What's The Price Tag?! 🏷️
Right this minute, how much would you pay for a bottle of water? Maybe a dollar or two?
Now, imagine you had been stranded on an island surrounded by undrinkable saltwater for two days, with the hot sun beating down on your skin... is there any price you wouldn't pay for the same bottle?
That's the question many economists use to illustrate that the price of a product is not based on how much time, effort, or supplies you spent creating it.
Your product's price is based on how much it's worth to your customer, and that's based on how well your product serves as a real solution to a real problem these real people have (right now).
If you're sitting on the couch at home, you might not pay anything for a bottle of water, because it doesn't solve a real problem for you—but when your life depends on it, you will pay every penny you can.
Of course, your customer (and your product) typically lives between those two extreme examples.
So, how do you decide how much to charge for your product? There is no exact science to this, but here are two tactics that help:
#1: Charge 1/10 Transformation
Can you put a price tag on the total transformation your customer will experience by using your product? How will their life be better once they buy from, or work with, you?
For example, does your product help someone make an extra $1000 or save $1000? That transformation is worth $1,000, so you should charge $100 for your product or service.
For your customer, this means your product gives them a return of investment of 1,000% or ten times what they initially paid. At 10X ROI, customers will gleefully pay you for all day long.
This strategy is simplest with financial & marketing products, but it works for other categories too. You just need to do a bit of research (and educated guesswork) to put a value on what your product's transformation is worth to your customer.
Please note: I didn't recommend charging $1,000 for a product that would help a customer earn $1,000, because that would be a bad deal. At face value, it looks reasonable but actually the customer doesn't make forward progress by paying $1,000 to make $1,000.
Beyond that, your product is going to require some investment of a customer's irreplaceable time, so a 10X ROI is a general guideline but it typically creates a win-win.
#2: Price Check Alternatives
Make a list of alternatives people are using to pursue the same transformation, and compare their prices to come up with yours.
What other products or services are your real people already paying for to solve the real problem you're solving? This would include direct competitors, but also seemingly unrelated offers that scratch a similar itch.
What apps, books, drinks, or products are people already buying (consuming) to reach a similar transformation and what do they cost?
Do you want to position your product as comparably premium, accessible, or cheap?
Price checking alternatives is a useful way to research your customer, not your competition. You see a problem you want people to solve, but do you know how much your customer wants to solve that problem?
By tracking alternatives, you can get a pulse on what your customer is willing to pay to attempt to solve a problem, and what those alternative solutions include.
You may realize that your solution is far superior to all the alternatives available, or you may discover a few useful ideas you can incorporate into your product directly.