If you’re stressing on how to price your software product on day 1, here are some principles you can use to make the whole exercise less stressful.
Before I share the principles with you, I’ll assume you’ve done some competitor research and have some idea on how to price. And that your primary difficulty is in choosing between a small handful of options.
If you have zero idea, then my principles will not help you at all, and I highly recommend you go look at your competitors, and come up with a first rough draft.
Here are the principles:
Principle 1: You can change your pricing at any time
You don’t have to be precious about your prices because you can always change them. In fact, the lesser known you are, the less pressure you have to keep things consistent. This means that you have to worry 0% about getting your prices right on day 1. Just pick something and see what the market tells you. This segues nicely into principle 2…
Principle 2: Price discovery > getting it right, right now
It’s more important to learn how to do price discovery, and have some sort of price discovery process, than it is to get the absolute best price at any given point in time.
Getting used to setting price experiments, exposing your pricing to the market, getting qualitative and quantitative feedback, is much more important than somehow arriving at a perfect price point. Because perfection doesn’t exist.
As your positioning and product changes, as the seasons and economy changes, as your customers change, as your competitors change… Your pricing will change. So get good at price discovery. This is not a set it and forget it thing.
Principle 3: Day 1 pricing is meant for day 1 product, customers, business, and goals.
On day 1, you have a crappy product and 0 customers. So your pricing has to reflect that.
Assuming your product is worse than your competitors, there is literally no reason it should cost more than your competitors – no matter your future aspirations for market domination or your personal thoughts on how quickly you will surpass your lousy competitor.
Furthermore, your day 1 customers might look very different from your ideal customers in 2 years’ time. It’s hard to say who your ideal customers will be in 2 years’ time as your product matures and positioning adjusts to the market. In contrast, most day 1 customers tend to be the same: early adopters with high risk tolerance and high price sensitivity, so price accordingly.
You don’t have to worry about getting locked in to a certain pricing or customer. If things change, then change your pricing – as per principle 1.
Principle 4: Say yes, keep it simple, move on
If you have a co-founder who has strong thoughts about pricing which differ from yours… Say yes, set some guidelines for price discovery, and move on.
If you are trying to decide on pricing and are spending all your time trying to generate more info, or letting pricing thoughts take over your life… Stop. Just pick something, keep it simple, move on.
It’s too early to do 5 different pricing tiers with an additional “contact us for enterprise sales”. Just pick 1 or 2 tiers, keep it simple, move on.
If you’re trying to read a whole bunch of articles on pricing psychology , trying to optimise for “$49 vs $50” or button colour, or calls to action… Just copy the pricing page of a company you admire and move on.
If you’re worried about which features should go into which pricing tier, just stop. You don’t have enough features or customers to worry about that. Pick the features you like the most/were hardest to build/got the most enthusiasm when you shared them with people, and put them in the more expensive tier. Even better, just have 1 pricing tier with all the features in it, with a free trial.
Final thoughts
No matter what you pick, it will be right in some ways, and wrong in some ways. And at this point, you won’t know which is which. The only way you will find out is by launching and getting market feedback.
This means that, paradoxically, the more you care about getting the price right, the less time you should spend trying to get the price right, right now. Instead, you should put all your effort into getting the product out the door, so you can begin generating actual information on how to price your product.