Proper price points + comp schedule, etc..

K

Kiopa_Matt

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May 13, 2011
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Say you have a product, and a pretty good idea of what the market will bare to pay for it. How do you price it though? Not just the product itself, but everything that goes into it.

For one, people like discounts, and are far more likely to buy if they have a coupon code. So your public price isn't the actual price, but an inflated one. The discounted price is the real price.

Plus then you have affiliates to pay, and maybe a sales manager or two to pay. Maybe that sales manager brings on an affiliate, who makes a sale, then you have to compensate both. Maybe that sales manager brings on a distributor who just starts driving the sales. Plus you have to give room for your sales manager(s) and affiliates to work with, so they can bring in the sales. They need the ability to move the price point as needed depending on the client, so you need to give them some moving room. And the list is somewhat endless... Then of course, expenditures -- support, infrastructure, etc.

I don't know. Anyone know of any good articles out there that give guidance for determining price point + compensation schedules, etc.? Or as always, am I left up to my own devices?
 


It depends on the item and the cost of the item. My rule of thumb for items under $100 is 3 to 5 (or more)times the cost is the selling price (the more competitive the market the lower the selling price) and over $100 is 1.5 to double costs. These are real general rules of thumb and as you know there is way more to it but a good starting point. Some products lend themselves to higher markups than others.

Edit. If your not doubling at minimum it may not be worth it and you wont have much wiggle room (unless huge volumes then a 10% markup may be sufficient)
 
BigWill said:
math usually works
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Well, no shit sherlock. I know you're filthy rich and all, but nonetheless...

There's gotta be some formulas / methodologies that have been tried, tested, and proven to work for this type of thing. Right now, I'm basically just pulling numbers out of my ass that look good on paper, but there's gotta be a better way than this, or at least some decent guidelines to follow, instead of me going through the next 12 months with trial & error, trying to find the perfect balance.
 
Kiopa_Matt said:
Well, no shit sherlock. I know you're filthy rich and all, but nonetheless...

There's gotta be some formulas / methodologies that have been tried, tested, and proven to work for this type of thing. Right now, I'm basically just pulling numbers out of my ass that look good on paper, but there's gotta be a better way than this, or at least some decent guidelines to follow, instead of me going through the next 12 months with trial & error, trying to find the perfect balance.
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I pretty much laid the formula out for you. But to tailor it further we are going to need more info. Specifically price your thinking of selling for, your cost? Is it a difficult product for your competitors to sell, are there a lot of people in the specific niche? There are so many variables its really hard to say. You need to figure out your true costs after all expenses then you can determine your price from there.

Without more info I am confident that my prior post will more than likely cover most situations (millions of dollars of sold products tells me it works) unless your in some strange niche w/ an extremely rare product or if your in a real high dollar niche (like over a $1000) where percentages come into play more so than a simple 2 to 5 times formula for most consumer items.
 
you talkin physical products or digital? subscription or one time sale? lots of variables as it stands bro.

If it's subscription pricing, I can lecture for days on pricing and costs...
 
dchuk said:
you talkin physical products or digital? subscription or one time sale? lots of variables as it stands bro.
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Digital, and there'll be a choice, one-time fee or monthly. Here's what I'm thinking right now:

Lifetime License: $599.95, incl. 2 years support, $79.95/year afterwards.
Monthly License: $65 setup + $34.95/month

Sales Managers: 15% commission + base salary
Affiliates: $200/sale on lifetime, $40 + $8/month for monthly license

Affiliates can generate their own coupon codes, and the discounts come out of their commission. For example, they give $80 off, they get $120 in commission. Sales managers get more leeway, and can give discounts up to 40%, but will retain the 15% commission. No commissions are paid on the $79.95/year annual support on lifetime licenses.

On top of this, I have distributors. They purchase 10 licenses upfront at a discounted price of $300/license, and from there on in, get $250/license. With distributors every situation is different though, and contract is custom catered to the specific relationship. Sales managers and affiliates will each get 15% commission for any distributors they bring in. No discounts available to be given on distributors, unless I authorize it.

My total base expenditures (not incl. commission) will be $3348/month.

As for competition, I only really have one, but not worried about them in the slightest. My average customer would have to spend $1200/year with them, and get less functionality. Their marketing and branding is far better than mine, but that's changing as we speak.

So considering all that, does that sound decent? I'm just a bit nervous, because I can't go around changing the prices all the time, and I just pulled these numbers out of my ass. There's no actual methodology or research used to come to them. And just because things are going really well right now, doesn't necessarily mean I'm doing them right. Or maybe I do know what I'm doing, and just lack the confidence to trust myself.

I don't know, just pulling numbers out of thin air and saying, "yeah, that looks good!", with nothing to back them up, just doesn't seem right. There has to be some type of methodologies / formulas that are proven to work well, to get the highest volume of customers at the highest price, keep the affiliates happy & energized, keep the sales managers motivated, etc.

PS. Little hesitant to post all this, but I figure there's a small chance I may get some excellent advice, so it's worth it.
 
Something to consider is whether you want affiliates competing on price with their own coupon codes, seems to me like it'd be a race to the bottom.
 
Kiopa_Matt said:
Digital, and there'll be a choice, one-time fee or monthly. Here's what I'm thinking right now:

Lifetime License: $599.95, incl. 2 years support, $79.95/year afterwards.
Monthly License: $65 setup + $34.95/month

Sales Managers: 15% commission + base salary
Affiliates: $200/sale on lifetime, $40 + $8/month for monthly license

Affiliates can generate their own coupon codes, and the discounts come out of their commission. For example, they give $80 off, they get $120 in commission. Sales managers get more leeway, and can give discounts up to 40%, but will retain the 15% commission. No commissions are paid on the $79.95/year annual support on lifetime licenses.

On top of this, I have distributors. They purchase 10 licenses upfront at a discounted price of $300/license, and from there on in, get $250/license. With distributors every situation is different though, and contract is custom catered to the specific relationship. Sales managers and affiliates will each get 15% commission for any distributors they bring in. No discounts available to be given on distributors, unless I authorize it.

My total base expenditures (not incl. commission) will be $3348/month.

As for competition, I only really have one, but not worried about them in the slightest. My average customer would have to spend $1200/year with them, and get less functionality. Their marketing and branding is far better than mine, but that's changing as we speak.

So considering all that, does that sound decent? I'm just a bit nervous, because I can't go around changing the prices all the time, and I just pulled these numbers out of my ass. There's no actual methodology or research used to come to them. And just because things are going really well right now, doesn't necessarily mean I'm doing them right. Or maybe I do know what I'm doing, and just lack the confidence to trust myself.

I don't know, just pulling numbers out of thin air and saying, "yeah, that looks good!", with nothing to back them up, just doesn't seem right. There has to be some type of methodologies / formulas that are proven to work well, to get the highest volume of customers at the highest price, keep the affiliates happy & energized, keep the sales managers motivated, etc.

PS. Little hesitant to post all this, but I figure there's a small chance I may get some excellent advice, so it's worth it.
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Have you ever heard the story of the young bull and the old bull? These 2 bulls are standing at the top of a hill looking down on a field full of cows. The young bull looks down and says lets run down and fuck one of them cows. Then the old bull looks down and says no lets walk down and fuck em all.

It seems like your pricing program is setup to be the young bull. If you add in the monthly rebill you can fuck em all! $49.99 a month FTW with the option to buy the discounted annual product.

Im sure your thinking "I cant do that people will cancel after the first month" (and they will), but you will make it up in volume and people are still going to cancel the $600 product so get used to it. Also keep in mind that sales people really hate giving up their share to discount a product to the real price.

There is a reason the insurance companies have been around longer than just about any other company, they invented the Rebill.

I know you think you have the latest and greatest product but in a month, or 6 months, or maybe even a year, someone is going to come along with something that's cheaper and better. If you want to still be in business 5 years down the road the only way your going to be able to survive at that point is with your regular monthly customers that don't even remember that they are paying you that $49.99 (or whatever the $amount is) every single month. Very few people are going to pay you that $80 for support, and if your product is that difficult to use where they need to pay for that support every year they probably wont be customers for long.

Your offering a product that a very limited number of people are going to purchase. How are you going to get money from them 3 or 4 years down the road? Just fuck them and discontinue the old product and force them into the new one? How many will upgrade? 10%? How are you going to pay to develop this new product 3 years from today?


I am sure your going to disregard this post and do it your way so I wish you the best of luck.
 
its like the shark tank tv show, they usually won't touch a product if it can't hit market price with a 5x markup. Not that all industries are like that, but its a good example.
 
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