How To Charge Customers 10X For Your Startup’s Offering
Most business books on Amazon, including the life lessons from some of the most successful business people in history, cost in the range of 10 to 20 dollars.
At the same time, online courses on a similar subject from far less distinguished experts sell successfully up to 100X the price.
How is this possible, when the difficulty of producing both products and their offering (learning about business from people with experience) are almost identical?
Pricing your product as an early-stage startup is one of the most important, yet unintuitive and difficult things you must do. In this article, we aim to give you an important insight that will help you tackle this problem.
There are a few key differences between the business books and courses from the abovementioned example that create this anomaly.
Arguably, the most important thing that determines how customers perceive your pricing is how it compares to the pricing of similar offerings. So, if they perceive your course to offer the exact same value as a business book, they would have a hard time justifying paying 100X the price, since alternatives are abundant.
The key is differentiation. So, in order to justify the higher price, courses put in extra efforts to differentiate themselves from a business book.
First, business books are often aimed at the mass market and try to include general, evergreen advice. Courses usually try to tackle specific market niches and they emphasize the latest trends and strategies.
So, while the market they are targeting is much smaller (and even temporary), the alternative offerings are very scarce, and they are solving a specific pain point.
To potential buyers, the course is not a personal development tool – hence a personal expenditure, they are an attempt to get a competitive advantage – hence a business cost. This makes it much easier to justify paying a higher price.
Second, in order to differentiate themselves from regular books, courses include different features. Videos, possibilities for interaction (closed communities, sessions with the author), etc. Even if the final offering is the same (knowledge), the additional features help potential customers perceive the course as more valuable and fundamentally different, which makes the comparison to books irrelevant. They are removed from the equation as a price anchor point.
Third, courses are usually sold by people with an existing following – influencers in a specific niche. So, when people are buying their course, they perceive it as unique. They are not choosing one among many business courses. They are buying the course created by the specific person they are interested in, and for that product, there are zero alternatives.
Building a startup by definition means that you are providing a somewhat unique offering – startups are all about innovation. This means that you can intentionally use all three tactics from above to differentiate your offering as much as possible from the alternatives available to your target market.
Last but not least, customers don’t care how much it costs to the business to produce the product – their purchase decisions are dominated by their perception of the value they could receive from the product put in the context of similar offerings.
One of the best examples to illustrate this point is that of Peter Reinhardt, founder of Segment. In its early startup stages, Segment was offering its service for free – they came from an open-source mindset. In order to start generating revenue, they raised the price to $10 per month.
Later on, their sales advisor Mitch Morando noticed that what they are selling is an enterprise solution, so he forced Reinhardt to ask their next client for $120,000 per year. They struck a deal at $18,000 per year – a 150X higher price than the team thought was reasonable before. In the next six months, they were able to close deals up to $240k per year.
Segment’s team severely undervalued the uniqueness of their offering, the value it was bringing to their customers, and the purchasing power of said enterprise customers. The actual cost of providing the offering and the low cost of other SaaS solutions was entirely irrelevant.
So, as a startup founder, you need to use the uniqueness of your offering and showcase it as much as possible when you are trying to sell. If you differentiate yourself sufficiently and if your offering is truly valuable, then you would be able to ask for much higher prices. The ability to do so might be the difference between financial success and failure, especially if you are working in a small niche.