While it's relatively easy to price a physical product (take the price of materials and multiple by a set percentage that covers your overhead and the profit you want to make) it is a bit more difficult to figure out how to price your digital product.
After the initial creation, you have very little expense except for the time you put into creating it and any incidentals like software so it makes it hard to figure out what your product is "worth".
I've seen plenty of people in the online space pricing their digital products at (what consider to be) a completely ridiculous price. While I do factor in the time I've spent creating a digital product, I also look at the client I'm serving.
If my digital product is geared towards someone who just started their business, I would price it lower than a digital product that addresses a high level concept and is targeted towards people who have been in business for 5+ years and are making six figures a year.
While I do want to make a profit (that's why we're all here, right?!) I believe it's important to meet your customers where they are.
I have an understanding of what my ideal client needs and how much they would spend on a product. However, this has taken some trial & error to figure out - you may not get it "right" the first go round.
4 Questions To Ask Yourself
1. Who are you selling to?
Understanding your audience is key to pricing success. Different customer segments have varying budgets, pain points, and expectations. Consider factors such as demographics, industry, job roles, and familiarity with you. If you're primarily selling to a warm audience like your email list, you'll be able to price your product a bit higher.
People who know you and are familiar with your work or the service you provide will be willing to spend more on your digital products. On the other had, someone who clicked on one of your Pinterest pins and is just learning about your digital product wouldn't want to drop a lot of cash right away. Tailoring your pricing strategy to different customer groups can help you maximize revenue and better meet their needs.
2. What type of digital product is it?
When pricing your digital product, you'll want to consider it's format and breadth. The nature and complexity of your digital product play a significant role in determining its price. Is your product a simple checklist, a 14 module online course, or a feature-rich software application?
More complex products often command higher prices, as they typically offer more value and functionality. To set a competitive price, research similar products in your niche. Analyze their pricing strategies, product features, and customer reviews. Understanding the market and customer expectations will help you position your product effectively and decide on a suitable pricing structure.
3. What results will your customer see?
A crucial factor in pricing your digital product is the value it provides to customers. Instead of just covering your costs and adding a margin, think about the value your product brings to customers. How much is it worth to them? If your product saves time, increases productivity, or solves a pressing problem, customers may be willing to pay a premium for it. Are you walking your client through a massive transformation?
Clearly communicate the benefits and results they can expect to achieve by using your product. Highlight how it addresses their specific pain points or enhances their lives or businesses. If your product can demonstrate a clear return on investment (ROI) by saving time, reducing costs, or generating revenue, make sure to quantify these potential gains. Customers are more likely to justify a higher price if they can see a direct correlation between your product and tangible benefits.
4. Are you teaching a technical skill? If your digital product involves teaching a technical skill or knowledge, the pricing should reflect the expertise level and quality of your content. Consider the depth and breadth of your educational resources. Are you providing beginner-friendly tutorials, in-depth advanced courses, or specialized knowledge?
Higher levels of expertise often command higher prices, as customers are willing to pay for comprehensive and specialized learning experiences. Ensure your teaching materials are well-structured, up-to-date, and offer a clear learning path. Premium content and resources can justify premium pricing, especially when customers perceive the value in acquiring new skills or knowledge.
By addressing these four key considerations, you can develop a pricing strategy that aligns with your target audience's expectations, accurately reflects the value of your digital product, and maximizes your revenue potential in the digital marketplace.
Pricing Models for Digital Products
Now that you have a better understanding of the factors that influence your pricing strategy, let's explore some common pricing models for digital products:
One-Time Purchase - This is the most straightforward pricing model where customers pay a one-time fee to access your product. It's commonly used for downloadable software, e-books, and other standalone digital products. Be sure to consider whether you'll offer free updates or charge separately for future versions.
Subscription Pricing - Subscription models involve recurring payments from customers to access your digital product. This can provide a steady stream of income and is ideal for products that require continuous updates, maintenance, or access to a cloud-based service.
Freemium - A freemium model offers both free and premium versions of your product. The free version provides basic functionality, while the premium version includes advanced features or removes limitations. This can be an excellent way to attract a wide user base and upsell premium features to those who need them.
Pay Per Use - Pay-per-use models charge customers based on their usage of the digital product. It's commonly seen in cloud computing services, where customers pay for the resources they consume. This model can work well for products with variable usage patterns.
Testing and Tweaking
Once you've chosen a pricing model, remember that it's not set in stone. Pricing is dynamic, and you should be open to testing different price points to see what resonates best with your audience. Here's how to approach testing:
A/B Testing - A/B testing involves presenting different price points to different segments of your audience and analyzing the results. This can help you determine which price point generates the highest conversion rate and revenue.
Monitor Customer Feedback - Pay close attention to customer feedback and reviews. If you notice a pattern of complaints about your pricing, it may be time to reevaluate. Similarly, positive feedback can indicate that your pricing strategy is on the right track.
Adjust as Needed - Don't be afraid to adjust your pricing strategy based on the data you gather. Your digital product's value may evolve over time, and your pricing should reflect that. Regularly review your pricing and make changes as necessary to stay competitive and profitable.
Pricing your digital product is a complex but crucial aspect of your business strategy. By understanding your costs, knowing your market, considering your target audience, and implementing a value-based pricing strategy, you can set a price that maximizes your profits while providing value to your customers. Remember that pricing is not static, and regular testing and iteration can help you fine-tune your pricing strategy over time. With the right approach, you can find the sweet spot that ensures your digital product's success in the market.