How do you decide on pricing?

Question

I'm building a web app and API for mixing audio for musicians and bedroom producers. Obviously the web app is user friendly and lets someone non-technical to create a mix, but ultimately the core tech in the API is where the value is. I'm still trying to figure out pricing for API versus what is offered in the web app and I'm not even sure where to start? A variation on my nearest competitor? How have you guys approached this?

Jessie · Accepted Answer

You can research the average musician salary, assume an approx. budget and from there take a small percentage 5 to 10 percent depending of what you are offering and its value. Also, you can look at the market to see if your pricing is competitive.

Answer

FYI, hopefully some helpful information to brainstorm a good overview and pricing formula etc... :)
Once you're ready to calculate a price, take your total variable costs and divide them by 1 minus your desired profit margin, expressed as a decimal. For a 20% profit margin, that's 0.2, so you'd divide your variable costs by 0.8.

How to Price Your Product and What You Need to Know About Pricing
https://www.shopify.ca/blog/how-to-price-your-product#:~:text=Once%20you're%20ready%20to,your%20variable%20costs%20by%200.8.

Ivan Ralic · Answer

You obviously need some kind of a reference you would get from researching your competition.

If you can try and calculate a value you are producing for your users in time and money (saving 20% of time for a 100k job role equals 20k a year)

But in general, I like straight up asking people what would they pay for the service and then asking them for that money amount 😅

Xavier Colomés · Answer

Hi David! I'm very reactive about price, as it's a tricky one to figure out. My advice (if possible to execute) is to start with the MVP (Minimum Viable Price 😄 , the absolute minimum and increase it periodically in split testing until you see some important friction. That's always better than going too high, and not having enough users to validate your product.

Business owners are very picky about changing prices, but the reality is that for the new customer arriving to your product, they don't care.  And the previous customers (in cheaper prices, in case of a SaaS) will be kept in lower prices and be pleased to see that their bet for you gave them a lower fee.

That's what we intend to do at Localboss.app at least, which is currently free.

David Felkel · Answer

Analyse the competition and see if they are offering equal value for this price. Also remember, it's easy to lower prices, but hard to raise them.

In general determine the value as Ivan said: How much time does it save and how does that translate to money?

How do you decide on pricing?

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