Lesson: Sales Funnel Optimization with Hiten Shah

Step #8 Pricing: How do you price your product?

In e-commerce businesses, you can read a lot about margins. So, if you buy something wholesale, and you want to have a certain margin, you can have a markup. So, I actually feel like, in e-commerce pricing is a little bit easier because there are standard margins that you need to maintain to build a successful business. That's what a lot of entrepreneurs would call the "boring stuff", and doing it in a spreadsheet. So, I don't really want to talk about e-commerce pricing, because I feel there's lots of standard ways to do that, about just being profitable, and it's a low margin business, and Amazon wins because they're very good at that.

But in most businesses, let's say a software to service business, or if you're selling an e-book, or selling even a service, I think pricing is one of the most challenging and difficult things for people because you either always think you're charging too much, because you keep hearing customers complaining or you're thinking you're charging too little, because customers are not complaining and they're just buying. That might make you feel like you could charge more.

One of the rules in software to service businesses, just a generic rule which is what it is, is double your prices. That's one of the easiest recommendations in early business. And the reason people say that is that most people have the experience that when they double their prices, their conversions don't change. You still get the same number of people, but all of the sudden you're making double the money. And even if you only got half the people, you'd be making the same amount of money and have less headache, of half the customers.

So, I would say that pricing, and testing pricing is very interesting of a topic. The objections I hear when I talk about testing pricing, let's say, if you were just to do an A/B test on pricing, just like before, where two people came and they both saw different prices, one saw $7 and another saw $9 and they both purchased, the objection I get about doing that test is, "Well, isn't the person that paid $9 going to be pissed off if they ever find out that they could have paid $7 or someone else paid $7?”

So, there's two ways. One that another company that I'll describe that I'm a fan of did to sort of circumvent this issue and another, which is just how I generally think about it, which is if that person that paid $9 e-mails you, and says, "Hey, I paid $9, my friend paid $7. That really sucks. What are you going to do?" You give him back the $2. Maybe you give him back $3, if you want to be super nice, but at the end of the day, if they complain, you're going to do the right thing. Otherwise, you won't have a business for very long.

So, that's one way to think about it. That way, you can run the test and not feel guilty or bad. They complain, do it.

There's a company called Wufoo that is a software to service company. They actually got recently bought by SurveyMonkey a few years ago, I think. And they actually had a good test that they did, which was they might have shown you $7 or $9 and made you believe you were going to pay, let's say, $9. But when you actually got charged, they actually just charged you $7. But you believed, all the way through, credit card in and everything, that you were paying $9. So, that was their way of not even, I think being even nicer, or being able to do the test, but not ever having a customer complain, if you're worried about that. And they're a very human company when it comes to that, and they're very customer support and service oriented.

They were able to get to a very good amount, decent amount of revenue with very few employees, and one of the ways they did it is by focusing on customer delight and they probably had a value about the customer and things like that. And so, to me, I've never heard anyone who thought they were going to pay $9 and ended up getting charged $7 complain. In fact, it's human nature to probably not even tell anyone when you get charged less than you thought you were going to be. And so, I really like that, I thought it was a very elegant solution to that sort of objection.

So, I would just say, it's very important to test it. Just do it in a way where you know what you're going to do if someone complains, or you have a system already built in, like Wufoo, where no one will ever complain. They'll actually be delighted that you charged them $7 instead of $9. But you still get to learn whether $9 or $7 works better for you. I think that's really what's important. It's to have this idea of learning what's best.

At some point, you're not going to be scared of it if you actually go do it and if you know you need to it. Again, it might be tough love or whatever you want to call it, but just get over. You shouldn't be afraid of learning. You should be more afraid of staying the same and not changing. Again, it's very hard. Human beings love familiarity. They love everything about what they're doing right now.