I used to love watching The Price Is Right. Having people guess the price of various items gives you excellent insights into how consumers think.
What separated winners from losers in this TV show is exactly what separates successful pricing strategies from flunking ones in real life. On The Price Is Right, some of the contestants offered guesses based on what they would pay for a certain item.
But a powerful blender is worth more to a professional baker than to the amateur home baker, isn’t it? The winners of this contest knew that, just as they knew that the real price is set by people who know their audience well.
Scratch that: the price of profitable products is set as a means to reach a specific audience. This takes us to our first point: pricing should never be an afterthought. You need a price tag before there’s an actual product to slap it on.
Psst, my subscribers read this before you did. Want to be the first to see analyses and roadmaps like this one? Subscribe to Ideas to Power Your Future and get them in your inbox every Thursday.
Because:
Your price dictates your audience
There are people who would never, ever pay for an app. And then there are those who try almost anything the algorithm dictates they should try.
Similarly, there are people who wouldn’t be caught dead wearing a handbag that’s worth less than an average car. And, of course, their counterparts, who would never spend more than $100 on an accessory.
This cartoon sums it up pretty well:
 |
Image source
From it’s too cheap to be any good to I can’t/won’t spend this much on it, the price of your product or service dictates who’s going to buy it.
Consider it well and consider it well before the MVP stage of your product. Price dictates the level of support you can ensure, the investment in development and marketing, the lifecycle of the product, and pretty much everything else.
There’s one exception to this rule: if you happen to discover an amazing product by accident, like the silly putty creators. Then you’ll have to reverse engineer everything and look for a fair pricing point for your accidental discovery.
But these cases are incredibly rare, so let’s get back to our sheep. Let’s look at a few pricing points to consider:
- $0-$50: low-risk investment, customers don’t expect much in the way of support and quality. Use it for product-led growth to amaze customers with the incredible value you can offer at a low price point.
- $50-$100: still a low-risk investment, but customers expect better quality. Use it as the first pricing point in a tiered approach (SaaS-type) or as a stepping stone to upselling.
- $100-$300: we’re done with half-assing it, this is where you need a solid product.
- $300-$900: we’ve changed gears completely. Within this price bracket, people expect real results. Use it to attract an audience who has already tried a similar product and is looking for a better alternative.
- $1,000-$10,000: welcome to the pro league. You’re now marketing to a specialized audience (which means that they can smell your bullshit) AND you’re relying on your reputation to do it. Yes, you need clout to pull this off.
- $10,000+: welcome to the stratosphere. You’re marketing to a handful of people but it doesn’t mean you can’t turn a nice profit.
 |
Quick note: these pricing points fit most digital products and SaaS-type offers. Yes, there are products and services that start at $10,000 in ultra-specialized niches. But they need a completely different analysis.
Pricing versus market size
The tiers above beg the age-old question: should you sell 1,000 products at $10 or 10 products at $1,000?
This question keeps popping up because it’s arguably the worst possible way to think about pricing. There are a million variables:
- Yes, it’s easier to deal with 10 clients than with 1,000. BUT high-ticket clients are usually more demanding.
- Yes, it’s easier to build a cheap product BUT cheap products usually have a limited shelf-life.
- Yes, cheap products are easier to sell (low perceived risk, remember?) BUT is the market big enough for you to get 1,000 clients AND can you reach them all?
So don’t even start with this question. Start with the perceived value of your product (what ROI can I expect if I buy this?) and with your production costs.
But keep this in mind: a rule of thumb dictates that in small markets you need high prices. Volume and price are inversely correlated.
This is another argument in favor of embedding your pricing into product building. It dictates your audience AND your revenue ceiling.
Last week’s issue of Ideas to Power Your Futureexplored niching down and offered a calculation example of how many clients you can expect to reach in a given niche or industry. Read it if you’re unsure of whether your current pricing strategy meets your business goals.
Another important point: selling cheaper products gives you more room for growth, irrespective of market size. You can increase the price of your products or improve them to command higher prices.
This does not mean that you should cheapen your product to give yourself room for growth. Remember the cartoon above? Reputation is the best way to command high prices right out of the gate. Build your reputation and you’ll be to set pretty much any price, from $1 to appeal to large crowds to $10,000+ to reach a select few clients.
Your reputation dictates a huge chunk of the customer’s perception of value.
 |
My personal favorite: tiered pricing
There are dozens of pricing models you can get inspiration from (they’re a Google search away, I won’t bore you with them) but all of them essentially factor in production costs and perceived value among other things.
More often than not, you won’t have a pure-breed model. You’ll “borrow” a bit from several strategies to create your own.
Just like I did for my products. Here’s a sneak peek into my own strategy:
- A low-cost product (well below $50) to generate a bit of product-led growth. This pre-written email sequence builds trust with people who don’t know me yet. It’s a very, very low-risk investment for them and a good foot in the door for me. Almost everyone who bought the next product bought this low-cost sequence first.
- A product with an average cost, a 1:1 strategy session with me. It’s priced slightly higher than what your average consultant charges because I’ve got the reputation to back it up (15+ years in the industry and dozens of glaring testimonials).
- High-end products and services, like done-for-you marketing strategies, forecasts and analyses, or content strategies. They start at $2,000+ and, again, reputation is their biggest driver.
Volume-wise, my cheapest product is my most popular, as expected. Revenue-wise, the numbers are flipped.
More importantly, the tiered model (that I borrowed from the SaaS industry) helps me reach a wider audience. It helps me gain traction with people who may not be able to pay a premium fee for a done-for-you strategy YET. [As you already know, my game is building resilient, long-term businesses, NOT one-and-dones.]
What’s your favorite pricing model? How do you price your products or services? Hit reply and let me know — I’m always looking for extra inspiration.
A couple of final thoughts
Having the lowest prices in your industry is a race to the bottom. Win it at your own peril. Yes, getting close to a ceiling can be dangerous for your growth. But being right next to the floor is pretty much a death sentence.
Your pricing doesn’t have to be set in stone. You can increase or decrease your prices when you see fluctuations in the demand for your products.
Think your pricing isn’t optimal? Test it! Talk to your customers and your prospects. Ask them what they would pay for your product. What amount would make them feel like they hit the jackpot?
_____________________________________
Adriana’s Picks
- A newsletter I’ve been enjoying a lot lately is Marketing Junto. Every Wednesday at about 10am Eastern, an issue of Marketing Junto is released into the wild. Each issue is full of insights and great marketing finds. Subscribe here!
- Running a remote team? My friend Gabriele has a free email course on how to do it right. Grab it here and enjoy one full week of insights into how to build and run a remote team — from someone who’s been doing it successfully for years.
- The online course industry is booming, which means scammers are a part of it now. Be careful when paying for a course!
________________________________________
That’s it from me today!
See you next Thursday!
Here to make you think,
Adriana
P.S.:
😃 Loved this email? Forward it to a friend!
☹️ Hated this email? Forward it to an enemy!
____________________________________________________________________________________________
Need me in your corner? There are three ways I can help you:
- Get my product launch email templates that sell: 5+1 emails you can send to your list in 45 seconds.
- Book a 1:1 strategy session with me. Let’s unlock your growth in 60 mins!
- Get content or copy that converts AND ranks. My digital marketing agency is here.
Connect with me on LinkedIn or Twitter.
