Finding a price point

27 08 2008

Prior to my trip to Boulder for the CWA Summit I settled on a price range for ClimbPoint that I could live with.  Since that time I’ve returned to my original estimate, sharpened it, and become more comfortable with the price I’m charging for the software.

Building a bottom-up sales forecast

My initial pricing decision was made based on an estimation of the cash I would need during the first year to cover my expenses.  I then guessed at how many licenses of ClimbPoint I could sell in that time period.  That gave me a minimum amount that I would need to charge for the software to break even after the first year.  I think my first amount was around $400 or $500.

The above method is roughly a bottom-up sales forecast, as described by Guy Kawasaki in the first couple points of this post on the art of bootstrapping.  I first began experimenting with this method while learning the art of the start.

Pricing and positioning

I then took some advice from Eric Sink on pricing and positioning, and checked out my competitors in the area of software for recreation management.  I made a list of similar products, along with the features they offered, the initial cost, and any maintenance fee.

Well, as my list grew longer I decided to plot my competitors on a two by two matrix based on cost and functionality.  Dirt cheap and painfully limited software was in the lower left, while the pricey software with all the bells and whistles was in the upper right.

I decided that I wanted ClimbPoint to be in the upper right quadrant, though not too pricey.  This exercise mainly served to boost my confidence when telling a prospective customer, “yes, we’re charging $650 for the initial license.”  Prior to convincing myself that this price was fair and reasonable, I was apologizing to customers because that price felt a little high to me.

A sanity check!

The most helpful activity in settling on a price for ClimbPoint was, to my surprise, talking with a potential customer and friend about whether the price was reasonable.  As we discussed the initial cost and yearly maintenance fee, I discovered that my friend felt he would have a hard time convincing his manager to purchase the product — the maintenance fee was almost 1/3 of the purchase price!

I don’t think I would have caught that problem with the pricing without customer feedback, and that “reality check” was the final piece of the pricing puzzle for me.  The updated pricing information is now prominently displayed on the ClimbPoint purchase page.

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