Pricing
What should you charge? We’ve got a good chunk of startups moving into pricing / testing what to charge.
Most founders default to two approaches:
Look at the competition, charge slightly less
Add up your inputs - what it'll cost you to deliver the product, add a 40% margin on top, then discount the price because you can't imagine you're actually worth that much
Both are an enormous disservice to you and your business and are a huge reason businesses fail. Marc Andreessen was once asked what piece of advice he would give to every entrepreneur and he said "charge more."
But how do you choose that number?
Your price needs to be based on the status level jump you help your customer make, not inputs or direct competitors.
A quick example.
I’ve gotten two emails in the past two months from Forbes and Fast Company. I nearly did a cartoon double take at each.
First, Forbes offered me the opportunity to pay $5,750 to be included on their Top Entrepreneurs To Watch list. Other people noticed this, too:
Second, Fast Company offered me the opportunity to pay $975 to maybe be included on their “Most Innovative Companies” list.
A great product helps you cut the line.
The important part of this process is understanding who's in line, where you'll get if you do cut the line, and what happens once you're there.
Forbes and FastCo let me pay to cut the line from "relatively unknown entrepreneur busting his ass to build something" to “someone doing something you should pay attention to.” Sure, I now know the whole thing is rigged. But few other people do. The cut the line questions are answered really well:
Who's in line? All the other entrepreneurs I'm shoulder to shoulder with.
Where will I get if I cut the line? To a place of recognition. I'll be chosen. My "risky" life choices will be affirmed, at least for the moment.
What happens once I'm here? I can tell everyone else that I've been chosen, which means I now have social proof. People are way more likely to buy what I'm selling. This type of marketing ammo is invaluable.
When Forbes and FastCo pitched this product, they talked about the share-ability of the article. The logo you’d get to put on your website. The annual list you’d be on. The ability to become a “two time” and “three time” whatever over the years.
They didn’t say “well, it’ll take our editor 4 hours to make the list, and they make $100 per hour, so that’s $400 for the article and there are 10 entrepreneurs listed, so it’s $40 to be included.”
They mention how it'd be nearly impossible for me to pay $6k in some other way to get that credibility. Whatever else I'm doing for marketing - FB ads, Google, whatever - spending $6k there won't come remotely close to what this article could do. While it feels sleazy, it's a great product.
So, for you:
What line do you help your customer cut?
Who else is in line that they care about edging out?
What happens once they've cut the line?
How much would they pay to be in that spot?
Then, whatever number you came up with, double it. It needs to feel uncomfortable at first. I guarantee the first time someone at Forbes said "let's charge women $6k to be on the Top Women Entrepreneurs to Watch" list the rest of the room gasped. But, they're providing real value. So, people pay it.
And, don't forget that second question. Who else is in line you want to edge out. People are driven by envy, not greed. We look left and right before we make decisions.
And, hopefully this makes you feel better about not making 30 under 30 or whatever under whatever. It's not a representation of who's actually doing anything interesting. It's a representation of who's got $6k to spend on admittedly great marketing ammo.