5 ms·

Perfect Pricing Part Deux – More money from fewer sales

45 points by hawke 15y ago

reubenswartz 15y ago
This is the real way to do it! Not only did this author make more money, they have fewer customers, better customers, and can afford to take better care of them.
- true_religion 15y ago
  It costs nothing to sell a book to 10,000 customers as 1000 customers. There's no supply chain for an ebook. No support costs. No, re-occuring billing, or Q&A sessions for them. More customers could arguably give you free word of mouth marketing, but fewer "qualified" customers could give you better leads.
  - ahoyhere 15y ago
    As somebody who makes quite a bit of money off infoproducts (ebooks etc) -- and who has a lot of friends who do it as well -- I can assure you, there are support costs for ebooks. :) People lose download links, you have to reissue. People want refunds. People have complaints. Not a lot, but it adds up. Lower-paying customers almost always are more demanding, less appreciative customers. I've seen this in my biz (infoproducts, courses & SaaS), heard it from friends in theirs (SaaSes, restaurants, training companies etc). It's a truism probably because it is largely true. As you brought up in your last sentence, there's also opportunity costs of going with a lower price. You've also taught those customers to only pay you $3-6, which means you may have a harder time selling them on fancier products later. Finally: Especially with infoproducts, when it's a no-brainer, people are likely to buy on a trigger and then never use what they bought. If your goal is to help people, change their minds, build a community, this can be a kiss of death.
    - wanderr 15y ago
      On the other hand, more expensive items often get worse reviews, because customer expectations rise. For example, I was looking at espresso machines on amazon a few months ago, and just about all of the $2k+ machines had worse ratings than the <$250 machines. I find it highly unlikely that the order of magnitude more expensive machines are actually worse, but they clearly set expectations much higher and therefore lead to more disappointment.
      - runako 15y ago
        Corollary: if you charge more, deliver a product at least as good as your cheaper competitors.
      - ahoyhere 15y ago
        That's a good point. I think it matters a lot WHAT you're selling. At $500+ a head for a day, our JavaScript workshop is more expensive than just about any other way of learning JavaScript. But we get almost exclusively rave reviews, because that price keeps out anyone who's not really committed. And I've found that, as I charged more for my product class ($500 -> $1250 -> $1550 -> now $2450+), people have become MORE enthusiastic, MORE involved, MORE likely to finish, MORE helpful to their fellow alumni, because the price is a filter and it's a kick in the ass. (When you only pay $500, you don't feel the pain so much when you let it fall by the way side. But nearly $3k is a LOT to sacrifice to laziness.) Obviously, this wouldn't work if I wasn't great at teaching. And I am great at teaching. But I've watched the enthusiasm level increase with the prices, rather than the other way around, even though I, the teacher, haven't changed, and neither has the material all that much.
zaidf 15y ago
As someone who bought Sascha's book, his pricing made it a no brainier. I bought it in a snap. So the difference is that Jarrod earned $2,000 more--or roughly 25%. On the other hand, Sascha(who made less revenue) had 1,234 or almost 5 times more paying customers than Jarrod. You could argue(without seeming crazy) that it is better to have about 1,000 more paying customers for something like an ebook, even it means losing $2,000. If Sascha's product was something like a SaaS product and each customer had a support cost, the argument for fewer customers would be more reasonable. But for something like an ebook, I'd chase volume even at the expense of a couple grand in revenue. It'd be interesting to track this in the longer term if the authors launch more products. I'd put my money on Sascha to make more $ from future products and come out ahead of Jarrod at the end.
- tagawa 15y ago
  He's also using a timescale of just 48 hours for the comparison. Over the long term, I would have thought a greater number of customers would have a greater impact on word-of-mouth recommendations and reviews, leading to more sales.
- studiofellow 15y ago
  You're assuming a higher price causes lower sales, but I don't think the data supports that. If you were hypothetically faced with such a tradeoff, I understand sacrificing some profits to gain more customers. But if you could have both profits and more customers, why not? I think it's possible. Assuming customers share at the same rate, the potential growth is much bigger for a larger audience, absolutely. But I'm not sure our customers will share at the same rate—I think mine will share more because they're fans. But this is speculation, and biased.
- ahoyhere 15y ago
  This theory is called "penetration pricing," and most research shows that it works very rarely, and only in specific circumstance. It's intuitive, and mostly wrong. Which is why I recommended the book Pricing with Confidence to Sascha when he made that same argument in the comment thread of the OP. And why I blogged about this book several times: http://unicornfree.com/2011/will-low-prices-sell-more/ http://unicornfree.com/2011/will-low-prices-sell-more/ http://unicornfree.com/2011/when-customers-bitch-about-your-price-biz-book-friday/ http://unicornfree.com/2011/when-customers-bitch-about-your-... http://unicornfree.com/2011/biz-book-friday-cost-plus-pricing-price-obsession/ http://unicornfree.com/2011/biz-book-friday-cost-plus-pricin... It's a fantastic book. Everybody who cares about their business should read it.
sgdesign 15y ago
Like many said, this is apples and oranges. First of all I had a very different product. My 40 pages eBook took me about 30 hours of work, including the promo site, whereas Jarrod's eBook is 130 pages long and has been in the works for quite some time now. I also had different goals. I wanted to build an audience for future products, and redirect a little traffic and attention to my "real" project, Folyo (http://folyo.me http://folyo.me). That project, by the way, has made me less money in 6 months of work than that eBook did in 30 hours. I don't know if I should be happy or sad about that…
- studiofellow 15y ago
  Sure, it's an imperfect comparison, but it's the closest we're ever going to get through coincidence. Same launch day, same format, similar topic. The length is different and the authors have different-sized audiences, but we should be able to learn something from this, rather than write it off as "apples and oranges."
sgdesign 15y ago
Like many said, this is apples and oranges. First of all I had a very different product. My 40 pages eBook took me about 30 hours of work, including the promo site, whereas Jarrod's eBook is 130 pages long and has been in the works for quite some time now. I also had different goals. I wanted to build an audience for future products, and redirect a little traffic and attention to my "real" project, Folyo (http://folyo.me http://folyo.me). That project, by the way, has made me less money in 6 months of work than that eBook did in 30 hours. I don't know if I should be happy or sad about that…
tagawa 15y ago
While I enjoy the discussion of differing strategies, I don't see why it has to be an issue of who's right or wrong. If both authors have created good content, their price point allows them to sleep soundly at night and they wake up to positive cashflow, what's the big deal?
ChuckMcM 15y ago
This is the key, "Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity—supply and demand market forces. There is no scarcity for ebooks because digital files are replicated practically for free." What Jason is alluding too, but no quite jumping into, is the economics of information. In the economics off goods, there is a limit to the supply of the goods, that limit is created by the economic forces of production. Basically the more it costs to produce an item, the higher the price has to be to recover those costs. But what doesn't change is the value of the good. That is why for some physical goods they are "impossible" to make economically because the cost of producing them exceeds their value. In an information market the cost to produce something is very very low, but its value doesn't change. A book on design is valuable to everyone who needs to solve a design problem. Even if there are a billion copies of the book out there, the value is still in every one of them. So what Jason captures is that pricing information requires one to consider pricing 'value' and the value of information is directly related not to its cost of production, but to its cost or procurement. Thus pricing a book for $40 which has information which would cost $400 to procure by hiring a consultant for a couple of hours represents a 'good value'. Pricing it for $6 will capture additional market but it leaves money on the table as well. Its a different world and one that is not yet taught in business school as far as I can tell.
xarien 15y ago
You're comparing apples to oranges. You've even stated this particular fact in your post with the paper example. You state that one should not chose a pricing strategy based on competition, but at the same time, aren't you validating your own strategy based on the earnings of a competitor? The comparison shouldn't be how much you made vs another book, what you should be comparing is how much would you make if you sold your book for a different price. What it comes down to is the basic economic theory of equilibrium.
- ahoyhere 15y ago
  Jarrod's point in writing this essay was to question and counterpoint Sascha's original claim about the "perfect price."
  - sgdesign 15y ago
    Come on, that was only a catchy title. Of course I know that there's no such thing as a "perfect price"!
scottdw2 15y ago
Jason has a point: You can maximize revenue by focusing on delivering higher value features to more lucrative customers. But, you need to be careful when following his advice. Blindly following the principals of "revenue maximizing resource allocation" makes you susceptible to disruption. If you focus too much on high-end customers you can either: 1. Make the product in-accessible to a large audience. 2. End up overserving many of your customers. That opens up the opportunity for new entrants to provide less-good products at the lower end of the market, which you would be happy to ignore (you can just write a $80 book next time, targeted at fewer folks), while the new entrant follows you up market, until you have no business left. It's not clear it applies here, as neither author has a structural advantage over the other. However, just because you can earn more profits by charging a higher fee to fewer customers, doesn't mean you should. It could kill your business in the long run. Take Windows PCs vs the iPad as a good example.
rushabh 15y ago
You can never make generalised comments on pricing. If higher prices are better then why newspapers are shutting down and bloggers are rising? Why are people using Linux? Pricing has nothing to do with Apple products. They sell because of their design and quality. I don't think the books are comparable. OP's book seems a lot more comprehensive than Sascha's book (which I bought) and it would have taken him a lot more effort. Themes are different (general design vs app design) too.

45 points by hawke 15y ago

This is the real way to do it! Not only did this author make more money, they have fewer customers, better customers, and can afford to take better care of them.

true_religion 15y ago
It costs nothing to sell a book to 10,000 customers as 1000 customers. There's no supply chain for an ebook. No support costs. No, re-occuring billing, or Q&A sessions for them. More customers could arguably give you free word of mouth marketing, but fewer "qualified" customers could give you better leads.
- ahoyhere 15y ago
  As somebody who makes quite a bit of money off infoproducts (ebooks etc) -- and who has a lot of friends who do it as well -- I can assure you, there are support costs for ebooks. :) People lose download links, you have to reissue. People want refunds. People have complaints. Not a lot, but it adds up. Lower-paying customers almost always are more demanding, less appreciative customers. I've seen this in my biz (infoproducts, courses & SaaS), heard it from friends in theirs (SaaSes, restaurants, training companies etc). It's a truism probably because it is largely true. As you brought up in your last sentence, there's also opportunity costs of going with a lower price. You've also taught those customers to only pay you $3-6, which means you may have a harder time selling them on fancier products later. Finally: Especially with infoproducts, when it's a no-brainer, people are likely to buy on a trigger and then never use what they bought. If your goal is to help people, change their minds, build a community, this can be a kiss of death.
  - wanderr 15y ago
    On the other hand, more expensive items often get worse reviews, because customer expectations rise. For example, I was looking at espresso machines on amazon a few months ago, and just about all of the $2k+ machines had worse ratings than the <$250 machines. I find it highly unlikely that the order of magnitude more expensive machines are actually worse, but they clearly set expectations much higher and therefore lead to more disappointment.
    - runako 15y ago
      Corollary: if you charge more, deliver a product at least as good as your cheaper competitors.
    - ahoyhere 15y ago
      That's a good point. I think it matters a lot WHAT you're selling. At $500+ a head for a day, our JavaScript workshop is more expensive than just about any other way of learning JavaScript. But we get almost exclusively rave reviews, because that price keeps out anyone who's not really committed. And I've found that, as I charged more for my product class ($500 -> $1250 -> $1550 -> now $2450+), people have become MORE enthusiastic, MORE involved, MORE likely to finish, MORE helpful to their fellow alumni, because the price is a filter and it's a kick in the ass. (When you only pay $500, you don't feel the pain so much when you let it fall by the way side. But nearly $3k is a LOT to sacrifice to laziness.) Obviously, this wouldn't work if I wasn't great at teaching. And I am great at teaching. But I've watched the enthusiasm level increase with the prices, rather than the other way around, even though I, the teacher, haven't changed, and neither has the material all that much.

zaidf 15y ago

As someone who bought Sascha's book, his pricing made it a no brainier. I bought it in a snap. So the difference is that Jarrod earned $2,000 more--or roughly 25%. On the other hand, Sascha(who made less revenue) had 1,234 or almost 5 times more paying customers than Jarrod. You could argue(without seeming crazy) that it is better to have about 1,000 more paying customers for something like an ebook, even it means losing $2,000. If Sascha's product was something like a SaaS product and each customer had a support cost, the argument for fewer customers would be more reasonable. But for something like an ebook, I'd chase volume even at the expense of a couple grand in revenue. It'd be interesting to track this in the longer term if the authors launch more products. I'd put my money on Sascha to make more $ from future products and come out ahead of Jarrod at the end.

tagawa 15y ago
He's also using a timescale of just 48 hours for the comparison. Over the long term, I would have thought a greater number of customers would have a greater impact on word-of-mouth recommendations and reviews, leading to more sales.
studiofellow 15y ago
You're assuming a higher price causes lower sales, but I don't think the data supports that. If you were hypothetically faced with such a tradeoff, I understand sacrificing some profits to gain more customers. But if you could have both profits and more customers, why not? I think it's possible. Assuming customers share at the same rate, the potential growth is much bigger for a larger audience, absolutely. But I'm not sure our customers will share at the same rate—I think mine will share more because they're fans. But this is speculation, and biased.
ahoyhere 15y ago
This theory is called "penetration pricing," and most research shows that it works very rarely, and only in specific circumstance. It's intuitive, and mostly wrong. Which is why I recommended the book Pricing with Confidence to Sascha when he made that same argument in the comment thread of the OP. And why I blogged about this book several times: http://unicornfree.com/2011/will-low-prices-sell-more/ http://unicornfree.com/2011/will-low-prices-sell-more/ http://unicornfree.com/2011/when-customers-bitch-about-your-price-biz-book-friday/ http://unicornfree.com/2011/when-customers-bitch-about-your-... http://unicornfree.com/2011/biz-book-friday-cost-plus-pricing-price-obsession/ http://unicornfree.com/2011/biz-book-friday-cost-plus-pricin... It's a fantastic book. Everybody who cares about their business should read it.

sgdesign 15y ago

Like many said, this is apples and oranges. First of all I had a very different product. My 40 pages eBook took me about 30 hours of work, including the promo site, whereas Jarrod's eBook is 130 pages long and has been in the works for quite some time now. I also had different goals. I wanted to build an audience for future products, and redirect a little traffic and attention to my "real" project, Folyo (http://folyo.me http://folyo.me). That project, by the way, has made me less money in 6 months of work than that eBook did in 30 hours. I don't know if I should be happy or sad about that…

studiofellow 15y ago
Sure, it's an imperfect comparison, but it's the closest we're ever going to get through coincidence. Same launch day, same format, similar topic. The length is different and the authors have different-sized audiences, but we should be able to learn something from this, rather than write it off as "apples and oranges."

sgdesign 15y ago

tagawa 15y ago

While I enjoy the discussion of differing strategies, I don't see why it has to be an issue of who's right or wrong. If both authors have created good content, their price point allows them to sleep soundly at night and they wake up to positive cashflow, what's the big deal?

ChuckMcM 15y ago

This is the key, "Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity—supply and demand market forces. There is no scarcity for ebooks because digital files are replicated practically for free." What Jason is alluding too, but no quite jumping into, is the economics of information. In the economics off goods, there is a limit to the supply of the goods, that limit is created by the economic forces of production. Basically the more it costs to produce an item, the higher the price has to be to recover those costs. But what doesn't change is the value of the good. That is why for some physical goods they are "impossible" to make economically because the cost of producing them exceeds their value. In an information market the cost to produce something is very very low, but its value doesn't change. A book on design is valuable to everyone who needs to solve a design problem. Even if there are a billion copies of the book out there, the value is still in every one of them. So what Jason captures is that pricing information requires one to consider pricing 'value' and the value of information is directly related not to its cost of production, but to its cost or procurement. Thus pricing a book for $40 which has information which would cost $400 to procure by hiring a consultant for a couple of hours represents a 'good value'. Pricing it for $6 will capture additional market but it leaves money on the table as well. Its a different world and one that is not yet taught in business school as far as I can tell.

xarien 15y ago

You're comparing apples to oranges. You've even stated this particular fact in your post with the paper example. You state that one should not chose a pricing strategy based on competition, but at the same time, aren't you validating your own strategy based on the earnings of a competitor? The comparison shouldn't be how much you made vs another book, what you should be comparing is how much would you make if you sold your book for a different price. What it comes down to is the basic economic theory of equilibrium.

ahoyhere 15y ago
Jarrod's point in writing this essay was to question and counterpoint Sascha's original claim about the "perfect price."
- sgdesign 15y ago
  Come on, that was only a catchy title. Of course I know that there's no such thing as a "perfect price"!

scottdw2 15y ago

Jason has a point: You can maximize revenue by focusing on delivering higher value features to more lucrative customers. But, you need to be careful when following his advice. Blindly following the principals of "revenue maximizing resource allocation" makes you susceptible to disruption. If you focus too much on high-end customers you can either: 1. Make the product in-accessible to a large audience. 2. End up overserving many of your customers. That opens up the opportunity for new entrants to provide less-good products at the lower end of the market, which you would be happy to ignore (you can just write a $80 book next time, targeted at fewer folks), while the new entrant follows you up market, until you have no business left. It's not clear it applies here, as neither author has a structural advantage over the other. However, just because you can earn more profits by charging a higher fee to fewer customers, doesn't mean you should. It could kill your business in the long run. Take Windows PCs vs the iPad as a good example.

rushabh 15y ago

You can never make generalised comments on pricing. If higher prices are better then why newspapers are shutting down and bloggers are rising? Why are people using Linux? Pricing has nothing to do with Apple products. They sell because of their design and quality. I don't think the books are comparable. OP's book seems a lot more comprehensive than Sascha's book (which I bought) and it would have taken him a lot more effort. Themes are different (general design vs app design) too.