Pricing of a feature/product


3

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..

Any help?

Pricing Features B2B

asked Feb 24 '10 at 16:56
Blank
Viv
482 points

4 Answers


3

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.

  1. The Price is Right Interview Series: John Jantsch
  2. The Price is Right Interview Series: Mark Silver
  3. The Price is Right Interview Series: Ramit Sethi
  4. The Price is Right Interview Series: Andrea J. Lee
  5. The Price is Right Interview Series: Alexis Neely
  6. The Price is Right Interview Series: Sherri Garrity
Their conclusion were that as a former employee you tend to look at how much money you used to make instead of the value of what you are creating.

I would suggest you start from another view:

  • How are you going to market?
  • How much are your customers prepared to pay?
  • Will you have a free trial or a cheap introductory price?

Also read the book Don't just roll the dice as Joseph suggested.

answered Feb 24 '10 at 18:20
Blank
Peter Olsson
400 points

3

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:

  1. Scope the market you are entering and establish what your competitors are pricing at. This usually gives you a good indication of what may be a price that customers are willing to part with.
  2. Run a trial or beta of your product at a pilot customer and use the experience to gather feedback as to what the client would most likely pay for the product if they were billed for it.
  3. Calculate your fixed and variable costs for each deployment and see where you lie in a matrix as compared to your peers.
  4. Does your product require after sales service? Is there an on going maintenance cost that the clients will have to pay? Adjust your margins throughout the entire billing life cycle.

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.

answered Feb 24 '10 at 18:52
Blank
Usman Sheikh
1,728 points
  • +1 for your list of pricing criteria and the comment about it's not really about the opportunity cost. – Jarie Bolander 10 years ago

0

@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 ?

answered Feb 25 '10 at 20:04
Blank
Viv
482 points
  • You're best off posting this as a comment on your question rather than an answer, as this post will get lost at the end. Don't forget this is Q&A not a forum. – Daemin 10 years ago
  • Thank you Daemin, I am new to this forum, will follow. – Viv 10 years ago

0

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).

answered Feb 25 '10 at 23:00
Blank
Daemin
323 points

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Pricing Features B2B