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(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 u

(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_Sensitivity_Meter https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...

joegosse 10y ago
Conjoint analysis is also a common approach. It requires less specific answers from customers about price points, which people are often unwilling to share.
- deleted 10y ago
  [deleted]
- pccampbell 10y ago
  If you can get enough solid survey responses, conjoint is ideal, but won't give you a lot in terms of a price elasticity curve. That's not necessarily a problem, but I'd recommend a combination of MaxDiff (baby conjoint) and Van Westendorp. Used in tandem you'll get some solid footing on packaging preferences, value props for positioning, and ultimately price elasticity.
sova 10y ago
Very sensible approach. My question would be: does this product make more sense as a recurring subscription or a one-time cost? Perhaps so many things are subscription based now that it is hardly a question, though.
deleted 10y ago
[deleted]
adamqureshi 10y ago
Dang! i just tried this. Thanks brotha
paulddraper 10y ago
Excellent questions. Do not anchor the interviewees. But anchor yourself. You should certainly know the prices of your competitors (or the closest thing thereto).
jedberg 10y ago
That's a great methodology! But you do you avoid your customers lowballing their numbers since they know you're using the information to set the price they will eventually pay?
- bryanh 10y ago
  Back in the early days of Zapier I remember we always made explicit our grandfathering clause for users who gave pricing feedback. Same for any eventual pricing changes
  - chris_st 10y ago
    Thanks very much for Zapier, by the way! It's a great service.
chirau 10y ago
Is this after you they have trialed the product/service or when you have just given them an overview of what it does and how it is valuable to them?
Osiris 10y ago
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.
- eriknstr 10y ago
  >it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising This is a very good point and something I haven't considered. On the flip side, depending on your type of product, I think more customers could lead to an increase in support burden to the point where it is costing you more than the amount of extra dollars you get from the additional amount of customers.
- savanaly 10y ago
  >not correlated. Eh? So if I told you I had two products A and B and I showed them to potential customers who on average said they would pay $100 for A and $10,000 for B, you wouldn't be willing to bet that when I actually take them to market B would end up retailing for more?
  - bayonetz 10y ago
    He must have meant loosely correlated. I'm sure it varies by product type and user knowledge.
  - dahart 10y ago
    > you wouldn't be willing to bet...? You just compared two (purely hypothetical) things someone said they'd do, you didn't address what @Osiris was talking about, which is the discrepancy between talk and action. The comment is correct, there is a lot of evidence out there that people do not pay what they say, that actions and talk do not correlate very well. So it would be interesting if you had some counter evidence to back your rebuttal, because theories based on logic alone rarely survive contact with actual human behavior.
lettergram 10y ago
I second this. I always start my service for free, and tell them at some point I'm going to charge pricing, but the first 100 users don't have to pay EVER. After I get ~50 - ~300 users, I tell them I'm going to set pricing. I usually do this with a pop up or email. They then have a drop down with "how much would you be willing to pay monthly for this service" Usually you get some range, say $5/month to $100/month. I usually pick one standard deviation above the average. So in this case, let's call that $60/month. Then, I usually will A/B test pricing by changing it month by month with "sales" so my current customers don't get too angry. I've done this three times on my products and several times for others. Thus far, it's worked very well. You don't always want to capture the most customers to make the most profit. This method has you start at the top of what people would be willing to pay and work down. Plus, you start with a user base for free that share you with their friends. Seriously, this has been the best way to jump start the business.
- hayksaakian 10y ago
  'sales' is a really cool idea i think someone else in the thread made a comment about 'pissing off' existing customers, but a 'sale' is the perfect solution.
  - lettergram 10y ago
    Yup, you do sales with it listed like: ~$60~ now only $35!
    - gingerlime 10y ago
      That's a good approach overall. Thanks for sharing. There are a couple of problems with sales however: 1. In a way they address a different psychological need for people. It's about getting a good deal or a discount over the "normal" price, rather than considering the price itself... So you're testing different things that in some way conflict. 2. Over time, if people see there's always a sale, they might hold-off from buying? 3. It just gives a slightly "cheap" reputation (think shared hosting as a rather extreme example that comes to mind, or any site that always has tons of coupons on coupon-hunting sites).
rubicon33 10y ago
I'm really interested in your second question! I just released a product recently which HUGELY undercuts the competition. I was able to build it cheaply, over the course of a couple of years, and as a result I never took investment or hired anyone, so I can offer the product at incredibly low rates (compared to the competition). My worry is that I may be pricing it so low, that I'm actually scaring off potential customers. This is an enterprise product, so they're used to seeing massive licensing fees. I initially thought that offering it at the lowest price I could afford, would mean I would garner the most customers, but now I'm starting to wonder if that's true... I have no experience pricing things, and I'm really considering putting out a survey to existing customers.
- trishume 10y ago
  Note that you don't want to maximize customers, you want to maximize revenue. So even if hugely undercutting your competition gets you the most customers, you may still want to raise prices. If doubling your prices doesn't produce half as many customers (e.g. because you're still undercutting your competition) then you want to double your prices to make more money. So yes, worry about scaring off potential customers with a price too low, but don't worry about scaring customers with a price that's too high, unless you scare off proportionally more than you increase the price. The way you describe it sounds like you could make way more money by raising your prices.
  - abalashov 10y ago
    > Note that you don't want to maximize customers, you want to maximize revenue. Now there is a memo that the Silicon Valley web startup economy didn't get...
    - deleted 10y ago
      [deleted]
- Trundle 10y ago
  If not scaring them away, you might just be leaving money on the table for no good reason. Enterprise customers aren't as price sensitive as consumers or smb.
foota 10y ago
You might consider a different tactic, one where you ask whether they would feel X is a fair price for the product. This can help eliminate bias in responses.
jordancampbell 10y ago
I was once told by a former Seattle based executive that the best way for a startup to price their product was to take what they thought it should be worth and then add a couple of zeros to the end. There's a school of thought that says that you should only achieve a certain percentage of sales. So if you're getting 90% of deals then you might be pricing too low, and if you're not getting anything then obviously too high. But if you're making 10% of sales and your selling for 100x more than your guess at the price then you're likely doing well.
amelius 10y ago
This method fails when you are selling a SaaS aimed at large companies with an unknown budget. There probably isn't one method that works in all cases.
alok-g 10y ago
Genuinely asking: Have you experimented with asking people to guess the price for the product? (Wondering if that is a simpler and better question to ask the users.)
laythea 10y ago
And then when you've answered all of those, surely the next one is: 5. How willing are you to undercut yourself, due to financial desperation? Out of that question will pop out a selling price.
19eightyfour 10y ago
Great informative answer. Question: is the x axis linear scale?

joegosse 10y ago

Conjoint analysis is also a common approach. It requires less specific answers from customers about price points, which people are often unwilling to share.

deleted 10y ago
[deleted]
pccampbell 10y ago
If you can get enough solid survey responses, conjoint is ideal, but won't give you a lot in terms of a price elasticity curve. That's not necessarily a problem, but I'd recommend a combination of MaxDiff (baby conjoint) and Van Westendorp. Used in tandem you'll get some solid footing on packaging preferences, value props for positioning, and ultimately price elasticity.

sova 10y ago

Very sensible approach. My question would be: does this product make more sense as a recurring subscription or a one-time cost? Perhaps so many things are subscription based now that it is hardly a question, though.

deleted 10y ago

[deleted]

adamqureshi 10y ago

Dang! i just tried this. Thanks brotha

paulddraper 10y ago

Excellent questions. Do not anchor the interviewees. But anchor yourself. You should certainly know the prices of your competitors (or the closest thing thereto).

jedberg 10y ago

That's a great methodology! But you do you avoid your customers lowballing their numbers since they know you're using the information to set the price they will eventually pay?

bryanh 10y ago
Back in the early days of Zapier I remember we always made explicit our grandfathering clause for users who gave pricing feedback. Same for any eventual pricing changes
- chris_st 10y ago
  Thanks very much for Zapier, by the way! It's a great service.

chirau 10y ago

Is this after you they have trialed the product/service or when you have just given them an overview of what it does and how it is valuable to them?

Osiris 10y ago

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.

eriknstr 10y ago
>it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising This is a very good point and something I haven't considered. On the flip side, depending on your type of product, I think more customers could lead to an increase in support burden to the point where it is costing you more than the amount of extra dollars you get from the additional amount of customers.
savanaly 10y ago
>not correlated. Eh? So if I told you I had two products A and B and I showed them to potential customers who on average said they would pay $100 for A and $10,000 for B, you wouldn't be willing to bet that when I actually take them to market B would end up retailing for more?
- bayonetz 10y ago
  He must have meant loosely correlated. I'm sure it varies by product type and user knowledge.
- dahart 10y ago
  > you wouldn't be willing to bet...? You just compared two (purely hypothetical) things someone said they'd do, you didn't address what @Osiris was talking about, which is the discrepancy between talk and action. The comment is correct, there is a lot of evidence out there that people do not pay what they say, that actions and talk do not correlate very well. So it would be interesting if you had some counter evidence to back your rebuttal, because theories based on logic alone rarely survive contact with actual human behavior.

lettergram 10y ago

I second this. I always start my service for free, and tell them at some point I'm going to charge pricing, but the first 100 users don't have to pay EVER. After I get ~50 - ~300 users, I tell them I'm going to set pricing. I usually do this with a pop up or email. They then have a drop down with "how much would you be willing to pay monthly for this service" Usually you get some range, say $5/month to $100/month. I usually pick one standard deviation above the average. So in this case, let's call that $60/month. Then, I usually will A/B test pricing by changing it month by month with "sales" so my current customers don't get too angry. I've done this three times on my products and several times for others. Thus far, it's worked very well. You don't always want to capture the most customers to make the most profit. This method has you start at the top of what people would be willing to pay and work down. Plus, you start with a user base for free that share you with their friends. Seriously, this has been the best way to jump start the business.

hayksaakian 10y ago
'sales' is a really cool idea i think someone else in the thread made a comment about 'pissing off' existing customers, but a 'sale' is the perfect solution.
- lettergram 10y ago
  Yup, you do sales with it listed like: ~$60~ now only $35!
  - gingerlime 10y ago
    That's a good approach overall. Thanks for sharing. There are a couple of problems with sales however: 1. In a way they address a different psychological need for people. It's about getting a good deal or a discount over the "normal" price, rather than considering the price itself... So you're testing different things that in some way conflict. 2. Over time, if people see there's always a sale, they might hold-off from buying? 3. It just gives a slightly "cheap" reputation (think shared hosting as a rather extreme example that comes to mind, or any site that always has tons of coupons on coupon-hunting sites).

rubicon33 10y ago

I'm really interested in your second question! I just released a product recently which HUGELY undercuts the competition. I was able to build it cheaply, over the course of a couple of years, and as a result I never took investment or hired anyone, so I can offer the product at incredibly low rates (compared to the competition). My worry is that I may be pricing it so low, that I'm actually scaring off potential customers. This is an enterprise product, so they're used to seeing massive licensing fees. I initially thought that offering it at the lowest price I could afford, would mean I would garner the most customers, but now I'm starting to wonder if that's true... I have no experience pricing things, and I'm really considering putting out a survey to existing customers.

trishume 10y ago
Note that you don't want to maximize customers, you want to maximize revenue. So even if hugely undercutting your competition gets you the most customers, you may still want to raise prices. If doubling your prices doesn't produce half as many customers (e.g. because you're still undercutting your competition) then you want to double your prices to make more money. So yes, worry about scaring off potential customers with a price too low, but don't worry about scaring customers with a price that's too high, unless you scare off proportionally more than you increase the price. The way you describe it sounds like you could make way more money by raising your prices.
- abalashov 10y ago
  > Note that you don't want to maximize customers, you want to maximize revenue. Now there is a memo that the Silicon Valley web startup economy didn't get...
  - deleted 10y ago
    [deleted]
Trundle 10y ago
If not scaring them away, you might just be leaving money on the table for no good reason. Enterprise customers aren't as price sensitive as consumers or smb.

foota 10y ago

You might consider a different tactic, one where you ask whether they would feel X is a fair price for the product. This can help eliminate bias in responses.

jordancampbell 10y ago

I was once told by a former Seattle based executive that the best way for a startup to price their product was to take what they thought it should be worth and then add a couple of zeros to the end. There's a school of thought that says that you should only achieve a certain percentage of sales. So if you're getting 90% of deals then you might be pricing too low, and if you're not getting anything then obviously too high. But if you're making 10% of sales and your selling for 100x more than your guess at the price then you're likely doing well.

amelius 10y ago

This method fails when you are selling a SaaS aimed at large companies with an unknown budget. There probably isn't one method that works in all cases.

alok-g 10y ago

Genuinely asking: Have you experimented with asking people to guess the price for the product? (Wondering if that is a simpler and better question to ask the users.)

laythea 10y ago

And then when you've answered all of those, surely the next one is: 5. How willing are you to undercut yourself, due to financial desperation? Out of that question will pop out a selling price.

19eightyfour 10y ago

Great informative answer. Question: is the x axis linear scale?