Recently, a startup founder approached me asking for help in setting the price for his product. The thing is, many IT products are introduced to the market for the first time, especially by startups, and sometimes the founders themselves are lost and don’t know what price to offer to their first customers. The cost of such a product can vary. For example, the development of software may cost nothing to the developer who wrote it in their spare time, in the evenings and on weekends.

To solve this problem, I suggested that the startup founders answer two questions for themselves:

  1. What value does the product provide to the customer?

I mean tangible value. That is, one should not operate with such vague concepts as “it will make work easier” or “orders will be fulfilled faster,” but rather with tangible and measurable metrics like “how many person-hours will be saved by this company in case of product usage and, accordingly, how much money the company will save.”

In this case, during negotiations, it would be better for the startup founder to structure their speech like this: “Right now, you are spending this amount of money on this, but with my product, you will spend this many units of money less. Would it be fair for me to ask for 20%, 30%, or even 50% of your savings for this?” I believe any customer would agree with this logic.

  1. What price do alternative solutions allow you to set?

When setting the price, it’s important to consider alternative solutions that the customer may resort to. One should take into account not only similar products but also alternative solutions. For example, for taxi services, indirect competitors may include buses, trams, or bicycles – one needs to consider such a wide range of competition. Or, for example, if a startup offers to streamline the work of accountants through a software product, the alternative could even be using calculators, accounting sheets, etc.

By analyzing the answers to these two questions, one can logically formulate the price for their new product for the first customers. Well, in the future, their reaction and actual sales will adjust the price.

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