Pricing your product(s) and services - Gatejumper

Pricing your product(s) and services

2009-11-20T19:23:44Z

Lately I've been researching how online entrepreneurs are pricing their offerings. What I've found interesting is the big price variance between two very similar products (let's say, an e-book with a similar topic) or services. What are the factors that affect the way you're pricing your products and services (e.g. consulting $ /hour)?

Factors that I've thought of so far:

Product creating costs - This is pretty self-evident. Product price has to cover manufacturing costs. Remember, it's not only the "visible" costs like outsourced graphic design for your e-book, also put a price tag on your own time "lost" while hustling with your product
Taxes - Taxes will cut a piece from the profit you're going to make
Price of your competitions similar offering. See what other's are charging for a similar products / services if possible. (this is sometimes hard to found out. Especially when it comes to consulting / hour prices. Many entrepreneur's won't reveal it on their homesite.)
Advertising costs. If you've spend money for advertising your offerings, remember to count this in.

What other factors are there to consider? Product pricing is one problem. Addition to that, I find it even harder to put a price tag on the price per consulting hour. I know how much I earn now per hour when I'm doing corporate consulting, but when jumping to the entrepreneurship field, charges seem to go totally wild. I've seen people with much less proven work experience (compared to mine) charge over 10 times more than I'm currently getting paid. It makes you wonder!

What are your thoughts on this?

Answer by idstam for Pricing your product(s) and services

2009-11-21T19:33:13Z

Both for product and consulting hours pricing is mostly marketing. Of course you have to make enough to pay the bills, but above that it is all about marketing.

If you have a product that can be of use both for professionals and laymen you should look into tiered pricing. That is when you have a personal, pro and enterprise version of your offering that is basically the same but directed at different markets.

One big factor in software sales is to predict the support costs of a new product. It might be tempting to sell a product for $999 to an enterprise and $99 to an individual, but remember that you will not have room for a lot of support per sell on $99.

Answer by Andrew MacPherson for Pricing your product(s) and services

2009-11-25T20:19:20Z

I no longer price anything based on inputs. I simply refuse. A customer ultimately doesn't care how much it costs to create or produce something or how many hours you worked on it. They care about solving a problem. Since I started pricing on value delivered, I have been happier and so have my clients.

This applies to products and services such as consulting. The first time I asked for $300/hr consulting, the client's response was... "What!? Are you crazy? I don't pay my attorney that much." The second time I asked for $300/hr, the client's response was... "What!? Are you crazy? I don't pay my accountant that much." It took exactly two conversations for me to question the assumption that basing fees on hours of input was the best way.

On the other hand, if I ignore inputs (time) and talk only about value to their organization from the very beginning, they don't care about the hours. The question becomes: How much is it worth to you for me to help increase your sales by $200,000? If you've framed the entire conversation on value, this is the only question you have to answer.

Of course, you have to deliver value in excess of your costs. However, if you are capable of delivering significant value, your inputs should be so low (relatively) that you don't even have to run the numbers.

I thought people were going to think I was crazy when I shifted my pricing strategy. Instead, they thanked me.