Product Pricing Properties

Continuing with yesterday’s post titled Pardot’s Pricing Progression Through the Years, I think it’s important to add a few more comments on the topic of pricing. Too often, entrepreneurs labor to set the perfect price before they’ve even launched the product. The best thing to do is to get out and talk to prospects to get a better understanding of the value provided. While they won’t necessarily be explicit, they will provide feedback and information to make a better decision.

Here are a few thoughts on properties of product pricing:

  • Product pricing has nothing to do with a cost plus formula (e.g. it cost me $10 to make it, and I want to make $3 on each sale, so I’ll charge $13 for it) and everything to do with value provided
  • Product pricing should scale with value provided to the customer (e.g. as the number of seats/transactions/usage grows, so too does the price)
  • Product pricing should be as simple as possible while still capturing the appropriate value
  • Consider having several pricing tiers where the tier you want most customers to buy is accented by the other tiers (e.g. a major jump in pricing or a major difference in functionality so that human psychology causes the person to focus in on a specific choice)
  • Work to differentiate against the competition based on value and not based on price
  • When it doubt, charge much more than you think something is worth as it’s easier to lower prices than to raise them

Pricing is a peculiar part of the startup process that should evolve over time. At a minimum, keep pricing straightforward and oriented around capturing value.

What else? What are some other product pricing properties?

4 thoughts on “Product Pricing Properties

    • For productizing services, I don’t think anything would change. With the goal of productizing services being that the service is treated as a product, the same pricing rules would apply.

    • Early on we didn’t worry about 70%+ gross margins. Gross margins didn’t become a consideration until the beginning of year five when the business really started to scale.

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