Today, we’re talking about a simple, 5 step process you can use to find the right price for your product.
1. We begin by splitting your future customers into even groups. For an enterprise service, a group might be 1 customer, for a consumer apps it might be 100. And the first group will get the product for free for up to 6 months, maybe even 1 year. This is because, at first, we need feedback before we can start charging money.
2. Moving on to the 2nd customer group, we begin to charge a nominal fee. Any amount, even $1 is fine, but the price should be instantly approved by the customer, otherwise, it’s too high. This step gives us important insights into the sales process: How do our customers like to pay? How long does it take? Do they need approval from others?
3. Once we reach the 3rd group, we start to charge whatever you, the founder, deem is a “fair” price for your product. Most founders severely undercharge for their product, so please go as high as you can here.
4. As we progress to Group 4, we adopt a more aggressive approach. Now, you triple the price established for Group 3. Yes, triple — that’s 3x the previous amount. Do not worry about this being a “high price”, as this sets up the wince test we discussed previously, and you can always negotiate down if needed.
5. With Group 5, we maintain the momentum and triple the price set for Group 4. While this might initially seem like the price is rising too fast, remember you’re still willing to negotiate down. As you implement this strategy with several customers, you will notice the final prices begin to cluster, and that cluster is a good estimate of the true “fair” price for your product
Best of luck out there.
Sterling Road invests in idea stage and pre-seed B2B startups based in the US, Canada and UK.
