The Digital Product Pricing Strategy How To Price Your Digital Product
Are you worried about the cost of your digital product? You're not alone. Numerous creators, and even those who have been at the game for some time have a difficult time determining the ideal price for their digital products.
There isn't a universally-fit-all pricing strategy for digital products. It depends on multiple aspects like your digital product type, customers and the value you deliver to prospective customers.
In this article We'll talk about every aspect you have to think about when trying to decide how much you can charge for your digital products.
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How to determine an appropriate price for your digital product
Pricing can be difficult. Following these basic steps will make the process much easier for you.
Find out how much your target audience is willing to shell out
The amount your customer would be willing to spend helps you set a price that matches their expectations. If your target audience is expected to shell out $100 USD for an ebook; selling yours at 300 USD takes your book out of market. On the flip side If they are expecting to pay $300 USD for an ebook and you are selling yours at 100 USD, they could consider your book to be low-quality and won't buy it.
There are three steps to discovering the audience's sweet pricing spot.
Conduct a demographic survey
An online survey on demographics can help you gather information about your viewers' social preferences -- like their education and income levels as well as their jobs. The information you gather will help determine the amount of money your customers spend. For example, the higher the disposable income of your target audience, the more likely they will purchase premium digital items.
The respondents to your survey may aren't willing to reveal details about their earnings. This is the reason you need to make sure you ask questions that have a closed-ended format and give options for a variety of ranges. Below is an example
What do you make per month?
- Less than $1,000
- $1,000 - $3,000
- $3,000 - $5,000
- more than $5,500
The survey can be administered by a survey in person or create online a questionnaire with free questionnaire builders, such as Google Forms.
Find out your audience's pain point(s)
Focus on two things in this article:
- Your audience is desperate to find a solution for the problem.
- The value of solving the problem
If your pain point is just a minor inconvenience then your customers might prefer not to spend a lot of money to find a solution. But if the issue is creating significant loss, they will be willing to pay whatever it costs for the solution.
The same logic is applicable for ROI. If your target audience can gain significant benefits from the solution to their issue, they'll be willing to pay the highest price for a solution. If solving the problem makes very little or nothing to their lives, they'll not see a reason to purchase an expensive product.
You can listen to the discussion of your viewers about their pain points to find out what their feelings are about the issue. Begin by watching discussions on social media through social listening tools such as Mention. Then, take things one step further by scheduling one-on-one conversations with your audience to receive direct feedback on the pain point.
Find out about your competition
Discover what your competition charge to determine the predominant pricing in the market is.
They all cost 100-150 USD for courses; pricing your course at a higher price can turn off potential clients, until you demonstrate that your program is better than what exists on the market. And if they offer discounts, it's a sign to include a similar offering as part of your pricing plan.
Competitor pricing research is a pretty straightforward process. Start by listing three to five digital creators that are selling similar products. Visit their sites or particular websites for digital products to see how they price the products.
Go beyond the numbers and consider their overall product offering. Do they have high pricing yet allow users to make payments in installments? or offer electronic product bundles which help consumers save money when they purchase? These insights will help you determine their pricing strategy and form your own pricing strategy.
Find out the cost of production
Pricing should reflect your production costs minimum; otherwise, you'll lose business. Pricing is an extremely precise procedure because you have to get it right. Add the wrong figures and you could end up selling your digital product for an expense.
Add the direct cost of your purchase
These are expenses incurred in production. Examples include freelancer charges, hosting fees for websites and software subscription fees. If you've written the first draft of your ebook by yourself, multiply the hours spent by your hourly rate and add it to the direct expenses.
Find your indirect cost
They are expenses which aren't directly linked to any specific product, however are essential to the overall production process -- like the money spent on your co-working space Internet subscriptions, electricity and co-working space bills. Also, add the salaries or salaries of employees who aren't directly involved in the production process but are part of the entire process for example, your virtual assistant.
Add up your fixed costs
They are operating costs that you'll incur as a business regardless of whether you're making a digital item. Examples include taxes, insurance charges, loan interest and other administrative expenses.
Add up all the costs
Take all of the costs for the total price of production. If the costs for a creator are as follows:
Indirect costs: $2,500
Direct cost: $1500
Fixed costs $800
The cost total will be $5,500. This means you need to offer at least $5k worth of your digital product to be able to meet these costs, and break even.
Set your profit margin
Profit margin refers to the percentage of revenue you want to earn from your sales. Consider it the ROI of your online product. It is calculated as:
(Total Revenue -- Total Costs) * Total Costs 100
Say you made $6,000 in revenue from the sale of your digital item the total cost of production is $5,000; your profit margin would be:
($6,000 $5,500) * $5,000 x 100 = 20 percent
A good profit margin should be between 10 and 20 percent of your total costs. Naturally, it could be greater however, you must aim for this range at a minimum.
Choose your pricing model
Setting a price is something else, but presenting it to your clients is quite another. The price you set may be higher than what the competition is charging, but with the right pricing strategy, you can get the attention of your customers.
Being a creator, there are a number of pricing options. Let's examine the most commonly used models.
Subscriptions
The subscription pricing model requires customers to pay a recurring fee in regular intervals such as each month or every quarter- to access and use the online product. A customer is denied access to the digital item after they cancel their subscription or do not renew the subscription.
Peak Freelance is a great example of a subscription-based digital product. Through a monthly membership of $49 fee, members access a library of exclusive training courses, meet other freelancers, and participate in co-working sessions, plus other perks.
Subscription model best practices
If you opt to introduce subscription pricing on your product, ensure that:
- Your product can be considered to have real-time value. People won't see the necessity of paying a monthly charge if they are able to get the benefits from your product one time.
- It's simple for users to sign up and then renew their subscriptions.
- This content is exclusive to your service, and it encourages customers to continue paying for it.
One-time payments
Like the title suggests, one-time payment means people pay a fixed amount once in order for access to the digital content. It's best for products that have fixed content-- such as course materials, ebooks and recorded webinars. Upon paying the one-time fee for the product, customers get unlimited access to the item. They can access the material repeatedly at their own speed and schedule.
A product that is a one-time payment approach typically have higher prices than subscription-based ones because they are not recurring.
Let's say a creator spends $4,000 on the digital product. If they sell the product at $10 and they have 50 customers, they will achieve $6,000 within a single year with a subscription pricing model. In a model that allows for one-time payments the company will only earn $500. They'll have to boost the cost per item, or market to 600 buyers for a total of an additional $6,000.
Content marketing leader, Ryan Law, employs the model of one-time price for his online products. The courses he offers: how to Edit and How to write Thought Leadership Articles, cost between $199 and $99 respectively.
One-time payment best practices
to get the most out of a one-time payment pricing model:
- Find a fair price, allowing you to make money quickly.
- Look out for ways to cross-sell and upsell your product to increase revenue. As an example, you could introduce an update to your product online to boost revenue.
- Deliver value to increase word-of-mouth recommendations.
Freemium
The freemium pricing model combines elements of "free" and "premium." This means offering a basic edition of the digital products without cost -- and offering users the chance to upgrade to a more sophisticated, feature-rich version, for a price.
An excellent example can be found in Jimmy Daly's Superpath community of marketing professionals. Members can join for free and access basic channels, such as job listings and promotions. Users who wish to access additional content that is curated by the community pay $20 per month to access premium channels.
The freemium is a good option for any digital product. Say you're selling an ebook You can provide a stripped-down version (like a chapter) without cost, and cost a charge for complete material. And if you're selling an online course, you can allow viewers to view the first 10 minutes of the video for free and make a charge to watch the whole video.
Freemium model best practices
If you opt to implement freemium pricing for your product, make sure that:
- The free version of your software is useful enough to attract and retain customers.
- Premium products are worth paying for and, in other words, it's worth more than the free version.
- Your website clearly explains the distinctions between the free and premium versions of your digital products.
Tiered pricing
Pricing with a tiered structure means that you can offer different prices for different benefits or features that your item offers. It's an effective way to capture different market segments, and earn more money. If you're selling a coach program. The pricing structure could look something like this:
Tier 1: 30 minutes of coaching for $100
Tier 2.30 minutes of coaching + a follow-up call at $175.
3. One-hour coaching + complimentary access to the coaching community for $350
Jay Acunzo and Melanie Deziel implement tiered pricing for their membership community: Creator Kitchen. Members choose between a $1,299 per annum basic membership plan or a $2599 limited VIP plan.
Tiered pricing best practices
This is how you can set up the tiered pricing of your digital item successfully
- Your cheapest tier should offer your product's core worth. For instance, if you're selling an eBook; people who pay for the lowest price should get access to all the book.
- The tiers you choose to use are based on the preferences and needs of your customers, not just your internal costs.
- Beware of having too many tiers to avoid confusion for your customers.
- Allow clients to transfer from one tier to the other.
Select your pricing promotion plan
Once you've set a price for your digital product, it's time to try out the market to determine what they think of it. For this you'll need a pricing strategy that will allow you to secure early traction as well as sales for your digital product.
You can:
Offer a discount
Offer customers the chance to purchase the product for a reduced price for a limited duration. Here's an example from content marketing leader Ryan Law:
While offering deep discounts might draw attention, overdoing it can devalue your product and erode the margins of your profits. Find a way to strike a balance between drawing customers in and preserving your product's worth.
allow customers to make payments in installments
If you're selling a mid- to expensive product, installments will help you attract customers who would otherwise not be able to afford your product. The amount that is paid for over the instalment period will be slightly more than the price of your digital product.
This is what Jacob Mcmillen does this off in his copywriting course:
Bundles of offers
Bundling involves grouping related products in a bundle and selling them for a reduced price compared to purchasing each product separately. Let's say you launched the ebook, membership, and consultation service. They are priced at $600 each. It is possible to create 3 bundles of the items and offer it at the price of $450.
Learn the way Melissa Steginus does it off.
Bundling is an excellent option to promote products that haven't had many success on the marketplace. The possibility of recovering some funds out of them rather than getting completely wiped out.
Develop your product and pricing strategy to match market changes
The market you are in isn't stable. Variations in consumer preferences, economic factors, and technological advances can affect the market demand for your product or services and also the price customers will pay. A sudden economic downturn can erode the buying power of your target audience and make them less likely to purchase your expensive digital product.
Monitor these conditions closely so that you stay on top of trends and adapt your pricing accordingly. When you realize that people love high-tech, modern technology (hello AI, hello! ); update your digital product with relevant information regarding the technology in order to keep it current.
There's not a universal formula for pricing. Listen to your audience and stay up-to-date with market trends and be open to change and that's how you find your pricing sweet spot!