4 ms·

This one is quite the useless fluff piece. Not a single mention of even covering your hard costs. Just guess, be wrong, and try it out. Gee, thanks. Obviously I

by biot 14y ago

This one is quite the useless fluff piece. Not a single mention of even covering your hard costs. Just guess, be wrong, and try it out. Gee, thanks. Obviously I'm not in the subset of HN that finds "pull a number out of your ass, rinse, repeat" to be worth submitting and upvoting. Isn't the reason to ask about pricing to avoid this kind of crude guesswork in the first place? If you want something of more substance, read this: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie... Ultimately, you'll still have to pick a number and try it out but at least you can do so somewhat intelligently.

jasonfried 14y ago
"Not a single mention of even covering your hard costs." I didn't include that because that's fundamental. That's a given. If you don't know that you need to cover your costs to stay in business, then no advice is going to help you. But also, remember... The market doesn't give a shit about your costs. So sometimes it's wise to start from the price and then build your business around that. Because if you're price is too high because you're costs are too high, you're in trouble regardless of how you come up with a price.
- jk4930 14y ago
  Your magic is over. Did you read the thread? People found out. Well, first those security holes in RoR, now those useless blog posts, you already peaked. Did you consider selling? I'd buy your product line and brand for, say, 5,000 EUR (provided we split the due diligence costs). Deal?
- biot 14y ago
  Right. So your updated advice is that you must cover your costs since it's fundamental; a given. But wait... nobody cares about costs, so skip that fundamental given thing, pick some arbitrary number, and build your business around said arbitrary number. Had your blog post been "How we arrived at Breeze's price", I would have nothing to say as you would be describing your rationale for arbitrarily drawing a number out of a hat and charging that. However, your blog post is titled "How to price something" and from that viewpoint the advice is lacking.
  - deleted 14y ago
    [deleted]
davemel37 14y ago
He Wrote, "No one ever went broke making a profit." I am pretty sure this covers your concerns about covering your costs.
- biot 14y ago
  No it doesn't cover it. If you're building a trivial software app in a week which costs beer money to get going and maintain via a cheap hosted service, then sure... you should just visit random.org and generate a number from 1 to 100 and charge that (per month, year, one-time, or whatever) because who cares. But let's say you're building a non-trivial product and you've hired 4 engineers to work alongside you for 3 months to get the product off the ground to the point where you can start bringing customers onboard and billing them. These engineers come with a fully loaded cost of, say, $100K/year each. Maybe you're bootstrapping this venture via savings plus a second mortgage on your home to get to that stage and that's $100K you'll need to pay back to the bank plus interest. As you bring paying clients onboard, you're going to need to hire support staff. What ratio of clients to support staff do you figure you will need? You will also need to ramp up your server instances to handle the load. Maybe you'll need to hire a full-time DBA. What is your marketing outlay for acquiring new customers and what's the conversion rate so that you can calculate your cost per acquisition? Do you have a sense of the lifetime value of each customer? Can you guesstimate the CPA and LTV to within a small multiple based on asking people in your network who are familiar with comparable services? How do you factor initial sunk cost into the price? What sort of payback period on your second mortgage should you go with so that you're spreading out the costs over time rather than front-loading it all? How should you factor for continued growth, contingency situations, insurance, office space, potential legal risks, and a whole host of other factors to ensure that you actually are making a profit? There is a science to arriving at a price and having a certain amount of confidence that the price you chose will result in a profit. Saying "pick a number and ensure you're making a profit" does not help anybody in calculating whether there is profit to be had.
  - davemel37 14y ago
    I am pretty sure all your calculations are covered by the word "Profit"...His point about testing prices is very sound. How you arrive at what prices to test, obviously requires more insight than picking a number out of your hat.
icelancer 14y ago
I completely agree. These 37signal posts that are popping up on HN are just ridiculous fluff buzzword-laden crap that are simply advertisements and blogspam. It's annoying to see them on the front page over and over again, and while I'm no conspiracy theorist, the accusations of an upvoting ring sound plausible to me.

by biot 14y ago

jasonfried 14y ago

"Not a single mention of even covering your hard costs." I didn't include that because that's fundamental. That's a given. If you don't know that you need to cover your costs to stay in business, then no advice is going to help you. But also, remember... The market doesn't give a shit about your costs. So sometimes it's wise to start from the price and then build your business around that. Because if you're price is too high because you're costs are too high, you're in trouble regardless of how you come up with a price.

jk4930 14y ago
Your magic is over. Did you read the thread? People found out. Well, first those security holes in RoR, now those useless blog posts, you already peaked. Did you consider selling? I'd buy your product line and brand for, say, 5,000 EUR (provided we split the due diligence costs). Deal?
biot 14y ago
Right. So your updated advice is that you must cover your costs since it's fundamental; a given. But wait... nobody cares about costs, so skip that fundamental given thing, pick some arbitrary number, and build your business around said arbitrary number. Had your blog post been "How we arrived at Breeze's price", I would have nothing to say as you would be describing your rationale for arbitrarily drawing a number out of a hat and charging that. However, your blog post is titled "How to price something" and from that viewpoint the advice is lacking.
- deleted 14y ago
  [deleted]

davemel37 14y ago

He Wrote, "No one ever went broke making a profit." I am pretty sure this covers your concerns about covering your costs.

biot 14y ago
No it doesn't cover it. If you're building a trivial software app in a week which costs beer money to get going and maintain via a cheap hosted service, then sure... you should just visit random.org and generate a number from 1 to 100 and charge that (per month, year, one-time, or whatever) because who cares. But let's say you're building a non-trivial product and you've hired 4 engineers to work alongside you for 3 months to get the product off the ground to the point where you can start bringing customers onboard and billing them. These engineers come with a fully loaded cost of, say, $100K/year each. Maybe you're bootstrapping this venture via savings plus a second mortgage on your home to get to that stage and that's $100K you'll need to pay back to the bank plus interest. As you bring paying clients onboard, you're going to need to hire support staff. What ratio of clients to support staff do you figure you will need? You will also need to ramp up your server instances to handle the load. Maybe you'll need to hire a full-time DBA. What is your marketing outlay for acquiring new customers and what's the conversion rate so that you can calculate your cost per acquisition? Do you have a sense of the lifetime value of each customer? Can you guesstimate the CPA and LTV to within a small multiple based on asking people in your network who are familiar with comparable services? How do you factor initial sunk cost into the price? What sort of payback period on your second mortgage should you go with so that you're spreading out the costs over time rather than front-loading it all? How should you factor for continued growth, contingency situations, insurance, office space, potential legal risks, and a whole host of other factors to ensure that you actually are making a profit? There is a science to arriving at a price and having a certain amount of confidence that the price you chose will result in a profit. Saying "pick a number and ensure you're making a profit" does not help anybody in calculating whether there is profit to be had.
- davemel37 14y ago
  I am pretty sure all your calculations are covered by the word "Profit"...His point about testing prices is very sound. How you arrive at what prices to test, obviously requires more insight than picking a number out of your hat.

icelancer 14y ago

I completely agree. These 37signal posts that are popping up on HN are just ridiculous fluff buzzword-laden crap that are simply advertisements and blogspam. It's annoying to see them on the front page over and over again, and while I'm no conspiracy theorist, the accusations of an upvoting ring sound plausible to me.