If your background is in marketing, then you’re likely familiar with the four Ps: product, place, promotion, and price. When it comes to selling a digital product, the last of the Ps can be a significant challenge.
Physical products have tangible fixed and variable costs, as well as physical inventory to consider when calculating a price. You calculate how much it cost to make something, add the margin required to make that money back, create some room for profit, and voila! You have a price.
But with pricing digital products — pricing isn’t so straightforward. Deciding on the value of a digital product sometimes seems like arbitrarily choosing a number out of thin air.
Pricing shouldn’t be random. There are many strategies designed for digital products, and we’re confident there’s an approach for your product. Here are six strategies for digital product pricing that will help make the process as simple as it is for physical offerings.
Know Your Market
One thing remains the same across the board — you must know your competitive market to be successful. If you haven’t already conducted a SWOT analysis to evaluate your Strengths, Weaknesses, Opportunities, and Threats, the time to do so is now.
Next, look at similar product offerings in-depth and see how they’re being priced, and how that price is received by customers. Once you know what the competition is doing, you can make an appropriate digital product pricing decision.
Calculate Your Worth — Then Add Tax
With a digital product, you may not have the same measurable metrics as a manufacturer does (think material cost, labor, utilities, etc), but you can still get a fairly accurate estimate of how much it cost you to create this project and how much it will cost to support your business.
For instance, if you’re an app developer, you’ll calculate the cost of having employees conduct application performance monitoring, any software products you have in place (AWS, Slack, Asana), and what it costs to keep the lights on.
If you’re an entrepreneur offering a digital course, calculate the hours you spent creating your content and charge accordingly.
Offer Tiered Pricing Options
Digital products can offer something that physical products usually cannot: tiered pricing options.
Why target one market with one price point when you can target three with minimal extra work? Tiered pricing is a great strategy used to sell many digital products — especially software.
Usually, a base model will offer the basics of a program — enough to be useful without giving everything away. These can be limited features, a restricted number of accounts, or some other requirements.
For instance, consider how OptInMonster limits their Basic plan users to 5,000 page views, installation on 1 site, 3 campaigns at a time, and no option to removing branding:
Second-tiered offerings will have more features, such as how the accounting platform Freshbooks offers payment reminders, scheduling reminders, and invoice templates.
These mid-level plans tend to be the best-selling plans (or at least marketed in that way). Premium tiers are for those who need the full software suite, are willing to pay for convenience, or need some certain feature.
Consider how you can add value at each tier, and you’re on your way to building a great digital product pricing model.
Psychological Digital Product Pricing
Warm yourself to the idea of psychological pricing strategies.
Products that cost $99 are more likely to sell than products that cost $100. Why?
People don’t register the dollar difference; they see a triple-digit number compared to a double-digit number. It’s a tactic that Walmart has used in stores for years — marking down items to end with .97, .98, and .99 to make consumers act feel like they’re getting a deal.
The same logic applies to the digital realm.
And there are other psychological limits you should consider.
First, think about creating time limits for purchasing your digital products. Maybe you only open enrolment twice a year after a long advertising campaign. Or, look at adding upsell tripwires during the checkout process.
Samcart does a great job at adding a no-pressure tripwire as you sign up for their free trial. At this point, you’re warm to their product, so they provide an opportunity to buy a “Checkout Hacks” guide at a discounted price.
Trials and Refunds
If you are confident in your product, offering free trials or refunds shouldn’t be something you shy away from. Give your customers a chance to try before they buy, offering them the value of your product (even if for a limited amount of time).
Squarespace optimizes on this tactic with their trial websites. Rather than subscribing and building your site, you can use your trial to build the site before you launch. If your trial expires, you can still renew until your site is ready to go live.
If you offer refunds, have a policy in place with a set amount of time and restrictions. If you’re an entrepreneur, you’ll need to track your customers to ensure that you’re not spending money before that period is up.
Test and Adapt
Regardless of which methods you take away, you should always be tracking your successes and failures. If all else fails, ask your customers why they aren’t buying your product.
Is it a lack of awareness caused by advertising?
Is it too expensive?
Have you not shown them the value?
Customers are usually more than happy to provide insight if they think it will result in a better product offering.
Don’t get caught up on the idea that just because you aren’t offering a physical product that you’re limited in digital product pricing. Conduct market research, evaluate your costs and price your product for what it’s worth.
Interested in a way to increase your revenue without changing your pricing strategy? Here’s a way to do so: