A Simple Rule for Pricing Newbs Who Got The Fear

Double rainbow! Double dip! Double down! Double Plus Good! It's so beautiful I'm gonna cry. (cc jermudgeon)

Do you want to earn more money? Do you like nice, hard-line advice that you can easily apply without sitting down and having a cup of herbal tea with your feelings?

Because for once, I’m not going to faff about trying to teach you the True Nature of Value. That’s another post. Series of posts. And I want to be sure you’re ready.

Today it’s just you, me, and a simple rule that you can apply today, without thinking, to improve your profits.

Here’s the One Simple Rule. Are you ready? Reaaaaaady? Wait for itttt… drumroooooll…

Double. Your. Price

Yep: Double Your Price.

Take the price you feel in your gut is right… and double it.

There you have it: a simple, clear, no-room-for-wiggling rule that will help you dramatically increase your profits.

Why does it work?

It works because you’re a Pricing Newb Who Got The Fear, and because you must start with the price you feel in your gut is right. That part is key.

You’re a Newb. Your gut is uneducated. Your gut cannot be trusted.

Your price-uneducated gut is more afraid of scaring people off than it’s scared of having shitty profits. Just like your statistics-uneducated brain is more afraid of dying in a plane crash than a car crash.

Therefore, the price your gut comes up with will be extremely low, unhealthily low. Probably by half — or more. Ergo, doubling will restore you to pricing health.

Case Study: Me

But, unlike many business bloggers, I’m not just speculating based on what I read other people do. I experiment on myself first.

As you might know, I wrote me a little ebook once upon a time.

We originally sold the beta version of JavaScript Performance Rocks! for $19, to the intersection of people who were both Early Adopters and Had A Coupon. A few people without a coupon paid $25.

When the book came out of beta, we raised the price. My original plan was to bring the cost up to $29, a modest raise of $5.

But I had educated my gut about price in the mean time, and instead, I womanned up — raising the price to the incredibly lofty $39.

In other words, I doubled the price.

And the results?!?

Now, this is not scientific to the third decimal place, but… I just divided our total income by the number of sales, and come to the conclusion that the average price for each sale was $29.

Working backwards with the other statistics, I found that:

  • approximately 42% of all sales were at the beta-only price
  • approximately 57% of all sales at the highest price.

Did sales slow down after we raised the price? Well, yes, compared to the launch price, we sold fewer copies per month on average, although not by much. A higher price will do that to you (except in those weird times when it increases your sales!)

But raw sales are meaningless to a self-published girl like me. The real question is: Did doubling the price hurt our profits?

In a word: no. In fact, high price sales sooooooo didn’t hurt our profits that…

High price sales generated 75% of our income with only 57% of total transactions

That laughter you hear? That’s me, on my way to the bank.

I rest my case.

And I repeat: Double. Your. Price.

What are you pricing?

What type of thing is it? Who’s your audience? Do you Got The Fear?

Talk to me.

PPS — Love tough love? Then you’re gonna be in heaven when you click that Subscribe button, buddy. Or, heck, be like the cool kids and follow me on Twitter for even pithier advice.

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Discussion

  1. blair

    Great tip. Most of us are guilty of undervaluing what we are really worth. I guess we want to keep people happy and are to afraid to experience any sort of backlash that might come out of increasing our prices. But we need to realise that we are trying to run businesses, not a keep everyone happy charity. Business needs profit. I need to remember this myself!

    Reply
  2. amy

    That’s so true, Blair!

    The other part of that truth, of course, is that the backlash may never even come. We may lose out on (reasonable!) profits because we are afraid of a bogeyman who doesn’t even exist.

    I don’t think I’ve heard a single complaint about our ebook prices.

    Reply
  3. Paul Reinheimer

    The side effect you haven’t mentioned, even if revenue is flat, is simply having fewer customers.

    If you goal is to make money (as opposed to sign up every single possible person) fewer customers is great: less support, less overhead for accounting, lower server resources if that’s your deal, etc.

    a good plan all around.

    Reply
  4. Todd

    My dad is a fine art photographer – some older wiser colleague gave him the same advice and it worked very well. It’s about perceived value as much as anything.

    Funny story: I bought a house in the city that had a dryer in it, but ialreadyhad a newer set, so I put the older working dryer on the sidewalk with a sign that said, “free! Works!”. It sat there for a couple of days and when I told my dad that I couldn’t believe that I couldn’t give away a free working dryer, he reminded me of the advice he’d gotten. So I made a new sign that said, “dryer, works. $50″ and it was sold in less than 1 hour!!!

    The psychology of perceived value strikes again.

    Reply
  5. Markus Sandy

    Thought provoking post Amy. Thanks!

    Corollary: If still not comfortable after several doublings, it’s time to consider whether project is a good fit for you. :)

    Reply
  6. Chris Ritke

    I suppose it really depends on what you’re selling. The base subscription for uploadthingy is $9/mo. I raised it to $12 a few months back and the rate of new subscriptions fell off a cliff. Went back to $9 in about 1 week.

    So are you saying I should have doubled it to $18/mo ?

    Reply
  7. Ben

    Not always true. Our company sells statistical software and we introduced at a low competitive price. We worked on improving the UI, UX and documentation. We then announced the price increase, doubled the price and… Revenue dropped 80% and never rebounded.

    Reply
  8. john

    I tell people the same thing. It works with hourly rates, too, which I explain to people with the following story:

    Say you want to make $100K/yr (adjust this story in keeping with your annual expectations). There are 2,000 billable hours in a year (pretending we’re not exploiting ourselves). So at first glance, the rate would be $50/hour.

    Meanwhile: You WILL have times when you’re not working on a project, or are doing business development. Assume it will frequently be 50% or more of your time. Therefore, to make your nut ($100K), you MUST charge > $100/hour.

    The corollary of this is that if you’re paying contractors who are adults, have mortgages and children, and are billing you less than $100/hour: Well, I sure hope they’re fully utilized on the year. ‘Cos otherwise, they’re having a hard time keeping their lives together.

    A friend of mine charges $35/hour for her design work. I have begged her for years to raise her hourly to $70 and fire half of her customers. I’m still waiting, and she’s still insanely overworked (‘cos at that rate, she has no problem with biz dev!).

    Reply
  9. amy

    @Terry, thanks! :D

    @Nicolas, yay! Thanks for stopping by!

    @Jens, and thank you as well :)

    @Markus, you’re so right. If the “Fuck you” price still leaves you unhappy, you’re doing something wrong!

    @Ben, how did you communicate the price increase to your customers? Did you change the price on your existing ones? (Naturally, I’m talking about a price increase for NEW customers.)

    @Chris, I looked at UploadThingy.com. Who is your audience? Everybody has different levels of price sensitivity. You are not selling on business value… if I were you, I’d rev up your message to talk about business value, and try that price again. (But don’t change it on your existing customers!) Or, better yet, offer two plans, one of them clearly geared at business.

    @John, you’re clearly a good friend – she’s lucky to have somebody willing to give her that tough-love advice! But you can lead a horse to water, etc., etc. One day she’ll wake up and see it for herself.

    Reply
  10. Berthold

    Another approach to knowing your net worth is working as an employee first and then transition to freelance. You know what you need to sustain a livelihood and you can save up a financial cushion that can step in if you underestimate first. Plus, it gives you a lot of other skills, too. Sure, it seems tempting to go the all-selftaught-route, but you’re looking at a handful of winners and busloads of losers…

    Reply
    • Amy

      Gotta totally disagree with you there, buddy.

      You should look at your salary as the absolute minimum your time is worth. After all, your employer is paying an additional 15-50% to employ you, on top of your salary. So if you’re earning $100k your employer is probably paying $115k-150k to employ you. That’s just for starters.

      Employment is also a trade-off: You pay me less than the return I generate, but I’ll take this exchange because you’ll pay me regularly every month and I never have to waste overhead looking for new work.

      MORE IMPORTANTLY, we’re not talking about hourly rates. We’re talking about PRODUCTS. The only thing to base your product pricing off of is value returned. Nobody gives a flying fuck what you earned at your last job if you do deliver value – or if you don’t.

      Not to mention, you’re on the blog of a self-taught chick who dropped out of high school at 14. So any arguments about “a busload of losers” just ain’t gonna fly here.

      Reply
  11. Josep M. Bach

    Hi Amy!

    This post got me really impressed. I have a small Rails shop with two other guys and we’ve discussed our price policy so many times -and I can tell for sure we’ve got The Fear.

    Although we try to keep up with all the state-of-the-art stuff in both Ruby and Rails world, sometimes our quotes don’t seem to convince certain types of clients!

    We’ve experimented a bit and found out that with some clients, a high price makes them trust us more and look up to us, which builds a nice business relationship (those projects generally are comfortable to work in).

    Nevertheless some clients force us to lower down the prices up to a point in which we certainly can’t make any profit! And not only because of the low budget, but also because it also goes with a bad customer relationship, disrespect, and such.

    One thing we wonder is, how to double your price and make people don’t go away? Or is it that we are not properly selecting our clients?

    Thank you and keep it up!

    Reply
    • Amy

      Hi Josep! That’s a dilemma. It has an easy answer, which is paradoxically also hard:

      Drop those shitty customers like the shitty shit they are!

      You want those clients who like your higher prices. As you’ve found out, the cheap clients then disrespect you. Law of the jungle – eat or be eaten. And you’re letting them gobble you up.

      Fire them!

      Reply
  12. Koek & Zopie

    Hi,

    Doesn’t work with every kind of business….if I double the price of my coffee and other stuff in my coffeebar, everybody will think I’m a thief and will never return. So in a month you double your income, and after that you’re going down…broke….with no customers left (only some naive tourists, but you cannot live on that)

    So…

    Reply
    • Amy

      Hi there. I never said it worked for all businesses. Coffee shops aren’t in my purview!

      But, that said, you’re still wrong. If you raise prices in a way that isn’t effective, sure. But look what Starbucks has managed to do — train several entire countries to expect to pay more for premium drinks and atmosphere. (Whether they delivered on that is another thing entirely — but they raised prices for the whole industry with their leadershp.)

      Reply
  13. Reuben

    Great post.

    This works especially well when people are starting off and don’t have a published price yet. It’s a bit harder when you already have a price and a market trained on that price. Nevertheless, I advise my customers to at least go through the exercise of doubling their price every year (most don’t do any price raises at all, let alone enough to keep up with inflation). This isn’t just about doubling the price, it’s about understanding the value, and what you might have to do differently to pull of a higher price.

    The examples people mentioned about software companies that saw revenues fall off a cliff after a price increase highlight the need to pull off a price increase properly. Instead of simply raising the price, if they had introduced another edition (or better yet, 2 more editions) and given customers the ability to self-segment, they probably could have raised effective prices without hurting sales.

    p.s. Really great advice about firing the customers who “force” you to accept lower rates.

    Reply
  14. Todd Trann

    Thanks Amy!

    I’m slowly building up my assets, too. I used to be in business for myself in a past life, still not sure how far along there I want to go again… but your message is a good one. Got it loud and clear.

    My next product launch just got a little more exciting for me, I’m already looking forward to my new pricing scheme!

    Todd

    Reply
  15. Holling

    Yet another related tale about pricing and perceived value. A friend sells cheese. Very good cheese, some of which is understandably expensive. One day a customer walks in and makes a comment that the cheese she wants is way too expensive. My friends replies, “well, it’s not for everyone.” I guess that could be considered snarky, but with the right tone of voice, it can work. And yes, the customer walked out with some af that very cheese.

    Reply
  16. Benjamin J. Gohs

    My partner and I started a community newspaper 18 months ago and we have since become the number one newspaper in the city in which we reside. The problem is we started with a column inch rate of $3 a column inch when the comparable prices in the area are between $9 and $15. We want to up our rates to $5 per column inch come this September when we are two years old. I’m wondering how we go about introducing the new prices since some of our long-term customers have been paying $250 for an ad and that will jump significantly when we raise our prices. We would appreciate any words of wisdom on the matter. Thanks bjg

    Reply
  17. Josh Kohlbach

    Holy crap.. I Got The Fear.. something fierce.

    I know this an old post, but I just wanted to thank you for the kick in the ass. I have an eBook that is way underpriced for the value it gives and I was doing it with the guise of providing a good deal as a starter until it took hold. I think the result is that it’s not been selling at all (and I know my audience buys, they used to buy my old ebook which was twice the price).

    That’s was predicament numero uno, the second reason this is timely advice is that I’m just about to start talking about a pricing strategy for a WordPress plugin I’ve developed.

    Reply
  18. Erick

    This was timely for me as I am about to launch a new service on my website. I am wrestling with the pricing. I’m getting advice all over the map. You gave me even more to think about.

    Reply
  19. Woody

    Great post on pricing. Seems so key when your sitting there with a piece of paper actually planning it – my takeaway recently though has been to test different pricings and just see where the sweetspot is.

    Followed on twitter, I like your style Amy Hoy!

    Reply
  20. Christopher Erckert

    So, true!!! I’ve personally benefited from doubling prices after working out some early kinks in projects. Raising the price until you find that happy place of growth with healthy margins makes all the difference in the world.

    I think where this is even more true is with consultive services where time is even more valuable.

    Reply
  21. AJ Silvers

    Love the article Amy, too many people are scared of ‘what other’s may think’ and never really make the right business decision.

    I have always preferred premium pricing. In general I have found you get fewer customers but they are better committed to implementing, you get fewer (or better) support queries and it’s better positioning in the market place.

    Love the Unicorn theme of the blog too. :)

    Reply
  22. Randy Owens

    I started my freelancing business last year and found that determining price was the most difficult part of my job. So, I charged fairly low prices ($10 per page for original content) and quickly realized that was too low. So I raised my price to $20/page and I had by that time several clients willing to pay the price. In fact, I had more clients than I really wanted. At the same time, I realized how valuable my services are to my clients and began charging per word for practical reasons. The per word rate resulted in an average of $28 per page. Then I slowly lost my cheapest clients while my most faithful and willing have stayed with me. The only problem is, I have now lost too many clients. So, lesson learned by experience is to find the perfect price point that I am willing to work at and that my clients are willing to pay. I will be slightly lowering my rates for new and existing clients especially after looking at a couple new entrants charging about half of what I am charging. It has been a nice break though.

    Reply

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