Pricing digital goods

Pricing a digital product is harder than pricing a service, because there is no cost to anchor to. The next copy costs nothing, so any price is defensible and none is obvious.

Cost-plus does not apply. What applies is the value to the buyer, which is set by what the problem costs them, and the price is a position you choose inside that.

Price signals what it is

Price is read as information before it is read as cost. The same material at three prices becomes three different products in the buyer's head.

• Very cheap reads as a sample. Expect little engagement, little feedback, and support requests from people who never opened it.
• Mid priced reads as a serious tool for somebody doing this properly. Usually where a focused product belongs.
• Expensive reads as a commitment, and brings scrutiny with it. Buyers at this level expect access, updates and answers, so the price has to cover that.

The common error is pricing low to be kind, which produces buyers who do not finish, do not succeed, and therefore never tell anyone it worked. Cheap is not generous if it means nobody gets the result.

Finding the number

1. 01Estimate what the problem costs the buyer: hours, money, or a decision they keep putting off.
2. 02Look at what the alternatives cost, including hiring someone and including doing nothing.
3. 03Pick a single number inside that range that you can say out loud without flinching but not comfortably.
4. 04Hold it for a cohort of buyers, then move it deliberately. Changing price every week teaches you nothing.

The arithmetic, worked

Illustrative throughout, with the pricing sheet product from the scoping article. The buyer is a freelancer who has never written one.

What the problem costs them. Writing it themselves is perhaps twelve hours of evenings, and at a charge-out rate of 40 an hour that is 480 of time they could have billed. That is the floor of the value, and it ignores the larger cost: continuing to quote too low on every job until they fix it.

What the alternatives cost. An accountant or a consultant who does this for them, perhaps 500 to 1500 for a few hours of work. A free template found online, which costs nothing and produces a sheet with their current wrong numbers in it. Doing nothing, which costs them the under-quoting indefinitely.

That gives a range with a free option at the bottom and a consultant near the top. A product that does most of the consultant's job belongs well above the templates and well below the consultant: somewhere around 90 to 150 in this example. Pricing it at 19 does not make it a bargain, it moves it into the category of the free templates and invites the comparison you lose.

Then the last step, which no arithmetic produces. Say the number out loud as if to a buyer. If it is comfortable, it is too low; you are pricing for your own reassurance rather than for the value. If you cannot say it without an explanation attached, it is too high for now.

Tiers, discounts and launch pricing

• Do not build three tiers before you have sold one thing. You will be guessing three times instead of once, and the page becomes harder to read.
• If you do add a tier later, make the difference access to you rather than more material. More material is a worse product; a critique is genuinely more valuable.
• Launch pricing is honest if it is real: a lower price for the first buyers because the product is new and they are taking a risk. Say that, and then actually raise it.
• A permanent discount is not a discount, it is your price with a decoration. Buyers work this out quickly.

On raising the price later: do it at a version, not at random. A better product at a higher number, announced with what changed, is a reason. The same product at a higher number because sales were slow is a reason too, and the reason is visible from outside.