The Million Dollar Tattoo

Learning how to turn ideas into action

Learning How to Set Subscription Prices and Advertising Rates

Setting prices is a make or break decision for a start-up. Set the prices too high and you’ll go out of business in no time at all. Too-expensive? No thanks, you have a 100 competitors that do the same thing for less money. Set the prices too-low? Just as bad, except this time you’ll find yourself locked in a slow death-spiral as you and your competitors under-bid each other to get the customer, shaving percentages off your margin until the cost-of-goods-sold and customer acquisition render your business inoperable.

So how do you set prices accurately from the word go? This is something that I’m learning as I go – I have to, as I’m about to start selling to real customers.  You can’t go to a customer and ask them what they’d like to pay – the answer will be zero. You can do some market research and ask them to put a value on similar services, although in the times that I’ve done this the number has fluctuated greatly. I’ve done a lot of research on the net about this as well as combing numerous business books and blogs, and the best approach I have at the moment is this:

Research your competitors. (Don’t tell me you don’t have any competitors). This means going beyond just visiting their site. If you want to know how much your competitors are charging for advertising the best trick is to pose as a potential customer and actually ask them directly. I’ve done this numerous times and often you’ll receive in-depth brochures that give you valuable insight into standard pricing / service balance as well as learning how to write convincing sales copy (and sometimes you’ll learn what to avoid).

Look at the average pricing for products and services in your market. This will allow you to make an educated guess on positioning. Remember, in every market you’ll find budget, ‘vanilla’ and premium options. Often you’ll find two products / services that provide the same function yet charge vastly different prices. This is a result of product-positioning. Do you want your brand to represent the cheapest available option? The absolute best option? What do you do differently and how do you feel that affects the value of your product? These questions will help you to understand how you want to position your brand in the mind’s of consumers. A cheap Chinese car and a Bentley will both move you from A to B – but one costs 100 times more than the other. Yes, materials, cost of goods / manufacturing do play into this, but there is also the value of the brand itself. Are you the Bentley or the Great Wall of your market?

Are you managing Advertising in-house or via 3rd-party? There are benefits to both options yet they will have a large affect on the potential profit. Managing in-house provides far greater control but also requires more hands-on attention. Maybe you are happy to receive a smaller percentage in return for not having to worry about this area. Research the average CPM and CPC for the top 20 competitors in your market and price accordingly. (Of course for online business your traffic data will affect what you can actually charge).

Finally, when setting service subscription prices it’s important to understand how you present the total price to a customer. I could sell you a subscription for $520 per year, $43.50 per month or just $10 per week…

Notice that the same overall cost of the service appears to represent higher or lower value depending on how it’s presented. The absolute masters of price setting have to be restaurants and supermarkets. They’ve studied the science behind consumer behaviour and perception and boiled pricing down to some simple techniques. Here are a couple of great articles to get you going:

Tricks of the Trade

Menu Psychology


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[…] This post was mentioned on Twitter by Jacob Dawson, Jacob Dawson. Jacob Dawson said: Learning How to Set Subscription Prices and Advertising Rates: […]

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