How to come up with pricing model for online service?
Hello everyone. I need an advise on how to come up with the best pricing model for an IT service. It's online, it doesn't have direct competitors, so there is nothing to compare to. The indirect competitors may vary from something really low to something really high. The service can be quantified, however, it's a potential headache to future customers to definite their range. Links to books, articles, tools and techniques are more then welcome. Thank you.
Good Answers (3)
Philip S.
Business Coach at Minutecoach Business Coaching | PAYG business coaching
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You might like to abstract until you identify the real value in the service.
Or said another way, don't price the service, price what it is accomplishing.
Immediately, you have context, which is the value of the accomplishment to a particular market sector. If you nail this value, you can price the service that supplies it advantageously for your customer.
Your service may allow different levels of accomplishment, presumably it is your role to identify sufficient differentiation to appeal squarely to different sectors and widen your prospective client base; to offer various price points.
If so, I'd suggest you do not start at the top and work around feature reduction as a differentiator, but rather approach price points from a refinement vector, assuming you are wanting to upsell services.
For instance, Most vendors release lite versions, to try and hook smaller businesses, to introduce them to the family. They reduce feature count of their flagship product, trying to repurpose the asset yet maintain the price differential.
First to go are options for import/export, API access and customisation. This is nuts, because small businesses need these options more than big businesses, can't afford to custom them up, and can live with reduced functionality elsewhere.
Better to have your product centre stage of the small business ecosystem because you designed it to connect to anything, and especially to leverage the small businesses assets held in other companies software into your higher level software/service at a later date.
Focus groups will be OK, sort out accomplishment levels and value first. Build, don't reduce, and don't assume features have value per se, you need context.
The pricing itself won't be that tough. ;-)
Philip
Patricia M.
Digital Estate Developer - web omnipresence and virtual teams
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Instead of pricing what you have - price the headache you want and add to your service so it provides the equivalent value.
In other words, pricing between $50 to $200 provides the least headache, typically. This draws in the kinds of clients that do not complain as much, do not return as much, and do not ask too many questions before they buy.
If your service is worth less than this, add bonus products or hands-off things that sort to help bolster the value. If your service seems to be worth more than this, consider packaging your service into a product of smaller bits.
Pete H.
Sr. Electrical Engineer, Transducers
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Olexandr,
If you have no direct competition for your service, then I assume your customer is either performing the service with his/her own labor, or has developed a work-around.
In that case, a good baseline for your pricing should start with an understanding of the value of your service. If the customer is performing the work themselves, then this is fairly straight-forward, you estimate the required manhours and multiply by a standard rate for the required skill level (and don't forget the time it takes to manage or supervise those performing the work).
Or, if your service is something new which will save your customers time and labor, then estimate the cost of their savings in a similar fashion.
Finally, don't forget to factor in some amount of 'convenience' charge. Example, if it costs me $100 to do something myself, and I can get it off the shelf for $130 I'll probably go with the ready-made solution, then I don't have to deal with the mess. The amount of convenience charge you will be able to factor in depends on the skill and income level of the people who will be enjoying the benefit. It will also determine the share you will successfully capture.
More Answers (2)
This is always difficult. If you price too low, the perception is that the service is limited in some way or not mature. If you price high, the perception is high quality - which is an expectation you have to meet consistently to retain subscribers to your service. If it were me, I would put together a focus group of potential clients (you can do this virtually or locally) or conduct a blind survey of potential clients.
Olexandr
A good question. You need to make some decisions here.
Firstly, obviously, have you calculated your costs in providing the service?
Once you have done that, you can decide if you want to make a profit. If you do, you then need to decide what sector of the market you're aiming at - home, corporate? Remember they will pay very different prices.
It's basically down to you to look at people already providing the service to the people you think will be your customers. Find out what they're offering, price wise and otherwise, and see how you can compare.
Good luck
Dilip
