John Wall: The first challenge you’ve got when you go to market with pricing is trying to determine what the price should be set at. The biggest mistake we see coming out of the gate for a lot of products is that people do it on basis of cost or margin. They look at the materials, the time required, everything that goes into it, and then some kind of markup. You want to turn a profit on the product, of course, and put a dollar figure on it there. The problem with that is you’re not taking into account the value of the product that the customer sees. That’s really what determines what is willing to be paid for the product. It’s not just the labor and the parts, but it’s what are you taking out of the customer’s life. A good example is these meal services, where you order your meals ahead of time. They come with all the items put together and prepared, and yes, it is just the cost of the food and the shipping, right? That’s really all this is. There’s some marginal cost as far as the instructions on how to cook. But for the customer, that’s saving them hours at the supermarket. It’s saving them hours of planning time, hours of digging through recipes, and even smaller things that aren’t initially apparent, like having proper portions. The great example in marketing is always hot dogs and rolls. The hot dogs come in the 12-pack, the rolls come in the 9-pack. You’re always going to have to buy extra to make the thing work.

John Wall: Another mistake that’s common is people starting too high. They kind of go in with this idea of, “well, you can always go down on the price.” The problem is, as a startup, you only get so many initial conversations to test and try out a product and figure out where to go, and if you just scare somebody off immediately with price, you may never get another chance to go back and talk further. For startups, a lot of times, something that we see as very effective is having to take the hit and have a few customers come in at a significant discount or even free, because those initial customers, you get them in the door, you really will find out, “what’s the cost of supporting this project down the line, or the product down the line?” Are there additional expenses that come up along the way? Or is it something where, once they start buying, they will buy more and more, and it actually becomes more profitable over time. This idea of starting a very low price point is just as an investment in the product so that you can get more customers in to learn faster where you should be and where you should go with the price.

John Wall: The most important thing to do is get in and let the price do its work. The final mistake that we see is people doing surveying on pricing, asking people what something should cost and what they’re willing to pay for. Unfortunately, we’ve seen over and over again all these situations where asking people about price is not the same as asking them to take money out of their wallet and pay for it. People will say, Oh, yeah, I think it’s worth $20 or $50 because they want to be agreeable and they think that maybe someone will buy it. But that’s not the same as saying, “will you give me $20 for this today?” You don’t want to think that you have pricing that is going to be able to get you effectively to market and then end up not selling anything right out of the gate. So take the time, and don’t be afraid to take a little bit of a loss up front so that you can get the info you need to be more successful in the future.