You’ve got a new product idea and you’ve worked furiously to get it ready.

The website is done.  The shopping cart is hooked up and the autoresponders are written.

Everything is all set… except… you can’t figure out what the price should be.

If you price it too high, nobody buys.

If it’s too low, you don’t maximize revenue.

So what’s the “magic formula” for pricing products?

Here’s a simple method that’s always worked for me…

Start Low And Raise It Over Time

As entrepreneurs, it’s easy to fall in love with our own product – especially when we’ve been working on it for so long and we can’t wait for the world to see it.

Because of that, we naturally OVERestimate what the market is willing to pay and we price our products too high in the beginning.

Let me ask you a very important question…

Wouldn’t you rather have more people using and excited about your product than less?

Wouldn’t you rather have people boasting about how great your product is across the social web?

Never forget the power of “buzz marketing” – especially when it comes to people’s perceptions of what you have to offer.

When you price your products low, it puts you in a position for greater adoption from the market and gets more people using it.

But most important of all…

If you do it the other way (start high and lower the price later), you’re essentially slapping the early adopters in the face (not good).

Similar to offering discounts, it creates “awkwardness” with your early buyers.  They’ll likely come back to you and say “what the heck?”.  They may want a refund for the difference and now you’ve just opened yourself up to a vulnerability. (not good again).

Therefore, starting your price lower than you really want rewards your early customers, creates buzz and helps you gain traction and momentum in the marketplace.

Real World Example of Starting Low and Raising The Price

When we first launched our WishList Insider membership, we knew the value was there for us to charge somewhere in the neighborhood of $25-$40/month.

How did we know?

Because competitive sites in the market were charging that (and more) for similar information (which validates the concept and willingness to pay).

However, we decided to take a different approach.

We started with a dramatically lower price in order to get a lot of people in the door.

This was important for us (especially with a membership) because you never want a “community” that only has a handful of people.  We wanted lots of people right away and lots of activity so that it felt vibrant, alive and exciting.

So we started with a price of $15/month for anyone who joined during the first week.

That meant, if someone joined during our opening week, they would continue to have a price of $15/month for as long as they remained a member in good standing (aka. a paying member).

After the first week, we raised the price to $20/month which was still a no brainer price given everything provided within the membership.

Here’s the key to all of this…

Once we raised the price a week after launching, guess who felt like they got an even better deal?

Yup, the early bird customers.  We were essentially rewarding them for joining early.  And every month that goes by, those customers continue to receive an additional benefit (reduced price) because they joined early.

It was not only a winning pricing strategy but it proved to be a highly effective retention strategy as well.

Because if they canceled their membership and tried to join back later, they would have to pay the regular price of $20/month – so people didn’t want to leave and let go of their deal.

Two years later, we still have over 70%+ of our original members that signed up during the first week (which is incredible for a membership site where the “average” retention rate is 3-4 months).

Start low, raise your price later.

How Low Is Too Low?

I can hear you now…

“Yeh but Stu, how low is too low?”

It’s easy to get caught up in the mindset of “but if we start low, we could be selling ourselves short.  We could be making a boatload more by starting with a higher price”.

That’s true – if everything remained equal (same number of customers).  But the reality is, you won’t have the same number of customers join if your price is higher.

The other thing to note, is this is a “general rule of thumb”.

There are exceptions to this rule where pricing your product low and raising later doesn’t make sense.  And, you may not want “more customers” all at once so charging a premium price is a great way to filter providing you with less people.

Plus, I encourage you to do the math as well.

For example…

100 people @ $10 = $1,000

20 people @ $50 = $1,000

It’s the same amount “made”, just a completely different approach – one is in favor of more customers, the other is in favor of a higher price.  Different positioning and therefore a much different approach to pricing.

But in general, if you are selling a product that is designed for a mass audience, doesn’t require personal attention from you (meaning they can buy and you’re not directly involved in the process – meaning the sales process is automated), then I encourage you to start lower and raise your prices later (so whatever you think your product is worth, knock the price down 10-20%).

Take a step back and look at the big picture.

Getting more customers using your products means that you have an opportunity to build a deeper relationship with a larger group of people.  It means you have a chance to prove yourself to more people.  More people now have the chance to gain tremendous value from you.

All these things will prove beneficial as you look to sell other products down the road.

So how low should you go?

“No Brainer Pricing”.

Your customers should look at your offer, then look at your price and say to themselves, “this is a no brainer”.

The percieved value should FAR exceed the price – and it should be obvious.

Example of No Brainer Pricing

I was reading Chris Guillebeau‘s great book The $100 Startup.  In there he talks about a travel discount business run by Scott McMurren up in Alaska.  Long-story short, Scott created a product called the Tour Saver which is a book containing coupons for different sightseeing activities throughout Alaska.

So what was Scott’s “no brainer” price?

$99.95

And why is this a “no brainer” price?

Because if you use just ONE of the coupons, the book has paid for itself (and there are over $22,500 worth of coupons within the book).

Obviously someone is never going to use all the coupons – but that’s the beauty of the whole deal.

They only need to use one and the book has paid for itself.  If they use two, the book has even more value.  If they use three, then they’ll be so pumped about the money saved that they’ll likely start telling everyone they know (if they hadn’t already).

But you can see this right?

One coupon and the book paid for itself.  As a customer, the value is obvious.

Your pricing should be the same.

A “no brainer” price has obvious value (the customer should almost feel guilty that perhaps they are getting “too” good of a deal – but we all know that would never happen!  LOL).

Wrap Up

If you don’t know for sure how you should price your products, always start low.  You can raise them later and you won’t tick your early customers off (in fact, they’ll feel good about it because they got a deal).

It’s better to get more people in, using what you’ve created and gaining benefit from it because it helps you gain momentum.

So start low and raise your prices down the road.

Your Turn

Do you have a strategy for pricing your products?  Let me know and share with everyone in the comments 🙂

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