pricing

Core Principle

Two Pricing Models

1. Cost-Based Pricing

• Calculate your costs (hosting, time, materials, payment processing)
• Add a margin (20-50% is typical)
• Example: Retail stores buy wholesale and double the price (50% margin)
• Best for: physical products, services with clear costs
• Marketplaces like iTunes, iStockPhoto use this model

2. Value-Based Pricing

• Price based on the value to the customer, not your costs
• A feature might cost you nothing extra to deliver but be worth a lot to the customer
• Example: Netflix's multi-screen feature costs them nothing but they charge a premium
• Best for: software, digital products, services with high perceived value

Pricing Principles

1. Start low, raise over time. Prices generally go up as products improve. That's expected and healthy.
2. Pricing is not permanent. It's just another thing to iterate on. Start the discovery process, don't aim for perfection.
3. Tiered pricing is the goal. Think of it like plane tickets — economy, business, first class. Same destination, different experience. Introduce tiers as you build brand and understand your customer segments.
4. The zero price effect. Never give your product away for free as your default. Even $1 creates a completely different dynamic.
5. Free trials are table stakes. Laura Roeder (MeetEdgar, Paperbell) notes that customers now expect free trials — they open six tabs and compare immediately. Offer trials, but always with a clear path to paid.
6. Don't confuse marketing with giving away your product. Advertising-driven models make it hard to start charging later.

How to Set Your Initial Price

1. What are your variable costs per unit/customer?
2. What are competing/alternative solutions charging?
3. What would make this a "no-brainer" purchase for your ideal customer?
4. What price lets you be profitable from customer #1?

The Math of Financial Independence

• How much do you need per month to sustain yourself?
• At your price point, how many customers is that?
• At one new customer per business day (260/year), when do you hit that number?
• Example: $10/month product, need $2,000/month = 200 customers = less than 1 year

Output

1. Their pricing model (cost-based, value-based, or hybrid)
2. An initial price point with rationale
3. Potential tier structure for the future
4. The number of customers needed for financial independence
5. When to revisit and raise prices