A 12-Step Guide to Pricing Your Product

Determining the right price for your product is a challenging but critical task. Here is a 12-step process for finding your optimal pricing structure.

The 12 Steps

Know Your Market: Understand the purchasing habits of your target audience and the general price range for similar products.
Ask Yourself: Consider what you would be willing to pay for the product and what numbers "feel right."
Look at Your Competition: Analyze the pricing of your direct and indirect competitors.
Determine Your Product's Value: Quantify the value your product provides to the customer (e.g., hours saved, revenue generated).
Combine and Create a Range: Use the information from the previous steps to determine a price range, with the high end being roughly 4x the low end.
Lean Towards Higher Pricing: Developers have a tendency to undervalue their software. It's often better to start with a higher price and offer discounts than to start too low.
Use Three Tiers: Offer multiple price points to cater to different customer segments. A common approach is to have a low, middle, and high tier, with the middle tier being the most popular.
End in 7, 8, or 9: This is a classic psychological pricing tactic that has been shown to be effective.
Determine the Benefits of Each Tier: Clearly define the features and benefits that are included in each pricing tier.
Add a Support/Maintenance Fee: For one-time purchases, consider charging an annual fee for support and updates.
Alternate Method for Recurring Payments: If you are offering a subscription, you can estimate a monthly price by taking a comparable one-time fee and dividing it by 12.
Test Your Pricing: The only way to know for sure what the right price is is to test it. Experiment with different price points and measure the impact on your sales and revenue.