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How To Nail Your Pricing Strategy the First Time
Is your product priced right? It’s probably the hardest question you’ll have to ask – and the answer is make or break.
When you’re ready to take your product to market (whether your product is a SaaS, service, or physical product), pricing models are all over the map and tough to navigate.
In this episode of Process Makes Perfect, Patrick Campbell, co-founder and CEO of ProfitWell, shares a few guidelines to help you nail your price. And he outlines ways to ensure long term value for customers and sustainable growth for you.
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Name the starting price
As business owners, we tend to make a lot of assumptions about pricing that aren’t always true. We assume that the 2 most important factors are our costs and our competition’s price point.
But here’s the truth – your customers don’t care about your cost, and your competition is often guessing and not doing their homework, either. These data points make for useful supplementary information when you’re making decisions. But they aren’t the best place to look.
Instead, go straight to your source.
When it comes to getting that magic number, Patrick recommends some classic advice – keep it simple. “Everyone wants this secret roundabout way to divide this number by that number and figure out their price point when it’s as simple as going to your customers and asking them questions.”
Talk to the people you’re trying to sell to. Find the sweet spot between the max they’re willing to pay and the lowest you can afford.
You don’t have to survey a massive sample size to get a great idea of the price range your brand fits into. Ask current customers, prospective customers, and people who have never heard of you. This should land you at a good starting point.
Once you know you’re in the right zone, you can refine the price and get more precise from there.
Finding the sweet spot
When you know what your customers are willing to pay, you can easily avoid underpricing your product. And in the process, reduce issues later when you have to charge more.
At the end of the day, it’s a better experience for your customers to charge what you’re worth from the start than to raise costs on them down the road.
“If you’ve done your homework, you should defend your price.”
On the flip side, Patrick knows it can be tempting to overprice your product and offer deep discounts to close the deal. But this leads to a host of problems later on.
If your customer feels pushed by a huge discount to purchase before they’re ready, you run the risk of low satisfaction. And this eventually leads to high churn (AKA losing customers).
The best move is to price your product right the first time, and then find other promotional tools to provide value for your customers.
Maybe waive onboarding fees, discount add-ons, offer referral rewards. You don’t have to drop your product price to appeal to the right customers.
Retail and e-commerce brands are a different game, which is where knowing who you are as a brand comes into play.
Premium and luxury brands (think the Herman Millers of the world) typically discount their products very sparingly because their customers aren’t discount shoppers. While value brands can get away with running frequent sales without risking brand erosion.
Know where you fit into this scale, and price your products accordingly.
Offer a range of pricing options
Get into the mindset of knowing there’s no perfect price. You’re always going to be too high or too low for someone. But there’s a way to broaden your price range without overwhelming customers.
You’ll hear “good, better, best” as the typical pricing model advice. And that’s not a bad place to start. Giving a few choices upfront helps your users know where they fit in with your brand – without over complicating it. This allows you to get really granular with your pricing and create a ton of value for your customers.
You may even bring your customers in at one price point, but as you learn about their behavior and needs, you can offer more targeted options.
So on your website, you only have “good, better, best.” But in reality, you have 25+ pricing options that meet your customers where they’re at.
Leverage the right tools
Once you’ve gotten to know your customer and have a general idea of what your sweet spot is, leverage partnerships with tools that can really help take your pricing model to the next level.
You don’t have to reinvent the wheel. There are tons of tools on the market that are powerhouses for data-driven analytics and metrics. And they can help you confidently approach pricing.
Patrick’s company, ProfitWell, for example, focuses on helping subscription-based business models track and manage their revenue with a free tool that then guides their users into paid products they need. After they’ve earned their customer’s trust and gotten to know their individual needs, they can guide them into a more custom plan.
Targeted newsletters, personalized content, and user analytics are all great tools to get to know who you’re speaking to and what they need – and they won’t break the bank.
Earning your customer’s trust and providing valuable products is essential to making sure you’re all growing in the same direction. And your pricing structure can reflect that growth.