
Ask HN: How do you set prices? - fnbr
I&#x27;m helping a friend&#x27;s startup figure out pricing for their products. What are some tools&#x2F;services that you use to do this? Are there any pricing analytics platforms that you&#x27;d recommend?<p>I can&#x27;t find anything that wasn&#x27;t enterprise focused (&quot;Call for pricing!&quot;). Are there any services that your company uses that you&#x27;re happy with? Ideally, it would help calculate common metrics &amp; make suggestions for pricing experiments (&amp; help run them!).
======
compumike
(Note: cofounder responsible for pricing decisions many times.)

The closest thing to a "methodology" I've found is asking these four questions
and having the users generate their own pricing curve [1]:

Here's a real set of curves this process generated for me recently:
[http://imgur.com/lPKLk53](http://imgur.com/lPKLk53) ($ values redacted)

The four questions are:

1\. At what price would you consider [the product/service] to be so expensive
that you would not consider buying it?

2\. At what price would you consider [the product/service] to be priced so low
that you would feel the quality couldn’t be very good?

3\. At what price would you consider [the product/service] starting to get
expensive, so that it is not out of the question, but you would have to give
some thought to buying it?

4\. At what price would you consider [the product/service] to be a bargain—a
great buy for the money?

Require a specific $ amount as the answer to each question.

Take ~100 users, ask them all four of these questions, and then compile the
results. You really have to do this on a subset of your own qualified
potential customers to get any meaningful data.

The neat thing about this is that this creates a price sensitivity curve
without anchoring the interviewee with any prior numeric values.

At the end of the day, it's still a gut call about where to place your price
point relative to the user's alternatives, and testing is encouraged, but
these four questions are a decent start.

[1]
[https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...](https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensitivity_Meter)

~~~
Osiris
It's been consistently shown that what people say they'll do regarding pricing
and what they actually do are not correlated.

Rather than asking people, if you can, try just changing the prices and see
how customer acquisition changes.

I sell a program online to consumers, so for a while I tried several
experiments in pricing, including a "pay what you want". Structure. Eventually
I settled on a price that's about half what the highest accepted price was
($10) and the typically "pay what you want" price ($1). Right now I sell for
$4 (perpetually listed as 50% off of $8), which brings in about as much
revenue as the $10 price. The advantage, though, is that it gets in the hands
of more people, so there's a higher potential for word-of-mouth advertising.

So, I would say, if you're in the position to do so, experiment with the
prices in the real world and look at how purchasing behavior changes.

~~~
GordonS
> perpetually listed as 50% off of $8

Isn't that quite dishonest? I'm fairly sure this is illegal in at least the
UK, so I'd assume in plenty other EU countries too. Are you in the US? Is this
practice legal there?

~~~
djKianoosh
this practice is so prevalent here in the US I cant imagine it being illegal

~~~
tprynn
You are wrong. Many states have laws against this type of deceptive pricing,
and it's against the FCC's guidelines as well: [http://www.ecfr.gov/cgi-
bin/text-idx?SID=0fe5a1d5614a06c2f27...](http://www.ecfr.gov/cgi-bin/text-
idx?SID=0fe5a1d5614a06c2f279e26eab8caa72&mc=true&node=se16.1.233_11&rgn=div8)

~~~
djKianoosh
and yet we dont care when Manning tech books always have a discount someway
somehow. there's almost always a deal of the day. just have patience. I know
it's not technically perpetual but it has the same effect.

------
patio11
I should really about this in a more formal fashion, but here's the HN comment
version of several years of doing pricing for SaaS companies:

Price higher than you feel comfortable with. Approximately every SaaS team
devalues their software because, unlike their clients, they were actually
capable of writing it. Your clients don't care that it was "only a few weeks
of work" or "really not as good as $UNRELATED_SOFTWARE_YOU_COMPARE_IT_TO" or
"not as polished as Apple." Also, if you haven't run a business before, you
have no idea how much businesses pay for pedestrian services like e.g. trash
takeout, business insurance, monthly bookkeeping, etc.

Concretely, my standard "knowing nothing else" pricing for B2B SaaS is a three
plan grid with $49/$99/$249 . If you're servicing informal firms like e.g.
many Shopify sellers, you can add in a $29 price point. You don't want to
service businesses for below $29 a month; you will suffer enormous pain in
doing so and you will find that they churn and burn through software for a
variety of reasons unrelated to you, for example because they go out of
business, they have such severe cash-flow constraints such that sending you an
email asking for a $5 discount is a good use of their time, etc.

You're not going to get pricing right the first time around. No one does. This
is fine. Over time, you are likely going to raise prices across the board, as
you improve your product, get a tighter focus on which customers benefit from
you (which is isometric to improving the product, from the customer's
perspective -- c.f. a below comment from tptacek on packaging), and get more
confident in your team/offering. There is a simple way in SaaS to make price
increases a non-event: grandfather in existing customers at their existing
price. If your company is growing, your revenue for the next month is
dominated by existing clients but your revenue as T goes to infinity is
dominated by new clients, so I tend to just recommend people grandfather
indefinitely. Yes, this does result in a couple of early adopters getting $1k
a month of services for (in some cases) $19; I consider that a marketing
expense to reward people for loyalty.

There are a lot of microtactical things you should build to support
experimentation with prices. One is backend infrastructure to allow your CS
team to change someone's plan at any time; another is some sort of crediting
feature or special one-off pricing (one-time or ongoing), because as T goes to
infinity you'll probably want to do both of them. I'll write about them some
day.

You can track churn rates by the plan people are on, but I find that that
isn't terribly useful early in the life of a business, since you'll have
relatively few accounts in any bucket. For this reason, I often have a shadow
attribute on plans to do "bucket by relative size of account", such that e.g.
folks on Small Business at $49, Small Business (March vintage) at $34, Starter
Edition For YC Companies at $45, etc all bucket into the same place for churn
calculations.

Prefer giving people free things (exceptional acts of service, for example) to
giving people discounts. They'll remember them for longer and you absorb the
costs once, early in the relationship, rather than every month. Any recurring
discount you issue in SaaS is essentially a liability on your books. (And
existing happy accounts are a de facto asset, though GAAP doesn't treat them
that way.)

~~~
gyey
Thanks for the comment. But Github (to take one example) has pricing that
starts from $7 a month. This despite of having a free tier. What's your
opinion on that? Is it because they target developers and not businesses at
that price point? Even their organisation plan starts at I think $11.

If Github priced it so low, I guess they wanted to capture that segment of
developers who would pay $7 a month but no more. It makes me want to price my
product too at $7 a month at a lower tier. Any comments on this please?

~~~
patio11
I think GitHub intends to have approximately every software developer in the
world use GitHub, which is not the planned endgame for most software
companies.

I do not think, if your customers number less than hundreds of thousands, that
getting the custom of folks for whom $9 is a lot of money is a worthwhile use
of your time. Devs consistently overestimate the impact on their marketing/etc
of having cheapskates use them, and underestimate the real operational costs.
(These customers are disproportionately pathological; they contact support
rudely, with inane questions, at a rate orders of magnitude higher than good
customers.)

------
capocannoniere
Joel Spolsky has written a great article on software pricing:
[https://www.joelonsoftware.com/2004/12/15/camels-and-
rubber-...](https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-
duckies/) This article was part of the reading list at Stanford's Startup
Engineering CS184 course.

Another resource with lots of actionable advice: A Gigantic List of
Psychological Pricing Strategies: [https://www.nickkolenda.com/psychological-
pricing-strategies...](https://www.nickkolenda.com/psychological-pricing-
strategies/)

~~~
sova
That write-up by Joel is great as an intro to economics course in 15 minutes,
but even after all the analysis he makes the very valid statement that it
depends on the strategy of growth you have in mind. If you are trying to cash
out right away, you don't care as much about longroots longevity / word-of-
mouth / gradual-grow / customer feedback loops. If you are going for a long-
term recurrent-returns kind of loop, then you want to go for what will be
conducive to growth & also act psychologically well as a "price for a valuable
thing/connection/pathway/service" Because if you sell me your awesome product
too cheaply, although I will be appreciative, the average consumer will assume
some sort of defectiveness. Thanks for that link, it is helpful when
contemplating this stuff.

------
pccampbell
Hey Everyone - Patrick Campbell here, CEO/Founder of Price Intelligently.
We've been in the pricing trenches for the better part of five years now
working on the pricing for anyone from Atlassian and Autodesk to Lyft and Blue
Bottle Coffee.

Pricing is ultimately a process, similar to product or marketing development.
We've written extensively on it at priceintelligently.com, but here's a bunch
of topics you should look through that will ultimately give you a solid
foundation. The biggest thing to keep in mind is that there aren't any tips or
tricks that are going to help you win - you need to quantify your buyer
personas and price based on them accordingly. If you ever have any questions,
always up for getting on the phone - patrick[at]priceintelligently[dot]com.

Value based pricing 101 - overview of how you should be thinking of your
pricing (not based on costs or competitors):
[http://www.priceintelligently.com/blog/bid/162160/Value-
Base...](http://www.priceintelligently.com/blog/bid/162160/Value-Based-
Pricing-101-The-Necessities-and-Your-Pricing-Strategy)

Pricing Process: Here's a 130 page ebook we wrote on how to collect the data
you'll need, how to structure things, and a bunch of other pieces. This isn't
the final cut of the ebook, but given the conversation I thought I'd share
early (no lead form): [https://cdn2.hubspot.net/hubfs/120299/Price-
Intelligently-Sa...](https://cdn2.hubspot.net/hubfs/120299/Price-
Intelligently-SaaS-Ebook.pdf)

Here's also a webinar recording that walks through the above process if you
prefer to watch:
[https://pi.wistia.com/medias/79lpgnqd2f](https://pi.wistia.com/medias/79lpgnqd2f)

Survey design is absolutely crucial. We've sent around 20M using our pricing
software at this point, but here are some lessons we wrote through at the 5M
mark: [http://blog.profitwell.com/lessons-from-sending-5m-saas-
cust...](http://blog.profitwell.com/lessons-from-sending-5m-saas-customer-
development-surveys)

~~~
fnbr
Is Price Intelligently an automated service, or do you provide
consultants/analysts to do the analysis?

~~~
sah2ed
I bet you've just given some folks a SaaS idea that might be worth tackling
with full-on automation.

------
joegosse
Use good invoicing/billing software that allows you to discount on a per
customer basis.

Start with two price points: one targeted at price sensitive customers, call
it price A, and one targeted at price-insensitive customers (think
enterprise), call it price C.

Set price A lower than you think - you can always add features and raise later
to the point that people start to scream.

Set price C at much higher than you think - use volume discounting to offer
discounting where needed, but this is your anchor point for conversations with
big customers.

Consider whether price A is your acquisition channel or if you will have a
"free" tier. If you don't have a free tier, you can feel fine with a lower
than optimal price for tier A, as this is your conversion channel to price C.

Eventually you'll want a tier between A & C (call it B) to anchor pricing and
encourage people to choose A or C. Refer to research on movie popcorn prices.

~~~
user5994461
> Set price A lower than you think - you can always add features and raise
> later to the point that people start to scream.

Set price A higher than you think. It is easy to lower the price later or to
give -30% to customers and have them think it's a bargain. A higher price tag
will confirm that your product is valuable and useful and you've got a market.

If they don't want to pay, you need to make a better product, or sell harder,
or market it better. You don't want to fight for cheapness, cheap customers
are cheap, annoying and they won't cover the costs to run the service.

~~~
danielweber
Agree. My experience in pricing was that we were locked in to the initial
price we set. (And the CEO did it by accident. Oops.) No one could stomach
raising it.

Then again, we didn't actually try raising it and face backlash. It's possible
we were just too cowardly to try and fail.

~~~
JohannesH
I tried something similar... Our CEO set the price of our email service too
low (oops). But unlike you we faced the music and doubled the price only a
year after. The backlash was much smaller than I anticipated. We marketed the
price hike by adding some requested features and made the payment term half as
long so the price seemed to be the same. This made it easier for our customers
to swallow. Of course we lost customers, but not enough to make a difference
(about 5%).

------
Scorpiion
Pricing sounds so simple but it is a surprisingly complex thing to get
"right". I read an article from Sequoia recently that I thought was very well
written. Not sure if it's relatively new or if it's been there for ages. I
recommend it anyways, great read.

# The Sequoia Guide to Pricing [https://www.sequoiacap.com/article/pricing-
your-product/](https://www.sequoiacap.com/article/pricing-your-product/)

~~~
zupa-hu
Annoying they have no date. The Internet Archive has first saved it on
2016-03-11.

[https://web.archive.org/web/*/https://www.sequoiacap.com/art...](https://web.archive.org/web/*/https://www.sequoiacap.com/article/pricing-
your-product/)

------
souldzin
TL;DR - Price is not a function of cost, and is ideally set before your
product is built. Do not attempt to set a price unless you have a profile for
your target market. Then, price according to what your customer is willing to
pay.

IMO, this is a marketing question and here's a good entrepreneurial process
for profiling the market and your target price. First, ask yourself these
questions:

* What actual value does the product give to the customer?

* What are the competitors / substitutions to the product?

* What makes this product sustainable?

* What does the customer currently pay for comparable solutions - in money, time, and effort?

This should give you a good feel for what your customer is willing to pay.
Then, set some financial profit targets which is your total revenue - total
expenses (don't factor investment money as revenue). Finally, bend your
product / process to this target price (not the other way around).

I would encourage any engineer to research courses on Marketing and
Entrepreneurial Finance. The best marketers merge the engineering process
(i.e. research, statistic, and financial analysis) with psychology (i.e. the
feels).

Anyways, good question and it should not be taken lightly. I've stalked HN for
some time now, but this question caused me to finally create an account.

------
luckydude
(I was responsible for pricing)

We built developer tools and we figured that by using them people were at
least 10% more productive (pretty easily verified). We leased (we offered to
sell it as well but priced it unattractively) and priced an annual lease at
about 1-2% of an engineer's salary. So about $1500/year.

It wasn't an easy sell back in the day and it's almost an impossible sell
today. People want everything to be $8/month which is 10-15x less than what we
were charging. Good thing I'm retired, eh? :)

One side not, amusing maybe, is that before I did business to business sales I
was under the impression that a dollar is a dollar no matter who you area.
Boy, was I wrong. We quickly figured out which customers were pleasant, gave
us good bug reports, read the docs, and which customers were sort of lame, and
which customers were complete assholes. It was not very long before we had the
"nice guy price" and the "asshole price". It was eye opening to me, I had no
idea how much everything is negotiable and how much that was influenced by how
pleasant people were or were not.

------
amorphid
Do you have customers who value and use the product/service now? Do they value
it? Consider talking to the customers who need and value it.

When I ran my consulting business, I was always afraid to raise the price. I
discussed this fear with one of my customers, and he told me that I was too
cheap, and that I should raise the price by 50%. He depended of the service,
and wanted me to stay in business. I did raise the price 50%, and I don't
think I lost a single customer.

To answer your original question, I don't know of any specific tools for
pricing. How a company decides to price a service tends to be pretty
confidential. It's also normal to base pricing on how much competitors charge.
For something new, it is tough. Get customers interested, sell it for more
than it costs to make (before you run out of money), figure why customers like
it, and eventually you'll have a pretty good idea of what to charge.

------
insickness
How I did it for an ebook:

1\. Set up Google Ads for your product to drive some traffic to an hidden web
page

2\. Set up A/B testing for your product with a range of different prices. I
set up six web pages with prices ranging between $5 and $100.

3\. When users click 'Buy now', have a page saying that the product is not
available but record the number of people who clicked it.

4\. Calculate which setup generated the most income.

~~~
Keverw
A/B testing prices. Never heard of that before, seems interesting. I have
heard of people creating landing pages to get a mailing list of people
interested.

Are you collecting their email's, sending them to a page or social page to
check back when your product is available?

Someone picking a higher price, and you end up pricing it lower that sounds
like a plus. If someone picked lower then you actually price it, wouldn't they
have been false advertised to? Unless they actually knew it was a survey up
front then that seems more fair.

~~~
developer2
A/B pricing has just as good of a chance of destroying your business. Far more
"everyday" users than you'd expect will Google your company for coupon codes,
discount opportunities, etc. The very moment that someone sees a $20 price for
them, and finds out that other people are paying $10-15 - you've just lost a
customer.

People like to think they're being clever by A/B testing their prices. The
fact is enough people are smart enough to figure out that their "A" slot is
worse than the "B" slot you've given other people.

------
rebootthesystem
Pricing can be one of the most complex topics in business. About twenty years
ago I read through what I consider to be THE book on the subject, "The
Strategy and Tactics of Pricing":

[https://www.amazon.com/Strategy-Tactics-Pricing-Growing-
Prof...](https://www.amazon.com/Strategy-Tactics-Pricing-Growing-
Profitably/dp/0136106811)

What I learned was invaluable. I do have to warn you, the book lays it all
out. This is excellent, of course. However, what happens is your level of
confusion as to how and why to price using a certain approach will grow as you
progress through the book.

Somewhere past the middle things start to coalesce and your choices become
clearer. Again, this depends on the nature of the product.

Please note this is not a critique of the book at all, it's excellent, this is
a complex topic and it is only natural to be confused before reaching clarity.

------
tylery
(I consult on topics like this for startups)

A lot of the comments are focused on figuring out price points, i.e. how much.

You should also spend time figuring out the right pricing metric, to make sure
that as your customer gets more value out of your product, you continue to get
a fair share of that value.

By pricing metric I mean things like per user, per server, per API call, etc.

Take for example a SaaS app that helps you create project proposals.

If you charge per user at $10/month, and one user generates 1,000 proposal a
month, effectively that user is paying 1 cent per proposal.

In this case the proxy for value for your product is number of proposals.

The user is getting a lot of value from your product, but you're getting a
flat share of that value. Regardless of how many proposals the user create,
you still only get $10.

So in this example, it makes more sense for you to charge by proposal first
and foremost.

Gets more complex as you think about secondary metrics but that's the
principle.

------
pbreit
If you're new and don't really know what you're doing, price it just below
what alternatives are charging. Make it a non-issue, learn as you go and
adjust. Don't get too fancy. If you are able to attract & delight customers
you will have nearly unlimited flexibility to adjust pricing.

If you are experienced and have a strong vision on the service you are
offering and how it should be priced, you can think about premium or non-
traditional pricing schemes.

~~~
tptacek
This is probably not great advice. Prices do more than determine how much
money you'll make from a given group of customers; they also _select which
customers you 'll be servicing_. The two most important pricing lessons
startup founders need to learn are _segmentation_ and _qualification_. You
should select a market segment that's attractive, and your pricing scheme
should in part serve to ensure that you're not wasting time being responsive
to the demands of people outside that segment.

The list of things you can do to repackage your product to go after different
market segments is very long and very few of the bullets on the list involve
changing code. I think the most important thing to do is to select a group of
customer prospects deliberately and then make something those people want,
rather than making something for the whole world and trying to optimize the
number of people who buy through prices.

You can cost yourself customers/clients by pricing too low.

~~~
morisy
Yes. Running a boostrapped organization for 7 years now, I always wish we had
priced higher. The few times where we've priced offerings too high, it was
always easier coming down in cost rather than going up, and we learned a lot
from those early customers who would pay a premium.

~~~
tptacek
That's another great point. If you're going to make money from long
relationships based on recurring payments, it's good to know that it's
extraordinarily difficult to raise prices on an existing customer. If you sell
to large companies, you'll find they have entire departments dedicated to
ensuring that never happens.

~~~
pbreit
I've had several experiences raising prices. It's not that hard. On new
customers it's trivial.

------
hayksaakian
Call for Pricing is code for "starting at $1000"

Call all your competitors and pretend to be a customer. Get quotes from all of
them.

Position yourself based on their pricing. If you're trying to be high end,
charge more. If you want to be seen as affordable charge slightly less.

~~~
randlet
Do people think this is OK generally? There are some products I would really
like to know the price of but pretending to be a customer to gain competitive
information seems ethically questionable.

~~~
TheSmiddy
"I'm interested in your product, can you send me though a price sheet?"

No lies necessary.

------
quirkot
I’ll take a different tack than most other comments. Assuming you’re B2B Step
1: Determine how much value your product creates for your customer Step 2: Set
your price at a majority chunk of that

Example: How much money would you be willing to pay for a lead list that could
make you $100 in sales? Assuming you have no internal cost to acquire (for
sake of simplicity), if you paid $90 for that list, you’d make a 11% ROI. What
sort of ROI do your customers need in order to bite?

------
nilanp
Ha - @TransferWise... we approach this slightly differently.

Most of the discussion here is about - setting to price to optimise for an
objective. e.g. how to optimise for revenue, profit - or cash that you can
invest in marketing.

Ultimately all these approaches seek to optimise for growth - depending on the
definition / time frame / risk profile.

So what you think about growth as an OUTCOME, not an OUTPUT of the model.

We describe ourselves as a mission driven startup - with the mission of making
the worlds money move at the touch of the button, instantly for almost
nothing.

We invest in making international payments faster, cheaper and less of a pain.

As we reduce our costs, our price drops (obviously money isn't free and we
need to have a small margin to cover our costs and continue to invest in the
platform)

Hence - there isn't anyone here thinking, lets drop price by 1% and see if we
get 1% more volume. We've built a conviction that if we continue to invest in
aggressively dropping price customers will switch to us.

Note - if we approach this in a very data centric way will not move with the
speed and aggression we are on this. Also our authenticity on this mission
would be questioned by our customers.

This authenticity, and conviction - on not focussing on maximising the amount
of value we can extract from our customers - is what driven our Word of Mouth
growth rate. More on this here - [https://www.slideshare.net/pnilan/slides-
from-jam-london](https://www.slideshare.net/pnilan/slides-from-jam-london)

------
df3
Working with a PhD student to do economic analysis is overkill for an early
stage startup.

I would use the methods outlined by other commenters to create a set of
potential price points. Pick the highest one and revise downward (or upward)
as needed.

If you're solving a real pain point, there's a set of early adopters who will
pay a high price for your solution. If this isn't true then I would examine
product / market fit.

Mistakes to avoid:

1\. Doing a "name your price" promotion.

2\. Thinking you've found the golden ticket of pricing and sticking with it.
Pricing should be scrutinized early and often.

3\. Charging too little. At least some users and reviewers of your product
should be commenting that perhaps your pricing is too high. You're charging
too little if no one is complaining about pricing. Of course, you've charged
too much if everyone complains.

Finally, how you present the value of your product is perhaps more important
than the pricing. See here:
[https://www.wsj.com/articles/SB10001424052748704240004575085...](https://www.wsj.com/articles/SB10001424052748704240004575085513717202880)

~~~
p0nce
Damn, I knew I was charging too little. Not only noone is complaining about
price, but some explicitely says it's not expensive.

------
mitchellshow
Here's a neat trick I've used a few times when facing this exact issue.

First, set up a survey on Google Surveys
([https://www.google.com/analytics/surveys/](https://www.google.com/analytics/surveys/))
and select the most appropriate audience for your concept. Set the first
question as a screener of who you think this product is for. So if your
business wants to sell to pet stores, you might set the audience to "Small
Business / SMB owners" and have the screener question be "Do you own a pet
store?" and screen out anyone who says "no."

Then, briefly describe your product and ask a straightforward question about
how much they would pay for it. So, something like "What is the maximum you
would pay for a service that handled the logistics of mailing pet food to your
customers?" Then make the answers to that question your possible price points
- "$9.99/month", "$19.99/month", etc. Make sure to include a "I would not pay
for the service" or "$0" option - this is an excellent gauge of whether or not
your service is actually something people will pay for. If you run a pricing
survey like this and 95% of people say $0, that's pretty telling.

When you look at the results, you'll see a clear curve from the higher prices
to the lower prices / not interested option, but you'll be able to see what a
relatively targeted group would pay. So if 40% of people would pay
$9.99/month, and 10% would pay $79.99/month, that tells a story you can
interpret into a basic pricing strategy.

Depending on your budget, run 3-5 of these with different prices, different
pricing anchors, different wordings, etc. - get as much data as you can.

I used this method for my last startup, when we were trying to figure out how
much a specific niche would pay for our product. The pricing research we did
through these surveys led us to a conclusion of about $29 per product, which
was actually much higher than we had anticipated (we were going to sell it for
$9), so we priced it 3x higher than we were going to. Very long story short,
we made the right choice - people bought it and we had very few complaints
about pricing too high. We even raised prices eventually after adding new
features.

Now obviously, there is a delta between what people _say_ they will pay and
what they will _actually_ pay, but this method might help get to a starting
point, or add a layer to your existing research.

Admittedly, I do this sometimes when I have random dumb ideas for companies
and I want to see if there's a market for it without really committing
anything.

~~~
beaconstudios
this advice runs against a lot of the usual recommendations about ignoring
what people say and focusing on what they do. It may well be that basing price
on what people say they'd pay results in leaving money on the table.

~~~
mitchellshow
Sure, we ran real pricing tests and adjusted accordingly once we were
launched. This exercise was useful pre-launch, when we had a lot of ideas, but
no clear picture of what our potential customer base would pay.

At the same time - never forget that a lot of the "usual recommendations" are
wrong :)

~~~
beaconstudios
of course, but I was thinking more towards the A/B testing approach to finding
the demand curve that's commonly touted and follows reasonably scientific
principles. My concern with customer-driven pricing is that customers will not
be able to fully envisage what your offer will be and the effects it would
have on their business, or might suggest a lower price than they would
realistically pay. I'm glad it worked out well for you though :)

------
gyey
I saw what Envato elements did with their pricing. They started off at $19 a
month, and declared that their prices would increase as they came out of beta,
had a full launch, etc. but the older customers would retain their lower
prices. Their pricing was to go up from $19 to $49, so there was a lot of
incentive for early customers to lock into the lower price.

If you look at the pricing page now, the price is fixed at $29. So maybe
mentioning the $49 price point was just a marketing trick to lure customers in
to the lower price. They also give a discounted price of $19 at cybermonday,
etc.. What do you think of this approach? Can approaches like this be
considered ethical?

------
kirvyteo
If you read the book "Thinking fast and slow" (excellent book btw), one of the
concepts is a baseline price. For example, if nobody knows the worth of your
product, they tend to compare with an alternative - the closest competitive
product or substitute. This gives you an idea of what you can charge. That
defines your product price range. You cannot avoid the comparison because
everyone googles, and if they can't find the equivalent, they will find the
closest. This approach is not really scientific but I find that I can relate
to this very easily then reading "X% says they will pay $100 for this" in a
survey. Hope this helps.

~~~
raverbashing
More importantly, if people can do (or currently do) what your product does
costing $X and you charge $Y > $X and unless you offer them a good advantage
(faster/easier/less defects) then they will think hard about adopting your
product

------
ArturT
I recommend nice book "Don't just roll the dice" by Neil Davidson.

[http://download.red-gate.com/ebooks/DJRTD_eBook.pdf](http://download.red-
gate.com/ebooks/DJRTD_eBook.pdf)

------
taprun
I've been focusing on pricing for years and just delivered a presentation on
"bad pricing pages" this afternoon. [0]

Pricing can be very complex, but here are three points that many folks don't
know:

* The best price for you will often depend upon your goal (maximize profits, break into a new field, prevent competition, etc)

* Economics textbooks lie! Lower prices don't always correlate to more sales. Sometimes buyers will see a low price and assume the buyer is junk.

* The way you present your prices is often at least as important as the actual prices themselves.

[0] [https://taprun.com/talks/](https://taprun.com/talks/)

------
fab1an
My #1 advice on pricing (esp for bootstrapping SaaS/software) is to think
about your Customer Acquisition Cost (=CAC) first, as in: how many customers
will you reasonably be able to acquire given your marketing/sales plan and at
what cost? Don't cheat here, but consider the fully loaded cost of doing
sales+marketing and divide that number by the number of customers you'll be
getting within the same cost period.

That'll give you a lower boundary of what you absolutely will have to charge
to break even + an idea of the multiples on this you'll need in order to
become a successful business.

------
g10r
[https://www.saastr.com/a-little-less-about-pricing-a-
little-...](https://www.saastr.com/a-little-less-about-pricing-a-little-more-
about-deal-size-please/)

------
partycoder
You do not have to necessarily have a single price.

You can present different prices through A/B testing and see which one is more
profitable.

Then, devise a way to make sure all features pull their weight. Get rid of the
features nobody uses or improve them, but don't invest on development and
maintenance of features nobody needs (feature creep).

Feature creep translates directly into unaccountable product people and
software rot. Software rot translates into checked out engineers that either
hate their job or don't care about the project, and heavy/inefficient
organizations.

------
DeBraid
IMO, be aggressive to a fault.

Most service providers (esp. w/ repeating customers/ recurring revenue) will
under price.

Key assumption: competition is thin/weak/lazy/etc.

Aggressive pricing is part of doing business. The "value" of a given service
is EXTREMELY hard to pin down to a specific #. Thus, aggressively-high pricing
is the best way to go.

If the feedback from (potential) customers consistently returns to price, then
lower prices.

Otherwise, consistently provide a great service at a medium-high price until
your competitors start grabbing your market share.

------
antaviana
We once did a Dutch auction promotion. The strike price was a 30% of our
regular subscription price. We then decided to offer the strike price to all
users, not only the winners and that was the month by revenue, three times our
MRR at the time. Two years later our MRR is getting close to that record
revenue.

We decided not to change our regular price, but probably setting it at 2 times
the strike price could be a good regular price point based on the Dutch
auction information gathered.

------
nicholas73
At the high end is the marginal benefit to your customer. At the low end is
your competitor price or your own cost of production. A lot of hot air is in
between, and that is where it gets complicated.

Some general considerations are your market strategy, your financial
situation, your customer's finances, pain that you would solve, whether your
solution results in growth or strategic advantage vs. back-office savings, ...
and neither last or least, the emotional wins of the buyer.

------
dfauchier
This is literally what we do.

There's a lot of methodologies out there you can look at, but in our
experience - pricing is an art. How you price is unique to every company, and
it's interconnected with product, marketing and positioning. Lesson #1: don't
think about pricing in a silo.

Beyond that, there's all sorts of ways of thinking about it. Get in touch if
you want to run through some of them for 30 mins (gratis).

[https://fantasticmrwolf.com](https://fantasticmrwolf.com)

Good luck!

David

------
beat
This is relevant to my interests.

Building an enterprise-oriented product, pricing is really a baffling mystery.
Especially since I can't find a good single-factor usage control.

------
jmedwards
I recommend the book Monetizing Innovation. It'll equip you well to talk about
and think about pricing and value.

In my opinion, the hardest part of the problem is getting away from the
psychology that pricing "uncomfortably high" is somehow cheating people. It
isn't - your product is more often than not more valuable than the sum of its
parts.

------
renegadesensei
This is a really good question. I have made a few web services and never had a
good answer. Always felt like guess work. My instinct was to try to answer
this question: How expensive is the problem my product solves? You start from
there and then go down because customers are not going to perceive or feel
that cost equally. So even if I make a tool that could save someone weeks of
work or replace some existing $500 standard solution, I may still only charge
$20 for it.

I agree with the sentiment that it's better to start higher and then come down
though. You really are in a sense picking your audience. This is why I am very
cautious about "free" services. It isn't just the fear of how the company
might actually be trying to monetize by selling my data or using ads. Rather
it's fear of the sort of community attracted by the promise of free stuff.

------
orasis
Product mix is more important than hitting the single "best" price.

Each customer has an amount that they want to pay. If you want to maximize
profits you need to allow customers to pay as much as they are willing. This
means that you need a product mix that allows the higher spenders to increase
utilization up to their spending limit.

Think about how Amazon sells AWS or how a high earning mobile game has
zillions of product bundles.

If you really need a single best price and are doing something with 10,000+
users, you can check out a tutorial I wrote here for mobile app price
optimization: [https://docs.improve.ai/docs/basic-price-
optimization](https://docs.improve.ai/docs/basic-price-optimization)

------
gigatexal
Economist here: other than doing a field test with a given price (break even +
some margin determined more or less ad hoc) you just set a price and see what
the market says. If too low you'll sell a ton, if too high you will sell few
or none.

------
grenoire
Just take the equilibrium point for the Marshallian demand curves of the
'industry' you are located in.

Of course, once you achieve monopoly status, you can set the price at the
intersection of your marginal costs and marginal revenue to maximise profits.

~~~
fnbr
Are you aware of any ways to actually estimate demand curves? It seems like a
really powerful way to price products, but no one appears to do it.

~~~
stagbeetle
> _It seems like a really powerful way to price products, but no one appears
> to do it._

In a closed system. There are too many factors obfuscating the landscape in
real markets (most notably consumer access).

The only tidbit is, in a new market you can overcharge.

~~~
fnbr
> There are too many factors obfuscating the landscape in real markets

On the one hand, yes, but on the other hand, machine learning gives us a
powerful set of tools to analyse these factors, which we could use to come up
with a model that learns from the market to predict consumer surplus (but
you're right about the naive economist approach).

------
epa
If it is SaaS based, the guys over at Price Intelligently are a smart group to
work with..

------
ace_of_spades
To be honest I have no experience in pricing anything but myself (as an
employee) but I would recommend to not put too much effort into it. Thinking
about pricing often amounts to zero-sum thinking which drives you to fight
about the breadcrumbs instead of focusing on the creation of value (for
everyone). I mean I get that pricing is a necessary means of coordination but
please don't succumb to the fallacy that it is a game that needs to be won
AGAINST someone. If you create value, simply have an open discourse with your
customers and you will find a viable strategy.

------
cmalpeli
We've continually raised the price on our product as we grow and add features.
It was nerve wracking at first, but now are confident enough in our product
that we feel good standing behind our pricing.

We are targeting larger, more stable customers, and have historically found
the ones that say our pricing is too expensive are the ones that require much
more support and maintenance. Have no issue seeing them go to cheaper
competitors - while our target clients don't bat an eye at our pricing (which
is still probably too low for that segment).

------
jv22222
I ask these questions and it works well:

1) What is a price for this product that would be too low for you to trust?

2) What is a maximum price for this product that would that would still seem
like good value?

3) What would be a maximum possible price for a this product?

They can help to get you to a good starting point regarding your pricing
strategy.

Also this is a great article about it:

[https://training.kalzumeus.com/newsletters/archive/saas_pric...](https://training.kalzumeus.com/newsletters/archive/saas_pricing)

------
rudimental
A recent thread on find the pricing through experiments:
[https://news.ycombinator.com/item?id=13756302](https://news.ycombinator.com/item?id=13756302)

They recommend Amplitude if you can't build everything yourself. They say it
lets you have cohorts and compare behavior between cohorts, so it probably
helps compare common metrics. I don't know if it makes suggestions for
experiments or helps to run them.

------
dtjohnnymonkey
I have an app that is market-priced. The more paying customers, the higher the
price goes. This is fun for a hobby site but probably not suitable for a real
business.

------
burchtanir
hey everyone,

this is Burc Tanir - the co-founder and CEO of a competitor price tracking
software called Prisync ([http://prisync.com/](http://prisync.com/)). my
answer is more for products sold through e-commerce, or more specifically
online retail. in e-commerce worldwide, most of the companies want to have the
lowest prices - of course, while remaining profitable - but it’s hard to be
sure about that without knowing the competitors' dynamic prices. with our
solution that works for e-commerce companies of all sizes, it's possible to be
the lowest in an efficient way.

also, other than automating competitor price tracking, we previously crafted
an in-depth article to give more detailed information on this topic, so feel
free to check that out too:

[https://blog.prisync.com/ecommerce-pricing-
strategies/](https://blog.prisync.com/ecommerce-pricing-strategies/)

------
ransom1538
I recommend the book "priceless." It goes through the psychology behind how
you set a price. E.g. Why there are expensive wines on a wine list.

[https://www.amazon.com/Priceless-Myth-Fair-Value-
Advantage/d...](https://www.amazon.com/Priceless-Myth-Fair-Value-
Advantage/dp/0809078813)

------
usav
Great book for this: Monetizing Innovation ([https://www.amazon.ca/Monetizing-
Innovation-Companies-Design...](https://www.amazon.ca/Monetizing-Innovation-
Companies-Design-Product/dp/1119240867))

------
ninjakeyboard
I think first you want a market strategy - are you competing on price or
quality (features, speed or whatever.) Then the rest of the market is a
guidepost for this - if competing on quality, accept you will make less sales
but have higher margins.

------
markatkinson
I'm starring this to read every single comment once I get home cause this is a
huge stumbling block for me. My current strategy is to take my right thumb and
suck a number out of it and due to my nature I tend to undercut myself quite
badly.

------
jiiam
Just a tip: remember that the price is always the output of an algorithm based
on the product you offer. Always think "What should the price of this product
be?" rather than "What should I offer to reach this price tag?".

------
sachinag
I wrote about pricing tiers many years ago: [http://sachinagarwal.com/setting-
pricing-for-a-startup-the-r...](http://sachinagarwal.com/setting-pricing-for-
a-startup-the-rule-of-80)

------
bxtt
(Worked many years in product pricing for startup to IPO company)

To even begin on a baseline of how you're going to price a product, you need
to understand the unit economics of your product. I think too many people fall
into the economics trap and apply a theoretical approach into revenue
management, when in reality it's more about understanding your business model,
how you expect to grow, and the finances; then you apply economic models.

Understanding the financial aspect will allow to create at least a cost based
pricing model or margin based pricing; from there it can grow into a value
based model where you figure out the value proposition for each
customer/market segmentation.

But, obviously all of this is developed mid-stage, and early stage just figure
out what gets the customers in the door.

There are a lot of good resources online about this subject.

------
kazinator
Found this book laying around at work; maybe it's of use:

[http://download.red-gate.com/ebooks/DJRTD_eBook.pdf](http://download.red-
gate.com/ebooks/DJRTD_eBook.pdf)

------
donald123
You can set initial price based on your cost and expected/preferred margin.
And you can always use discount/promotions later to mark down the price, based
on the market and feedback, etc.

------
phuangcn
Just finish my SaaS product pricing last week. Exit strategy plays here. You
can set the price by % of the customer value or the cost + margin if you don't
want to hack the business model.

------
matheweis
If you have enough volume* you can do simple a/b testing to find the demand
curve.

*this is probably less than you might think; at low volumes you can run a for a week then b for another week.

~~~
gingerlime
I'm a huge fan of A/B testing, and use it regularly. (Even wrote an open
source implementation with a backend running on AWS Lambda), but have a bit of
a moral / public perception / potential backlash fear of running pricing A/B
tests... How do you deal with this? (Or you don't?)

~~~
thatcat
>pricing A/B tests moral dilemma

You could call the lower price "on sale".

~~~
RickS
That would pollute the test, IMO. As things like JCPenny's failed pricing
experiments show, price-consciousness and deal-consciousness are two different
things, and can lead to some stupid behavior where customers only buy
overpriced goods that are marked as being on sale, rather than buying the same
thing at the same price without the sale tag.

------
jmedwards
I recommend the book "Monetizing Innovation". It won't give you an answer, but
it will equip you to understand value and think about pricing.

------
andy_ppp
Slightly off topic but I think I'd pay for slack if I could have the premium
features on _all_ of the conversations _I_ have with people...

------
anigbrowl
_Currently, they work with a PhD student to do some economic analysis, but
they 're not really happy with it._

That's the sign of a risk-averse team.

------
mbesto
Golden rule - always price higher than you think. It's 100x easier to discount
pricing than it is to increase pricing.

------
sandworm101
Start with breaking even. Sell first. Then set prices. Raise prices only when
you have more demand than product.

------
z3t4
you charge what your customers are willing to pay. no micro economic theories
or price psychology is going to change that. if you charge too low though,
people will wonder where the catch is. so dont charge low unless its easy to
judge the quality.

to find out what they are willing to pay, ask for budget.

------
sleepychu
My dad's sage advice: Think of a number, then double it. People will always
pay more.

------
mythrwy
[https://www.prix.ai](https://www.prix.ai)

------
gingerlime
Hey Finbarr! Is this related to our chat? :)

Even if not, some great advice here! Thanks! ...but I think most of it is B2B
focused primarily. I'm curios (and can't find much info) about subscription
pricing for consumers in particular... And especially for products that aren't
as wide spread as Spotify or Netflix.

------
sjg007
You can do surveys. You can call potential customers and ask what they would
pay.

------
franze
Invisible Hand, works like magic.

------
pryelluw
Email me Ill help.

