Charging Money.

Today we’re talking about starting to charge your customers money.

1. A common pitfall for most founders is undercharging over fear of rejection. Trust me, you’re going to get plenty of noes anyway, so it’s best not to price as a budget service.

2. Don’t worry about setting too high a price. The “wince” test solves your problem. Where if a customer balks at your price, you simply negotiate down. It works surprisingly well.

3. I recommend segmenting your first customers into 5 groups. For enterprise tools, a group might be just 1 customer. For consumer apps, it might be 100 customers. Let the first customer group use the product for free, we just want feedback. For Group 2, set a nominal fee, say $1, to test the purchasing process. Then for the remaining groups, 3 through 5, escalate the price significantly each time and use the wince test when a customer pushes back.

Best of luck out there.

Today we’re talking about the dangers of undercharging for your product.

1. Almost everybody undercharges for their product, including you. In fact, when Marc Andreessen was asked what advice he would put on a billboard, he said, “Raise Prices”.

2. There’s a myth that having a low price or offering a steep discount will automatically help you close a sale. That’s not the case. Looking at our own buying behaviors — don’t we often splurge on premium products? Price isn’t always the main factor for a purchase.

3. Setting low prices gives you less margin for error. Early on, you need that financial buffer to account for unforeseen costs, refunds, or other mistakes. A higher price provides that wiggle room

4. Lastly, a lower price means you’ll need to ramp up your distribution efforts. As you’re making less money per customer, you will need a higher sales volume to generate the same revenue.

Best of luck out there.

Today we’re talking about the wince test, which is a really helpful pricing tactic in B2B sales.

1. Do not worry about setting a high price. Nobody will be so offended by your price that they won’t speak to you again. Most of the time, they actually reveal their budget.

2. Confidently set a high initial price. If the customer pushes back — that is, they “wince” at your price — be ready to negotiate down to the maximum price they’re willing to accept.

3. Once you’ve done this with 5–10 customers, you’ll notice them clustering around a price, and that’s likely to be a fair estimate of the right price for your product. Don’t be surprised if it’s much higher than you expected.

Best of luck out there.

Today, we’re talking about a simple, 5 step process you can use to find the right price for your product.

1. We begin by splitting your future customers into even groups. For an enterprise service, a group might be 1 customer, for a consumer apps it might be 100. And the first group will get the product for free for up to 6 months, maybe even 1 year. This is because, at first, we need feedback before we can start charging money.

2. Moving on to the 2nd customer group, we begin to charge a nominal fee. Any amount, even $1 is fine, but the price should be instantly approved by the customer, otherwise, it’s too high. This step gives us important insights into the sales process: How do our customers like to pay? How long does it take? Do they need approval from others?

3. Once we reach the 3rd group, we start to charge whatever you, the founder, deem is a “fair” price for your product. Most founders severely undercharge for their product, so please go as high as you can here.

4. As we progress to Group 4, we adopt a more aggressive approach. Now, you triple the price established for Group 3. Yes, triple — that’s 3x the previous amount. Do not worry about this being a “high price”, as this sets up the wince test we discussed previously, and you can always negotiate down if needed.

5. With Group 5, we maintain the momentum and triple the price set for Group 4. While this might initially seem like the price is rising too fast, remember you’re still willing to negotiate down. As you implement this strategy with several customers, you will notice the final prices begin to cluster, and that cluster is a good estimate of the true “fair” price for your product

Best of luck out there.