Questions

I have a potential audience of 25K for my new digital product. How should i price my product for optimal profit?

Is there a theoretical pricing formula? If i offer the product at $0.99 i could probably get 10K buyers. How would that change if i offer it at 5$?

3answers

I recommend you do some A/B (or "Split") testing. Choose a sample of your audience and market the product at $0.99. Market the same product to another group at $5.

We expect that the lower price option will sell more, but we don't know until we experiment. In my experience, sometimes a lower price lowers the received value of the product in the mind of the consumer. If they expected to pay more of it, there is a chance that they will be leery of the lesser-priced item.

Additionally, if you market your product correctly, and enable the buyer to value the product more, you can surely charge the higher price.

Consider the price versus value of a bottle of water. If you have been stuck in the desert for a week with no water, what do you *value* the water? What is it worth to you? $1? $10? $100? Probably $100.

If you are floating in the middle of a large fresh water lake, what value is that same bottle? $1? $10? $100? Probably $0.

On a hot day after mowing the lawn? Probably $1.

Same bottle. Different value.

I hope this helps.
-Shaun

*I assume your product is not really $0.99 or $5; you can still apply this tactic.


Answered 5 years ago

There's a few way to do pricing, and you need to consider a few things, but three main things are: costs, competitors, value.

Costs are pretty self-explanatory, you need to be sure you're not going to lose money. Don't consider just the hard costs, but any soft costs as well, what's maintenance going to be, human costs, opportunity, etc.

Are there things similar, what do competitors charge? How you price against them is a positioning of your overall brand and relates to value. Are you a premium product, or a commodity?

Value speaks to how your audience views it. You say potential audience, but do you have access to it ahead of time? You can come up with a better educated guess on what to start a price at by polling a sample size and ask a few questions: At what price is this product too expensive you won't buy it? At what price is this a good deal? At what price is this too cheap and something must be wrong with it?

A/B testing price is always tricky when it's for the same product, especially if it's a published price and the target audience will talk to each other. If it's not published, then it gets easier and not so bad to A/B.


Answered 5 years ago

What are you using to estimate the 10K sales number?

Do you have a history of sales with this audience you can use to estimate conversion rate?

You can't really estimate beforehand how the conversion rate will change from $0.99 to $5. You might make 9,999 sales at $5 or you might make 100 sales. How customers respond to price depends on the product and how they are paying for it (in-app vs. entering a credit card on a site), as well as the nature of the customer.

Is your product one amongst many competitors, like an app in an app store? Or is it more unique like an eBook relevant to your niche audience? Customers in the app store will be much more sensitive to price than your engaged users, especially if what you're selling is unique.

Finally, beware of underpricing. You can always put something on sale but it's very hard to raise your price.


Answered 5 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2020 Startups.com LLC. All rights reserved.