This is a guest post by Jarrod Drysdale — a web designer and bootstrapper who recently broke five figure sales for his ebook that teaches bootstrappers do-it-yourself design principles and strategies. He’s worked for startups, financial companies, movie studios, and consumer brands at agencies and as a freelancer. Here, Jarrod analyzes why his value pricing strategy earned more money with fewer sales than the pricing strategy described in last week’s post.
Sacha just wrote about his pricing strategy last week on this blog, and shared that he earned $6,663 for 1,476 sales in 48 hours. In the same amount of time, I earned $8,753 for 242 sales.
The coincidence that Sacha Greif and I both launched our design eBooks (Step By Step UI Design & Bootstrapping Design, respectively) on the same day presents a unique opportunity for a case study. We employed significantly different pricing; at launch, my book cost $39, and Sacha’s cost $3-6.
The difference in our numbers is astounding. Sacha achieved more than six times as many sales but still earned less money.
Our strategies were very different. Sacha wrote a book and priced it relative to the cost of other books, which is the strategy just about everyone follows. Instead of that, I wrote a book and priced it based on the value it provides.
Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity—supply and demand market forces. There is no scarcity for ebooks because digital files are replicated practically for free. And let’s face it: when learning about a topic, we often buy more than one book about it. I’ve heard from several customers who bought both mine and Sacha’s books. So, market forces might now matter when it comes to pricing an ebook.
Competition on price also implies that the content of your ebook doesn’t matter. Following this flawed assumption, customers would rather buy the cheapest ebook because they just want a deal and don’t care about what’s inside. This just isn’t true; tech professionals are looking to learn about design, not grab the cheapest book available. Every book contains unique ideas and benefits.
If you begin a business by thinking about price, you have already lost. Customers do not buy because of price; they buy because of the value they receive. Without value, the equation is broken.
So instead, price should be a consequence of value. When creating products, we should first focus upon the customer, what they need, and how we can provide value. Then, we should learn what our solution is worth to them and charge accordingly.
In his post, Sacha writes:
Intuitively, we tend to see prices as a consequence of a product’s inherent worth, and marketers everywhere want to keep it that way.
He’s missing the point about value. I’d argue that humans are completely unable to understand inherent worth. We understand value by context.
Indulge me for a moment: say I have two pieces of paper I’d like to sell you. Upon the first, I’ve drawn a map to where I’ve buried $1000 in cash in an empty field. Upon the second, I’ve written a recipe for chocolate chip cookies. How much would you be willing to pay for each? Which piece of paper would you pay more for?
Obviously, you’d pay anything less than $1000 for the first piece of paper because any amount less is pure profit. (Although $999 might not be worth your time if you have to dig.) For the second, you probably wouldn’t pay a dime, and I’m willing to bet it’s not because you dislike cookies.
We understand a product’s value in many ways, but none of them are intrinsic. We might see a product as valuable if it saves us thousands of dollars, or if it helps us avoid doing some task we dislike. In each case, we judge the product’s worth based upon what it gets us, but not upon what it is.
Another point implied in Sacha’s post is that lower prices always mean more sales. Put conversely, higher prices always mean fewer sales. Is this really true? Who can say? This claim is flawed because pricing isn’t the only factor that affects purchasing decisions. The decision process is incredibly complex and is different for every product and every individual customer. Customers consider many factors beyond pricing, such as: value, savings, quality, taste, and needs. Sometimes a feature makes the decision. Sometimes the style of the product doesn’t fit your taste. In his post, Sacha even mentioned an example where higher prices meant more sales, but didn’t explain why that didn’t make sense for his product. So, when considering a price for your own product, don’t assume a higher price will automatically inhibit sales.
However, even if, for the sake of argument, the converse is true—that lower prices do bring more sales—is that really an advantage? Sacha wanted a larger customer base for upsells and new products. However those customers are already primed for a specific price range. Selling a substantially higher priced product to those same people is probably unlikely. Plus, starting out with a higher price does not exclude you from making upsells and new product sales too. For example, I’ve already had several customers ask when my next ebook is coming out!
I’d argue that my lower sales count is not because of price, but just because not as many people know who I am. Although the correlation is somewhat indirect, as of this writing, I have 566 Twitter followers, and Sacha has 3,824. I had a narrower reach and a smaller starting customer base, so I made fewer sales.
If you have a narrow reach — like me — a higher price makes more sense. Higher profit offsets lower volume. Can you imagine a low profit margin at low volume? It sounds painful. Plus, if those higher profits continue at scale, that’s just damn exciting.
Sacha also writes:
…thanks to the App Store, people are now used to paying out small, “less-than-a-coffee-at-Starbucks‚” amounts. But I also knew anything over $10 would trigger different psychological mechanisms.
He implies that the psychological effect of passing the $10 threshold is negative. I’d argue that a higher price filters your customer base down to the serious ones—the customers who become fans and evangelists. The people who really value what you have to say, and will tell other people about it. I’d much rather have one such customer who I found by charging $39 than 13 less enthusiastic customers who feel my product is as disposable as a cup of over-roasted coffee. That one customer will do much more to help build my new business.
Also, do you really want a business that is subject to “impulse buys?” I’d rather have a business where I understand why customers purchase. My ebook is for professionals who are serious about what they do. They understand the value I offer, and they have money to pay for it. Impulse has nothing to do with it.
Why can I sell an ebook for $39? Because I’m not selling an ebook—I’m providing a valuable solution to a difficult problem.
$39 might seem like a lot when you compare my ebook to others. But those other ebooks have nothing to do with the problem mine solves. The comparison is irrelevant. Bootstrapping Design teaches startup founders DIY design—it’s an alternative to hiring a designer or buying templates, logos, and other stock design. On the website, I compare spending thousands of dollars and hiring a designer to buying an ebook. If the ebook really delivers on that value, what should the price be? Any product that saves you hundreds or thousands of dollars is easily worth a $39 price tag. The price is a no-brainer because my ebook kills a lot of painful problems and can drive a wide margin of savings. Saving money is saving money—it doesn’t matter if there is an unrelated product out there that costs less.
I learned almost everything I know about pricing from Amy Hoy while taking her 30×500 launch class. In an excellent blog post about low prices that I have reread many times, she writes:
Charge a higher price, earn more from fewer customers, and serve those few customers better with your limited resources (e.g. your time). Go for the margins, don’t go for broke.
Be like Apple: with 4% of the mobile phone market, they have nearly 50% of all profits.
That’s a great place to be.
(Since Amy’s post, Apple’s numbers have increased to 75% of profits with 9% market share, which only further supports her point.)
Higher profits do let you serve your customers better. Just ask mine. I have time to respond to emails from every single customer personally and give design advice freely. The reply-to header on my email newsletter goes straight to my personal inbox.
I have to make a lot fewer sales to earn the same amount of money as Sacha. I’ve learned that the value my eBook provides is worth that price to plenty of people, and 242 is just a tiny fraction of my audience. 2500 people are subscribed to said email newsletter, and even that is still just a tiny fraction of the audience.
With these numbers, I can’t afford to compete on price. The feedback so far is resoundingly positive—my customers are happy with the value they get from my ebook.
The price? Well, hardly anyone has mentioned it.
For further learning about pricing, read these books:
Priceless: The Myth of Fair Value (and How to Take Advantage of It)
83 responses to “Perfect Pricing Part Deux — More money from fewer sales”
Great insights on a topic I’ve been thinking about a lot recently! Thanks!
Amen. Don’t undervalue what you offer.
I would think that a large part of writing an ebook like these is not the money, but getting your name out there and getting people to read what you have to say. In that sense, and specifically for this product medium, it actually seems to me that the lower price / higher volume is the way to go. The ebook play seems to me like a means to an end (not necessarily just up-sells). You’re not going to retire anytime soon on an ebook, so why would revenue be your primary motivator?
I agree a primary goal for writing an ebook is to get your name out there, not just making money. That is definitely true for me too. However, I’m not convinced a higher price necessarily limits sales volume. I think it is natural to assume this, but there’s no absolute evidence I have seen.
If the goal is to gather an audience, why not give it away for free? You’ll indisputably get more readers that way. But will they be as high quality? Maybe you want to charge for it because it’ll attract a smaller but better crowd. Then you have to ask if the betterness achieved by $3-6 is sufficient to offset the loss of the sheer amount of exposure you’d get if it’s free.
There’s nothing wrong with going for exposure, but it’s still a good idea to rationally consider your price (or lack thereof).
The idea of fewer, more passionate customers seems like the real key here. Thanks for sharing!
I’d rather keep my many, just-as-passionate customers, thanks :)
Great tips especially that this article contrasts with the previous post which is contrary but also good. My take is that it’s always a balance, price your book at $500 and no one will buy, price it at $1 and few will think it has value. Thank you for tickling our brains. Cheers.
Thanks Jason for the opportunity to write this post. I think it’s a really interesting comparison and I’m looking forward to the discussion.
This is a great article that brings a very interesting perspective to the table. But I disagree with the way you framed the issue. It’s not a question of who’s wrong and who’s right, both pricing strategies are valid and have their place.
The bottom line is that I do want to build a big following, and that’s why I’m active on Hacker News and my blog and write guest posts for other sites as well. For this goal, I think my low price strategy made more sense. I’m not that worried about money, so I’d much rather reach more people and earn less.
I also felt there were some slight moments of intellectual dishonesty in your post. For example, Apple actually charges much lower prices than its competition for better products, at least as far as the iPhone and iPad is concerned.
And don’t get me started on Amy Hoy… If I ever cross the line into constantly self-promoting marketer-type territory, please beat me over the head with my own MacBook Pro.
(I know I’m in dangerous waters already, since I’m also using Unicorns to promote my stuff…)
“Competition on price also implies that the content of your ebook doesn’t matter.”
Where does that come from? Just because you say it doesn’t make it true. One look at the AppStore will show you tons of GREAT games (Cut the Rope, Angry Birds, Tiny Wings, etc.) competing on price and being hugely successful (and with very passionate fans).
The more I think about it, the more I think you would’ve been better off focusing on the economical side of things instead of justifying your points with vague assumptions like these.
Value is very different for entertainment consumer products. Our ebooks are for a professional, business, non-consumer audience. This audience isn’t buying for a quick laugh. They want to learn something and have a real need, so the value attached carries more weight than with consumer products.
Thanks for weighing in. You’re a talented designer and I really respect your opinion.
You’re pointing at the hits — which are rare, and celebrated — and not considering all the people who had to stop developing for the App Store because they couldn’t make enough off the few sales they got.
But, as Jarrod says, there’s a huge difference between pricing an educational product for pros with double digit hourly rates, and a game to play when you’re waiting in line at the post office.
I pointed out the hits as an example that low price does not imply low value at all. I’d say Apple is a good example of that, actually: they have the cheapest products (relative to their actual capabilities), but also the best.
And I could say the same thing to you: you’re celebrating high-priced products, but not considering all the people who are applying your strategy but are not successful. So it goes both way.
What’s more, I didn’t write this eBook for professional designers or entrepreneurs with double digit hourly rates. I wrote it for people who have a passing interest in design but who’d like to know more, and for the people bootstrapping their startup who might not have the cash to sign up for a $3000 workshop or even buy a $40 eBook.
“The bottom line is that I do want to build a big following, and that’s why I’m active on Hacker News and my blog and write guest posts for other sites as well. ”
“And don’t get me started on Amy Hoy… If I ever cross the line into constantly self-promoting marketer-type territory, please beat me over the head with my own MacBook Pro.”
What’s that you say? ;)
As for your pricing strategy: you’re writing back as if you’ve been attacked. You haven’t. Your pricing strategy is being second-guessed, which you have to expect when you call it “perfect.”
Your pricing strategy is a classic one, called penetration pricing. There’s nothing wrong with it, except that research has shown it practically never works. If you care, I think you’d really enjoy the book Pricing with Confidence. It’s written for executives with bigger companies, but it’s packed end to end with actual research.
Even consumer goods companies are leaving behind penetration pricing, and doing VERY well by it:
Sorry for the personal attack, it’s just that I have an allergic reaction to long sales letter pages like your 30×500 page (no matter how effective that format might be, I still hate it personally).
And I did feel like I was being attacked. My name is mentioned 13 times in the article, so at some point I started feeling like I was the one under scrutiny instead of my pricing strategy.
Now I want to make it clear that I can take the punch, and I harbor no hard feelings toward Jarrod. But on the other hand, I won’t hold back either :)
Jarrod used your name to reference your ideas and what you wrote, what you claimed, your arguments. You attempted to smear my person.
Don’t you see a difference here?
I did use your name to personify that pricing strategy. Sorry if you felt attacked!
I’m the one who wrote it, so feel free to aim your punches at me. :)
wow that article is so self-absorbed and the tone is so lame that I almost regret buying your book.
Why you guys even feel the need to compare each books pricing?
sounds envious & lame. I’m working in the industry and I can tell you I won’t buy the book nor preach it to anyone.
Because by chance both books were released on the same day, delivered in the same way, and in the same genre.
Therefore it was an (accidental) rare experiment, and interesting to see the pros and cons of both techniques in the presence of real data.
+1 for the field and the date. still.
jarod says: ” Value is very different for entertainment consumer products. Our ebooks are for a professional, business, non-consumer audience. This audience isn’t buying for a quick laugh.”
bottom line: they serve different purpose.
Knowing that, why making such deep pricing comparison between a *professional* & an *entertaining* book?
You misunderstood my comment. Just to clarify: both mine and Sacha’s books serve a similar purpose for professionals. I was addressing Sacha’s analogy of iOS games, which are consumer products. For consumer products like those, value is a completely different thing.
Based on this article, and the comment here by Sacha, I think both pricing models are acceptable when chosen for the right conditions.
As well, I think one important aspect of the two opposing pricing models was left out in this particular case. Sacha’s book, at 6-12 bucks, as far as I can tell, is almost equivalent in length and depth to an extensive tutorial on NetTuts. So, a low price seems more appealing to the customer, and (though I don’t think he had this in mind while pricing) is more fitting to the intricacy of the product. Your book on the other hand appears to be lengthier and provides the reader with more of an insightful lesson, than a step by step tutorial. (I didn’t read either book. Please take my last two sentences with a grain of salt).
Simply, each book is a different level of product, which is reflected by the price, as accurately as possible.
I did have this in mind, I set out from the start to write an eBook that could be read in one 15-minute sitting, and I priced it accordingly.
Of course if I had written a 130 page book like Jarrod’s I wouldn’t sell it for $3, I’m not crazy. So I feel this whole argument is a little pointless…
My comment wasn’t meant to argue that your method was wrong. I just wanted to point out that your book was priced according to what it provides, and Jarod’s price reflects what his book provides. He didn’t mention that in this article, so I hoped to shed light on it in my comment.
I actually agree with you, sorry if it didn’t come across this way :)
Great post! Too many people/companies/etc sell themselves short in the rush to get big. We have taken a similar approach in our business and have really focused on delivering a high level of value and service to each of our customers.
This in turn, has helped us continue to grow and still keep costs in check.
P.S. and for those wondering, Jarrod’s book is fabulous as well.
Both Jarrod and Sacha had interesting & relevant pricing tactics — however, I’d caution anyone from trying to pull out an over-arching pricing strategy out of these two blog posts that works in all contexts.
(My sense is that Jason feels similarly about this & this is why he has highlighted both approaches.)
Pricing, especially online, is both science & dark art. An example of the former would be backing into price elasticity via sales at different price points. The dark side of pricing is really the most fun — it is understanding the context of the segment(s) you are targeting and channeling that knowledge into all sorts of behavioral economics “tricks” to help with conversion of us, mostly non-rational, humans.
Segmentation and its power almost cannot be understated when pricing a product. My friend Rags at Iterative Path has been beating this drum for a long time. http://iterativepath.wordpress.com/ <— read anything he has written on this subject.
For example, while, yes, general demand curve slopes down to the right, I have seen products priced so low that it insults their potential customers i.e. were the product managers to raise the price 10x, and the price of the product were in the same general ball-park of the the customer's budgets, sales would increase.
For my favorite way to segment markets when doing something innovative i.e. startups — see Christensen's Milkshake Marketing & "Jobs to Be Done" Model , in a word: puregold. http://hbswk.hbs.edu/item/6496.html
Can’t believe nobody thanked you yet for the link to the milkshake essay. I love the “jobs to be done” lens for figuring out what products to build, and tho I don’t name it explicitly (found out about it well after I started), it’s the way I teach my product class.
I also found Rags’ blog lately and bookmarked the shit out of it. :)
Glad you like it!
Patrick, thanks for the links, I enjoyed Clayton’s speech on youtube and the article is very interesting.
Question for both Jarrod and Sacha — why did you two orient your ebooks vertically i.e. portrait? Why not opt for landscape orientation?
Also, the best $60 you can spend on pricing books is The Strategy and Tactics of Pricing– http://amzn.com/0136106811
Great recommendation Patrick, got it from Hiten Shah as well, reading since the seedcamp us-trip and it is awesome!
I am shocked – but not surprised – at the polarized nature of some of the comments. Frankly, it hearkens to folks who swear “Linux is the ONLY operating system” or “Apple is the reason no other mobile phone manufacturer will exist in 2 years.”
Rubbish and rhetoric.
Both strategies have their pros and cons. A few commenters seem to get it; frankly, neither strategy is perfect. Such is the nature of pricing and marketing. If there was a one-size-fits-all correct pricing strategy, we’d either be paying $750 for bags at Target or Balenciaga would be available at Wal-Mart, and appropriately priced.
Sometimes it makes sense to price low to sell lots. Sometimes it makes sense to go for the higher-price differentiation. Sometimes its based on hard facts; in the examples, page count comes to mind. Sometimes it is about image – which the examples, this plays a role as well.
But to cast either as more correct than the other is specious. One can only be more correct than another given a certain goal. If gross dollars/profits during the intro period is the goal, Jarrod wins. If gross units delivered, than Sacha.
What can we learn? To correctly identify goals and strategies, be willing to pivot, and be sure not to be emotionally attached. *That’s* what I get from this.
I agree. Still, it *is* useful to see the specific arguments for each so you can better decide which are applicable in your particular situation. And it can be briefer and more powerful to take an extreme stance to communicate those options.
…and certainly makes for more interesting reading!
Interesting comparison but surprisingly shallow discussion. Surely the relevant data point is the one that’s not been mentioned – revenue per visitor (i.e. weighted conversion rate). Similar product, to a similar audience, in a similar time frame is all very interesting, but if we’re talking about optimal pricing then no mention of traffic & conversion rate makes the comparison kind of moot.
To me it’s more relevant to know what the conversion % was like, as that speaks more to which pricing strategy is going to be more profitable in the long run. For instance, Jarrod made more money, but if he also attracted more visitors (through additional unknown variables) he may have a lower revenue per visitor. Or it could be the opposite. It would be good to know. Also, what’s with all the pricing ideology that’s creeping in here? There’s nothing wrong with doing volume if that’s what one of your goals is — we’re talking about ebooks, not complex software that requires mountains of support. And for writers, getting read is often (but not always) quite important.
Absolutely spot on Luke!
Jason – I end up feeling just a little bit smarter after reading almost all of your blog posts. These last two guest posts not so much – all fluff and thinly disguised self promotion. Just like the majority of the e-book industry IMHO.
Your candor is very much appreciated!
Thanks for sharing your results. It’s great to see real examples of two very different pricing strategies.
After comparing your book to hiring a designer that costs hundreds to thousands of dollars, how do you arrive at the price of $39?
My point is that while you didn’t price your book based on the low priced competition, you didn’t price it in a vacuum either. There are plenty of ebooks priced around $39 and more, signalling premium content.
Did you look at those other high priced ebooks and consciously try to place yours in the same class of products?
I’ve been considering to price a beginners robotics/electronics product that would retail around $20 – then found out that most of that industry goes for the $100 range. So I am “adding features” to get there. Those features are not really essential, but the price point for this market is $100, and $20 would look strange – people would not trust a product so inexpensive – too hard to explain it does the job just fine.
thanks for your reflection, helps me sort out my ideas
Wow! so us types supporting Free Software will never make it…
Hmm, y’all use WordPress and not some expensive M$ or Apple product, so I guess it all depends, right? :-)
It’s a very interesting view on pricing tactics and a good book recommendations.
This is very interesting. I think this one is a great idea. No matter how much is it, if more people approves its content then the price would become reasonable. It’s true that the strategy used is good as well.
post. thanks for this enjoyable post. Very helpful also. keep posting.
Great post. I agree with your pricing strategy and the reason behind it. If you are producing high quality content then selling it for higher price is justified. Just because everyone sells their content cheap/free doesn’t mean we have to do the same.
Great article no doubt! Surely this info will help the people. Thanks a lot for sharing your article.
Thank you for sharing this very nice articles, it is open my mind about the discussed topic, thank you again :)
Aaaahhhh, the subject of what is the best price raises it’s ugly head once more. Price low–get more penetration…Price high–get more qualified buyers. Seems to me that anyone with the money to pay your price is qualified thus the need for testing, errrr… I digress. I mean segmentation. :) Here’s my two cents worth if anyone is interested: Ignore your cost when setting your initial price (test). Shoot from the hip and see what it pulls. Adjust upwards/downwards and test again. Rinse…repeat..rinse… repeat…you get it. Too much work? Maybe. Worth it? Probably! Since the bulk of these comments along with the post occurred more than a month ago, I’m curious to hear how sales are trending now?
Don’t go for broke is the right word there man. I’d prefer to charge high, satisfy few customers than have lotta unsatisfied customers. No matter how simple a blue print is, some clients still needs some heads-up which you might not be able to provide if the customers are too much.
On that note. Check it out!
Thats my book. check it out if you want!
Interesting articles, interesting comments…. But all based on just 48 hours of sales. Is there a follow up to this?
As a guy who just doubled his prices, this is helpful to read. I have one question though – if you’re really providing as much value as hiring a designer for thousands of dollars, why not price your ebook much higher? Is there still a psychological “ceiling” to the amount people are willing to pay for an ebook? Would a $350 ebook be offensive?