I recently quit a big MNC to start off on my own. I have built a B2B(Business-to-Business) product but not figured out how to price it. Please tell me if my approach is right.
I was earning $x/hour at the place where I worked - If it takes 'y' hours to build the B2B product, effectively my(product) worth is $(x * y) + server-costs for 'y' hours + misc expenses(electricity, etc.)
If the product is to be sold as a whole package, probably one can figure out the price with the above costs adding a little profit margin,but if it's something like people pay & can use it for 5 times, to further continue they need to pay again - how do you price?
Eg: animoto.com - the building of the product would have taken several man-hours, however to use their product to create a video, you pay only $3. To create another one, you pay extra $3 and so on..
I have just listened to a couple of podcasts from the Escape from Cubicle Nation after reading this AO-question. So far I have only listened to number 6 below, but I have included links to the whole series.
I would suggest you start from another view:
Also read the book Don't just roll the dice as Joseph suggested.
In my opinion using your jobs opportunity cost to price your product will probably yield you a price that is not optimal. You could be under pricing or over pricing your product given what level you were at. I would suggest that you:
Hope this helps a bit. Selling enterprise level products usually take a lot of time and it is good that you are factoring your time costs into the equation as well.
@All Agree with most of your points. The book by Neil Davidson doesn't touch much upon pay-per-use type. If I don't have a reference point (exact competitor), is it fine to price the product thinking how much time the end-user would save using my product ?, taking into account the value of his 1 hour ?
I would offer you one more interesting book to read in regards to pricing, namely "Predictably Irrational" by Dan Airely. While the book isn't about pricing in the strictest sense, it is (a) interesting, and (b) describes a lot of facets to human behaviour that relate to pricing. Such as the power of free, anchoring a price, and usage patterns (such as gym memberships).