Ask HN: How do you set prices?

[fnbr]

I'm helping a friend's startup figure out pricing for their products. What are some tools/services that you use to do this? Are there any pricing analytics platforms that you'd recommend?

I can't find anything that wasn't enterprise focused ("Call for pricing!"). Are there any services that your company uses that you're happy with? Ideally, it would help calculate common metrics & make suggestions for pricing experiments (& help run them!).

[compumike]

(Note: cofounder responsible for pricing decisions many times.)

The closest thing to a "methodology" I've found is asking these four questions and having the users generate their own pricing curve [1]:

Here's a real set of curves this process generated for me recently: http://imgur.com/lPKLk53 ($ values redacted)

The four questions are:

1. At what price would you consider [the product/service] to be so expensive that you would not consider buying it?

2. At what price would you consider [the product/service] to be priced so low that you would feel the quality couldn’t be very good?

3. At what price would you consider [the product/service] starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?

4. At what price would you consider [the product/service] to be a bargain—a great buy for the money?

Require a specific $ amount as the answer to each question.

Take ~100 users, ask them all four of these questions, and then compile the results. You really have to do this on a subset of your own qualified potential customers to get any meaningful data.

The neat thing about this is that this creates a price sensitivity curve without anchoring the interviewee with any prior numeric values.

At the end of the day, it's still a gut call about where to place your price point relative to the user's alternatives, and testing is encouraged, but these four questions are a decent start.

[1] https://en.wikipedia.org/wiki/Van_Westendorp%27s_Price_Sensi...

[Osiris]

It's been consistently shown that what people say they'll do regarding pricing and what they actually do are not correlated.

Rather than asking people, if you can, try just changing the prices and see how customer acquisition changes.

I sell a program online to consumers, so for a while I tried several experiments in pricing, including a "pay what you want". Structure. Eventually I settled on a price that's about half what the highest accepted price was ($10) and the typically "pay what you want" price ($1). Right now I sell for $4 (perpetually listed as 50% off of $8), which brings in about as much revenue as the $10 price. The advantage, though, is that it gets in the hands of more people, so there's a higher potential for word-of-mouth advertising.

So, I would say, if you're in the position to do so, experiment with the prices in the real world and look at how purchasing behavior changes.

[lettergram]

I second this. I always start my service for free, and tell them at some point I'm going to charge pricing, but the first 100 users don't have to pay EVER.

After I get ~50 - ~300 users, I tell them I'm going to set pricing. I usually do this with a pop up or email. They then have a drop down with "how much would you be willing to pay monthly for this service"

Usually you get some range, say $5/month to $100/month. I usually pick one standard deviation above the average. So in this case, let's call that $60/month.

Then, I usually will A/B test pricing by changing it month by month with "sales" so my current customers don't get too angry.

I've done this three times on my products and several times for others. Thus far, it's worked very well. You don't always want to capture the most customers to make the most profit. This method has you start at the top of what people would be willing to pay and work down.

Plus, you start with a user base for free that share you with their friends. Seriously, this has been the best way to jump start the business.

[jedberg]

That's a great methodology! But you do you avoid your customers lowballing their numbers since they know you're using the information to set the price they will eventually pay?

[paulddraper]

Excellent questions. Do not anchor the interviewees.

But anchor yourself. You should certainly know the prices of your competitors (or the closest thing thereto).

[rubicon33]

I'm really interested in your second question!

I just released a product recently which HUGELY undercuts the competition. I was able to build it cheaply, over the course of a couple of years, and as a result I never took investment or hired anyone, so I can offer the product at incredibly low rates (compared to the competition).

My worry is that I may be pricing it so low, that I'm actually scaring off potential customers. This is an enterprise product, so they're used to seeing massive licensing fees. I initially thought that offering it at the lowest price I could afford, would mean I would garner the most customers, but now I'm starting to wonder if that's true... I have no experience pricing things, and I'm really considering putting out a survey to existing customers.

[jordancampbell]

I was once told by a former Seattle based executive that the best way for a startup to price their product was to take what they thought it should be worth and then add a couple of zeros to the end.

There's a school of thought that says that you should only achieve a certain percentage of sales. So if you're getting 90% of deals then you might be pricing too low, and if you're not getting anything then obviously too high. But if you're making 10% of sales and your selling for 100x more than your guess at the price then you're likely doing well.

[alok-g]

Genuinely asking: Have you experimented with asking people to guess the price for the product? (Wondering if that is a simpler and better question to ask the users.)

[sova]

Very sensible approach. My question would be: does this product make more sense as a recurring subscription or a one-time cost? Perhaps so many things are subscription based now that it is hardly a question, though.

[laythea]

And then when you've answered all of those, surely the next one is:

5. How willing are you to undercut yourself, due to financial desperation?

Out of that question will pop out a selling price.

[foota]

You might consider a different tactic, one where you ask whether they would feel X is a fair price for the product. This can help eliminate bias in responses.

[joegosse]

Conjoint analysis is also a common approach. It requires less specific answers from customers about price points, which people are often unwilling to share.

[chirau]

Is this after you they have trialed the product/service or when you have just given them an overview of what it does and how it is valuable to them?

[amelius]

This method fails when you are selling a SaaS aimed at large companies with an unknown budget.

There probably isn't one method that works in all cases.

[adamqureshi]

Dang! i just tried this. Thanks brotha

[19eightyfour]

Great informative answer. Question: is the x axis linear scale?

[patio11]

I should really about this in a more formal fashion, but here's the HN comment version of several years of doing pricing for SaaS companies:

Price higher than you feel comfortable with. Approximately every SaaS team devalues their software because, unlike their clients, they were actually capable of writing it. Your clients don't care that it was "only a few weeks of work" or "really not as good as $UNRELATED_SOFTWARE_YOU_COMPARE_IT_TO" or "not as polished as Apple." Also, if you haven't run a business before, you have no idea how much businesses pay for pedestrian services like e.g. trash takeout, business insurance, monthly bookkeeping, etc.

Concretely, my standard "knowing nothing else" pricing for B2B SaaS is a three plan grid with $49/$99/$249 . If you're servicing informal firms like e.g. many Shopify sellers, you can add in a $29 price point. You don't want to service businesses for below $29 a month; you will suffer enormous pain in doing so and you will find that they churn and burn through software for a variety of reasons unrelated to you, for example because they go out of business, they have such severe cash-flow constraints such that sending you an email asking for a $5 discount is a good use of their time, etc.

You're not going to get pricing right the first time around. No one does. This is fine. Over time, you are likely going to raise prices across the board, as you improve your product, get a tighter focus on which customers benefit from you (which is isometric to improving the product, from the customer's perspective -- c.f. a below comment from tptacek on packaging), and get more confident in your team/offering. There is a simple way in SaaS to make price increases a non-event: grandfather in existing customers at their existing price. If your company is growing, your revenue for the next month is dominated by existing clients but your revenue as T goes to infinity is dominated by new clients, so I tend to just recommend people grandfather indefinitely. Yes, this does result in a couple of early adopters getting $1k a month of services for (in some cases) $19; I consider that a marketing expense to reward people for loyalty.

There are a lot of microtactical things you should build to support experimentation with prices. One is backend infrastructure to allow your CS team to change someone's plan at any time; another is some sort of crediting feature or special one-off pricing (one-time or ongoing), because as T goes to infinity you'll probably want to do both of them. I'll write about them some day.

You can track churn rates by the plan people are on, but I find that that isn't terribly useful early in the life of a business, since you'll have relatively few accounts in any bucket. For this reason, I often have a shadow attribute on plans to do "bucket by relative size of account", such that e.g. folks on Small Business at $49, Small Business (March vintage) at $34, Starter Edition For YC Companies at $45, etc all bucket into the same place for churn calculations.

Prefer giving people free things (exceptional acts of service, for example) to giving people discounts. They'll remember them for longer and you absorb the costs once, early in the relationship, rather than every month. Any recurring discount you issue in SaaS is essentially a liability on your books. (And existing happy accounts are a de facto asset, though GAAP doesn't treat them that way.)

[capocannoniere]

Joel Spolsky has written a great article on software pricing: https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-... This article was part of the reading list at Stanford's Startup Engineering CS184 course.

Another resource with lots of actionable advice: A Gigantic List of Psychological Pricing Strategies: https://www.nickkolenda.com/psychological-pricing-strategies...

[sova]

That write-up by Joel is great as an intro to economics course in 15 minutes, but even after all the analysis he makes the very valid statement that it depends on the strategy of growth you have in mind. If you are trying to cash out right away, you don't care as much about longroots longevity / word-of-mouth / gradual-grow / customer feedback loops. If you are going for a long-term recurrent-returns kind of loop, then you want to go for what will be conducive to growth & also act psychologically well as a "price for a valuable thing/connection/pathway/service" Because if you sell me your awesome product too cheaply, although I will be appreciative, the average consumer will assume some sort of defectiveness. Thanks for that link, it is helpful when contemplating this stuff.

[pccampbell]

Hey Everyone - Patrick Campbell here, CEO/Founder of Price Intelligently. We've been in the pricing trenches for the better part of five years now working on the pricing for anyone from Atlassian and Autodesk to Lyft and Blue Bottle Coffee.

Pricing is ultimately a process, similar to product or marketing development. We've written extensively on it at priceintelligently.com, but here's a bunch of topics you should look through that will ultimately give you a solid foundation. The biggest thing to keep in mind is that there aren't any tips or tricks that are going to help you win - you need to quantify your buyer personas and price based on them accordingly. If you ever have any questions, always up for getting on the phone - patrick[at]priceintelligently[dot]com.

Value based pricing 101 - overview of how you should be thinking of your pricing (not based on costs or competitors): http://www.priceintelligently.com/blog/bid/162160/Value-Base...

Pricing Process: Here's a 130 page ebook we wrote on how to collect the data you'll need, how to structure things, and a bunch of other pieces. This isn't the final cut of the ebook, but given the conversation I thought I'd share early (no lead form): https://cdn2.hubspot.net/hubfs/120299/Price-Intelligently-Sa...

Here's also a webinar recording that walks through the above process if you prefer to watch: https://pi.wistia.com/medias/79lpgnqd2f

Survey design is absolutely crucial. We've sent around 20M using our pricing software at this point, but here are some lessons we wrote through at the 5M mark: http://blog.profitwell.com/lessons-from-sending-5m-saas-cust...

[fnbr]

Is Price Intelligently an automated service, or do you provide consultants/analysts to do the analysis?

[apitts]

Just watched the webinar linked to. For me, one of the most interesting points, was the competitive advantage that freemium pricing combined with value based pricing can bring. Profit Well seems to be a case in point - there are a bunch of options for Stripe (et al.) analytics at the moment but it's got to be tough to compete with a fairly full featured freemium offering...

[joegosse]

Use good invoicing/billing software that allows you to discount on a per customer basis.

Start with two price points: one targeted at price sensitive customers, call it price A, and one targeted at price-insensitive customers (think enterprise), call it price C.

Set price A lower than you think - you can always add features and raise later to the point that people start to scream.

Set price C at much higher than you think - use volume discounting to offer discounting where needed, but this is your anchor point for conversations with big customers.

Consider whether price A is your acquisition channel or if you will have a "free" tier. If you don't have a free tier, you can feel fine with a lower than optimal price for tier A, as this is your conversion channel to price C.

Eventually you'll want a tier between A & C (call it B) to anchor pricing and encourage people to choose A or C. Refer to research on movie popcorn prices.

[Scorpiion]

Pricing sounds so simple but it is a surprisingly complex thing to get "right". I read an article from Sequoia recently that I thought was very well written. Not sure if it's relatively new or if it's been there for ages. I recommend it anyways, great read.

# The Sequoia Guide to Pricing https://www.sequoiacap.com/article/pricing-your-product/

[zupa-hu]

Annoying they have no date. The Internet Archive has first saved it on 2016-03-11.

https://web.archive.org/web/*/https://www.sequoiacap.com/art...

[souldzin]

TL;DR - Price is not a function of cost, and is ideally set before your product is built. Do not attempt to set a price unless you have a profile for your target market. Then, price according to what your customer is willing to pay.

IMO, this is a marketing question and here's a good entrepreneurial process for profiling the market and your target price. First, ask yourself these questions:

* What actual value does the product give to the customer?

* What are the competitors / substitutions to the product?

* What makes this product sustainable?

* What does the customer currently pay for comparable solutions - in money, time, and effort?

This should give you a good feel for what your customer is willing to pay. Then, set some financial profit targets which is your total revenue - total expenses (don't factor investment money as revenue). Finally, bend your product / process to this target price (not the other way around).

I would encourage any engineer to research courses on Marketing and Entrepreneurial Finance. The best marketers merge the engineering process (i.e. research, statistic, and financial analysis) with psychology (i.e. the feels).

Anyways, good question and it should not be taken lightly. I've stalked HN for some time now, but this question caused me to finally create an account.

[luckydude]

(I was responsible for pricing)

We built developer tools and we figured that by using them people were at least 10% more productive (pretty easily verified). We leased (we offered to sell it as well but priced it unattractively) and priced an annual lease at about 1-2% of an engineer's salary. So about $1500/year.

It wasn't an easy sell back in the day and it's almost an impossible sell today. People want everything to be $8/month which is 10-15x less than what we were charging. Good thing I'm retired, eh? :)

One side not, amusing maybe, is that before I did business to business sales I was under the impression that a dollar is a dollar no matter who you area. Boy, was I wrong. We quickly figured out which customers were pleasant, gave us good bug reports, read the docs, and which customers were sort of lame, and which customers were complete assholes. It was not very long before we had the "nice guy price" and the "asshole price". It was eye opening to me, I had no idea how much everything is negotiable and how much that was influenced by how pleasant people were or were not.

[amorphid]

Do you have customers who value and use the product/service now? Do they value it? Consider talking to the customers who need and value it.

When I ran my consulting business, I was always afraid to raise the price. I discussed this fear with one of my customers, and he told me that I was too cheap, and that I should raise the price by 50%. He depended of the service, and wanted me to stay in business. I did raise the price 50%, and I don't think I lost a single customer.

To answer your original question, I don't know of any specific tools for pricing. How a company decides to price a service tends to be pretty confidential. It's also normal to base pricing on how much competitors charge. For something new, it is tough. Get customers interested, sell it for more than it costs to make (before you run out of money), figure why customers like it, and eventually you'll have a pretty good idea of what to charge.

[insickness]

How I did it for an ebook:

1. Set up Google Ads for your product to drive some traffic to an hidden web page

2. Set up A/B testing for your product with a range of different prices. I set up six web pages with prices ranging between $5 and $100.

3. When users click 'Buy now', have a page saying that the product is not available but record the number of people who clicked it.

4. Calculate which setup generated the most income.

[chki]

I'm not entirely sure why but this seems a bit unethical to me. It is quite clever but maybe you should make it more clear that you are doing a survey and not actually selling your book.

[Keverw]

A/B testing prices. Never heard of that before, seems interesting. I have heard of people creating landing pages to get a mailing list of people interested.

Are you collecting their email's, sending them to a page or social page to check back when your product is available?

Someone picking a higher price, and you end up pricing it lower that sounds like a plus. If someone picked lower then you actually price it, wouldn't they have been false advertised to? Unless they actually knew it was a survey up front then that seems more fair.

[rebootthesystem]

Pricing can be one of the most complex topics in business. About twenty years ago I read through what I consider to be THE book on the subject, "The Strategy and Tactics of Pricing":

https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Prof...

What I learned was invaluable. I do have to warn you, the book lays it all out. This is excellent, of course. However, what happens is your level of confusion as to how and why to price using a certain approach will grow as you progress through the book.

Somewhere past the middle things start to coalesce and your choices become clearer. Again, this depends on the nature of the product.

Please note this is not a critique of the book at all, it's excellent, this is a complex topic and it is only natural to be confused before reaching clarity.

[tylery]

(I consult on topics like this for startups)

A lot of the comments are focused on figuring out price points, i.e. how much.

You should also spend time figuring out the right pricing metric, to make sure that as your customer gets more value out of your product, you continue to get a fair share of that value.

By pricing metric I mean things like per user, per server, per API call, etc.

Take for example a SaaS app that helps you create project proposals.

If you charge per user at $10/month, and one user generates 1,000 proposal a month, effectively that user is paying 1 cent per proposal.

In this case the proxy for value for your product is number of proposals.

The user is getting a lot of value from your product, but you're getting a flat share of that value. Regardless of how many proposals the user create, you still only get $10.

So in this example, it makes more sense for you to charge by proposal first and foremost.

Gets more complex as you think about secondary metrics but that's the principle.

[pbreit]

If you're new and don't really know what you're doing, price it just below what alternatives are charging. Make it a non-issue, learn as you go and adjust. Don't get too fancy. If you are able to attract & delight customers you will have nearly unlimited flexibility to adjust pricing.

If you are experienced and have a strong vision on the service you are offering and how it should be priced, you can think about premium or non-traditional pricing schemes.

[tptacek]

This is probably not great advice. Prices do more than determine how much money you'll make from a given group of customers; they also select which customers you'll be servicing. The two most important pricing lessons startup founders need to learn are segmentation and qualification. You should select a market segment that's attractive, and your pricing scheme should in part serve to ensure that you're not wasting time being responsive to the demands of people outside that segment.

The list of things you can do to repackage your product to go after different market segments is very long and very few of the bullets on the list involve changing code. I think the most important thing to do is to select a group of customer prospects deliberately and then make something those people want, rather than making something for the whole world and trying to optimize the number of people who buy through prices.

You can cost yourself customers/clients by pricing too low.

[eps]

Dangerous advise as you may end up painting yourself into a corner.

There are lots and lots of cases where competitors have been in a niche for a long time and they now use aggressive discounting to experiment with (what's left of) customer acquisition. You price below them, you will die starving. Also, it is dramatically harder to raise prices than to lower them, so starting low and then increasing is a very painful thing to do.

[hayksaakian]

Call for Pricing is code for "starting at $1000"

Call all your competitors and pretend to be a customer. Get quotes from all of them.

Position yourself based on their pricing. If you're trying to be high end, charge more. If you want to be seen as affordable charge slightly less.

[randlet]

Do people think this is OK generally? There are some products I would really like to know the price of but pretending to be a customer to gain competitive information seems ethically questionable.

[thomasthomas]

false dichotomy. can be higher end and cheaper.

[quirkot]

I’ll take a different tack than most other comments. Assuming you’re B2B Step 1: Determine how much value your product creates for your customer Step 2: Set your price at a majority chunk of that

Example: How much money would you be willing to pay for a lead list that could make you $100 in sales? Assuming you have no internal cost to acquire (for sake of simplicity), if you paid $90 for that list, you’d make a 11% ROI. What sort of ROI do your customers need in order to bite?

[nilanp]

Ha - @TransferWise... we approach this slightly differently.

Most of the discussion here is about - setting to price to optimise for an objective. e.g. how to optimise for revenue, profit - or cash that you can invest in marketing.

Ultimately all these approaches seek to optimise for growth - depending on the definition / time frame / risk profile.

So what you think about growth as an OUTCOME, not an OUTPUT of the model.

We describe ourselves as a mission driven startup - with the mission of making the worlds money move at the touch of the button, instantly for almost nothing.

We invest in making international payments faster, cheaper and less of a pain.

As we reduce our costs, our price drops (obviously money isn't free and we need to have a small margin to cover our costs and continue to invest in the platform)

Hence - there isn't anyone here thinking, lets drop price by 1% and see if we get 1% more volume. We've built a conviction that if we continue to invest in aggressively dropping price customers will switch to us.

Note - if we approach this in a very data centric way will not move with the speed and aggression we are on this. Also our authenticity on this mission would be questioned by our customers.

This authenticity, and conviction - on not focussing on maximising the amount of value we can extract from our customers - is what driven our Word of Mouth growth rate. More on this here - https://www.slideshare.net/pnilan/slides-from-jam-london

[df3]

Working with a PhD student to do economic analysis is overkill for an early stage startup.

I would use the methods outlined by other commenters to create a set of potential price points. Pick the highest one and revise downward (or upward) as needed.

If you're solving a real pain point, there's a set of early adopters who will pay a high price for your solution. If this isn't true then I would examine product / market fit.

Mistakes to avoid:

1. Doing a "name your price" promotion.

2. Thinking you've found the golden ticket of pricing and sticking with it. Pricing should be scrutinized early and often.

3. Charging too little. At least some users and reviewers of your product should be commenting that perhaps your pricing is too high. You're charging too little if no one is complaining about pricing. Of course, you've charged too much if everyone complains.

Finally, how you present the value of your product is perhaps more important than the pricing. See here: https://www.wsj.com/articles/SB10001424052748704240004575085...

[mitchellshow]

Here's a neat trick I've used a few times when facing this exact issue.

First, set up a survey on Google Surveys (https://www.google.com/analytics/surveys/) and select the most appropriate audience for your concept. Set the first question as a screener of who you think this product is for. So if your business wants to sell to pet stores, you might set the audience to "Small Business / SMB owners" and have the screener question be "Do you own a pet store?" and screen out anyone who says "no."

Then, briefly describe your product and ask a straightforward question about how much they would pay for it. So, something like "What is the maximum you would pay for a service that handled the logistics of mailing pet food to your customers?" Then make the answers to that question your possible price points - "$9.99/month", "$19.99/month", etc. Make sure to include a "I would not pay for the service" or "$0" option - this is an excellent gauge of whether or not your service is actually something people will pay for. If you run a pricing survey like this and 95% of people say $0, that's pretty telling.

When you look at the results, you'll see a clear curve from the higher prices to the lower prices / not interested option, but you'll be able to see what a relatively targeted group would pay. So if 40% of people would pay $9.99/month, and 10% would pay $79.99/month, that tells a story you can interpret into a basic pricing strategy.

Depending on your budget, run 3-5 of these with different prices, different pricing anchors, different wordings, etc. - get as much data as you can.

I used this method for my last startup, when we were trying to figure out how much a specific niche would pay for our product. The pricing research we did through these surveys led us to a conclusion of about $29 per product, which was actually much higher than we had anticipated (we were going to sell it for $9), so we priced it 3x higher than we were going to. Very long story short, we made the right choice - people bought it and we had very few complaints about pricing too high. We even raised prices eventually after adding new features.

Now obviously, there is a delta between what people say they will pay and what they will actually pay, but this method might help get to a starting point, or add a layer to your existing research.

Admittedly, I do this sometimes when I have random dumb ideas for companies and I want to see if there's a market for it without really committing anything.

[gyey]

I saw what Envato elements did with their pricing. They started off at $19 a month, and declared that their prices would increase as they came out of beta, had a full launch, etc. but the older customers would retain their lower prices. Their pricing was to go up from $19 to $49, so there was a lot of incentive for early customers to lock into the lower price.

If you look at the pricing page now, the price is fixed at $29. So maybe mentioning the $49 price point was just a marketing trick to lure customers in to the lower price. They also give a discounted price of $19 at cybermonday, etc.. What do you think of this approach? Can approaches like this be considered ethical?

[kirvyteo]

If you read the book "Thinking fast and slow" (excellent book btw), one of the concepts is a baseline price. For example, if nobody knows the worth of your product, they tend to compare with an alternative - the closest competitive product or substitute. This gives you an idea of what you can charge. That defines your product price range. You cannot avoid the comparison because everyone googles, and if they can't find the equivalent, they will find the closest. This approach is not really scientific but I find that I can relate to this very easily then reading "X% says they will pay $100 for this" in a survey. Hope this helps.

[raverbashing]

More importantly, if people can do (or currently do) what your product does costing $X and you charge $Y > $X and unless you offer them a good advantage (faster/easier/less defects) then they will think hard about adopting your product