This is a guest post by Nathan Barry, in response to two other posts that previously appeared on this blog.
Nathan is the author of Designing Web Applications, The App Design Handbook, and Authority: A Step-By-Step Guide to Self-Publishing. His most recent company, ConvertKit, makes email marketing suck less.
How you price a product can have a radical impact on the revenue you make from it. My search for the perfect pricing model resulted in an additional $50,000 (a 170% increase) in revenue. Here’s how.
In March 2012 two designers, Sacha Greif and Jarrod Drysdale both released design ebooks on the same day (purely by chance). Sacha’s was a short step-by-step guide he was selling for $3 and $6 (he later doubled those prices) and Jarrod’s is a full-length book he is still selling for $39.
Because of their different pricing approaches Jason Cohen invited them to each write posts explaining their pricing strategies. Jarrod and Sacha each made their case for why their method was better and let the readers decide:
Reading those two posts is actually what inspired me to buckle down and finish my own design ebook. I’d heard about other successful self-publishing endeavors, but they had always been from popular bloggers who were achieving millions in sales. These were numbers I couldn’t relate to.
So, Sacha and Jarrod, thank you so much for sharing your story and your numbers. But I think both of you are wrong when it comes to pricing.
My approach actually uses a combination of both of their methods to create what I consider to be perfect pricing.
The first lesson, that I think Jarrod got right, is to price high. If you are trying to maximize revenue from a small audience, you need to get the most possible out of each customer, even if that means losing sales. When I consider the price on one of my iPhone applications, I always ask myself, “If I were to double the price (from $0.99 to $1.99), would I lose more than half the sales?”
If the answer is no, then I double the price. Fewer customers can often be a good thing, especially when it comes to fewer support requests. Also, a higher price tends to attract a higher quality customer.
Jarrod’s price of $39 fit perfectly for his content. I actually used that as a starting point for the price on my first book, The App Design Handbook.
While Sacha left a lot of money on the table with his low price, he did get one very important thing right: multiple packages. Sacha offered just the book for $3 or the book + PSD files for $6. I remember reading through Hacker News comments from the launch announcement from people who loved that. They were thinking that $3 was an impulse buy, and as soon as they had their credit card out there was no reason to not increase to the $6 package. After all, it was such a small difference.
That small difference to the customer makes a huge difference to the seller over the total revenue. By adding the second package Sacha made an additional $2,235.
My approach was to start with a reasonably high price of $39. After all, this is content (design tutorials) that my readers will use to learn valuable skills that can help them charge more for their time and products.
But then I added additional packages at higher price points, each one with more content and resources. This included sample code, Photoshop files, video tutorials, and other content.
The middle package was priced at $79 and the highest package at $169. At the very least these packages make $39 seem inexpensive. People will always compare to something else, so you want to control what that comparison is made against. After all, the last thing you want is a potential customer comparing your valuable content to the average $9 ebook. Instead, getting the visitor to compare between versions of your own product makes them more likely to purchase.
Here is how the sales broke down for each package over the first 48 hours:
Note: those numbers don’t quite add up because I had sale prices (about 20% off) running for most of that time. The sale prices were ($29, $69, and $129). It doesn’t change the point of the story, but it makes the math confusing.
The 48-hour sales total was $19,547 from 322 sales.
As you can see, I handily beat both Jarrod ($8,753) and Sacha’s ($6,663) 48-hour totals. All while making fewer sales from a smaller audience.
For Designing Web Applications, my next book, I wanted to see if I could make additional changes to further perfect my pricing model. So I consulted Patrick McKenzie. Can you guess what he said?
That’s right. Patrick told me what he tells everyone selling a product online. If you are selling to businesses and people will make money off of what they learn from you, charge based on that.
Based on his advice I set the prices for my new book at $39 (unchanged), $99, and $249. All still had a 25% discount for the first day. The results? A huge increase in revenue.
Over the 48-hour launch period, Designing Web Applications sold 404 units for $34,605 in total revenue. Sales were up 25% from the previous book (a result of more traffic and a better launch), but revenue was up 77%. Clearly the increased prices didn’t affect sales.
The change that I believe had an even bigger impact on revenue was how I positioned the sales packages for Designing Web Applications. The most common practice is to start with the lowest offering, then show the visitor more expensive options later.
I did this for The App Design Handbook. The packages were listed vertically, least expensive to most expensive. I added more color to the middle package in an attempt to push purchases that direction.
Sales percentages per package for The App Design Handbook were as follows:
What if we flipped that entirely? Instead of selling the book as the primary purchase, I said the complete package should be the default.
For Designing Web Applications I gave it a try. The packages started out with the $250 complete package, listed as the default purchase. Then if you continued down the page the middle package would be listed, followed by just the book at the end.
Based on comments I received the message was clear: the complete package is the product. But if that is too expensive, you may consider the middle package. If that is still too much for you, pick up just the book at a very affordable price.
Here’s the breakdown by package for Designing Web Applications:
Sales of just the book stayed fairly constant, but purchases of the middle package decreased, and purchases of the highest package increased. Keep in mind that I made an extra $150 from every customer I convinced to move from the middle package to the highest.
It’s important to point out that by offering multiple packages you aren’t excluding customers. Had I just raised the price of every package, that would have excluded plenty of people who weren’t willing or able to pay more than $39 for the book. But by leaving that package alone and just adding more prices for those who can pay more, there is something for everyone.
That said, when I flipped the package order and put the most expensive first I think I did lose out on some sales. Visitors from sites like Hacker News reported scrolling down till they saw a price, then leaving because it was too high for them, never reading on to find the smaller (cheaper) packages further down the page.
If it only happens to a few visitors, this is an acceptable tradeoff. If they didn’t even go through the package contents in detail, they probably didn’t have plans to purchase in the first place. But on your sales pages you may want to experiment with design methods to let the visitor know there are other, less expensive options.
I estimate that I have made an extra $76,000 (over 2x) over what I would have made from both my books in less than a year with the methods outlined above. So Jarrod is right that you should use a higher price to drive more revenue and Sacha is right to have multiple packages. By combining those two lessons you can radically increase your profit.