drive a run-down used car.
- Value Driven Buyers - Drive a mid-range Nissan, Ford, etc.
- Only The Best - Drive a top range Maserati, Mercedes, etc.
- Gold Toilet Buyers - Drive a Ferrari.
In the real world, the lines blur a little bit. There are some folks who buy really cheap cars and there are some pretty nice cars at a decent price point, but you get the idea.
Unless we are building a truly premium product, our optimal path is to target the Value Driven Buyers price range in our market.
To set our starter price, we simply need to find out what the low end of the value driven price range is.
Then, we can launch with a sensible price point (not too low, not too high), learn from customers, try a higher price point, and so on.
As with many of the things we've discussed, this is an art, not a science.
That said, here is one way you can try to find the value driven price range in your market:
- Google for products that compete with your product and add each one to a spreadsheet.
- List them from high to low.
- Take your best guess at where the The Great Pyramid of Buyer Type price points begin and end for each buyer type.
You are looking to uncover:
- The lowest price point that value driven buyers will pay
- The lowest price point that feels right to you
- Your target top end price (which can change over time)
This should give you a starting point and an end goal so you can launch and begin your tests.
Part 3
Start Lower / Iterate Up
If you haven't read Patrick McKenzie's seminal thought piece The Black Art of SaaS Pricing, please do so now!
It will just take ten minutes and will give you an excellent foundation for this pricing discussion.
As discussed in Patrick's article, the core problem new founders face is that they are not confident in charging high price points.
Patrick argues we should keep increasing our price point and see when people stop buying.
While I wholeheartedly agree with Patrick, there is some nuance to this advice that I would like to discuss.
In my experience, it's difficult to release the very first version of a product with a high price point from the get-go.
This because it's hard to feel confident about high price points at the very start when we're not really sure if the product is providing the value we think it is.
Also, to feel confident we need to check in with our new paying customers and see if the product is bringing them the value they expected.
Just down the road from where I live there are 2 gas stations on the same intersection.
I took a picture of each station's pricing sign within minutes of each other. You can even see the other station in the background of each picture.
Exact same product. Exact same intersection. Both busy stations. Wildly different prices.
When I first launched Nugget, it was an email list that sent out one idea a day. I launched with the starter price point of $49/month. I successfully sold this plan to about 100 customers, which generated $4,900/month.
After a few months, I realized the price point was too high. It should have probably been something like $19.99, not $49. I learned this by talking to customers, watching churn rates, and noticing that no one was starting a profitable side project (because they actually needed training, not just ideas).
Since it was impossible for me to instantly create the Nugget Startup Academy, I knew I was going to have to reduce the price to fix the churn issues, and charge a fairer price for the product as it was then.
So, I changed the plans and pricing on the sales site and I converted all paying customers from $49/month to $19.99/month.
Well, let me show you how that feels.
I've had a fair amount of experiences as a founder, and I can tell you, this is one of the worst!
What I should have done is start at $9.99 and then moved the price up by $5 every few days, while continually checking in with new customers.
By taking that approach, my revenue curve would have been upward, and I would have been motivated to continually market and seek new customers for tests.
- Pick a price range that fits your goals.
- Uncover the actual value range from low-to-high in your market.
- Launch with a price that is on the low end of your market's value range.
- Over time, iterate your price point up and see where the conversions stop happening.
- As you iterate, regularly check in with new customers and make sure they feel the product/value equation.
When you are ready to apply these concepts, remember to seek out customers who will to pay a price point that meets your goals.
