Pricing isn’t a static decision. You should continuously keep evolving it based on changing marketing conditions.
- What is the value addition you are doing in your customer’s life?
- A strong Owned Identity adds to your ability to charge a premium.
- Benchmark competitors’ price: Even if you are in a Commoditized Business, still you would have some Competitive Differentiation. Hence, it is unlikely you can copy a competitor’s price. However, knowing it tells you what is the willingness to pay for such a category.
- Understand the Price Elasticity
Target Revenue Divided By the Number of Expected Customers: This is a straight-forward goal setting method. Say if you want to earn $100,000 per month, then
- $100,000 monthly recurring revenue = $10 per month x 10000 customers
- $100,000 monthly recurring revenue = $100 per month x 1000 customers
- $100,000 monthly recurring revenue = $1000 per month x 100 customers
- $100,000 monthly recurring revenue = $10000 per month x 10 customers
- Cost Plus Pricing: All products have fixed costs and variables costs as per Unit Economics. In this method, you select the price by adding a profit margin on top of your costs. This is the easiest method but in this situation you might be leaving money on the table.
- Value-Based Pricing: If you possess a deep understanding of the value (time saved, cost saved, additional revenue) your customers gain from your product, then you can justify charging a significantly higher price. However, this is fairly complicated to measure.
Set your Pricing Tier.
Think through Discounts and Promotions.