from Hacker News

It's easy to underprice your product (2009)

by isp on 7/18/23, 6:14 PM with 41 comments

  • by cldellow on 7/19/23, 3:36 PM

    Sorta related: when I was 22 or so, a friend and I sold some software to a school district.

    We were young, poor engineers with no idea how sales worked. When they asked what the price was, we picked a nice round number that sounded appealing to us.

    "$100,000."

    Our counterparty may have actually laughed at us. "I can't just write two twenty-somethings a cheque for $100,000."

    Oh, shit. They're on to us. They're gonna bargain hard, and we're going to have to lop off tens of thousands of dollars.

    "But what I can do is write you a $10,000 cheque for a 1-day training session, a $15,000 cheque for installation support, a $10,000 cheque for 1 year of maintenance and a $65,000 cheque for a perpetual 5,000 seat license. Does that work for you?"

    It did. To do this day, I'm pretty sure we sold the government $100,000 of services because two high-up administrators were incapable of working out their interpersonal issues. Instead, they used our software as a go-between. Absurd.

  • by isp on 7/18/23, 6:18 PM

    These stories are wonderful:

    Excerpts:

    > “And she realized… she left money on the table.”

    > And Sandy gulped and picked the biggest number she thought anybody would ever rationally pay. And said, “$75,000”. And she said all the buyer did was write down $75,000.

    > And she realized, shit, she left money on the table. Sandy Kurtzig was awesome. And she said, “Per year.”

    > And the buyer wrote down, “Per year.”

    > And she went, oh, crap what else? She said, “There’s maintenance.”

    > He said, “How much?”

    > “25 percent per year.”

    > And he said, “That’s too much.”

    > She said, “15 percent.”

    > And he said, “OK.”

    > [Ed: This is called “flinch pricing.”]

    ----

    > They said, how much is it?

    > And I was about to go, “$75,000…” And Gina goes, “Shut up I’m the salesperson.” She said, “A million dollars.”

    > ... And the guy looks at Gina and said, “Gina you’re out of your mind. We don’t pay more than $675,000.”

    > And Gina said, “All right. We’ll let you have it for $675,000.” ... “But that’s for the base module. What other ones would you like?”

  • by gnicholas on 7/19/23, 4:39 PM

    One great piece of pricing advice I received was that you can price the product based on the seniority of the person in the room. If you're meeting with a mid-level manager of a medium-sized company, you shouldn't go crazy with the pricing. But if a senior executive is in the meeting, you can tell the deal is important enough for him/her to spend time on it, and you can price accordingly.

    This doesn't override other more concrete considerations, but when you're trying to price software (zero marginal cost) made by a startup (often no direct competitors/comparabales), it can be a useful factor.

  • by DonnyV on 7/19/23, 3:37 PM

    I think this is a very "of its era" kind of story. Computer systems were looked at as magic boxes back then and there was no easy way of doing research on competitive products. Hell there might not even be a competitive product. If you did any of that now or didn't research your market. You could easily sink your startup. The software industry is pretty mature now and people are more savvy on figuring out what feels right. Not saying that engineers don't still under price their products. But as an engineer I would do your research and find something that fits within the market because thats what your customer is going to be doing.
  • by fwungy on 7/19/23, 6:12 PM

    My first real software job, I asked how much do we charge for this thing? Sales guy told me it was $50k. I was like, what? This thing isn't worth 50k. Sales man replied "It's not what it's worth, it's what they'll pay."

    Never forgot it.

  • by dmbche on 7/19/23, 5:10 PM

    Not entierely related, but I remember hearing the Ceo of Warby Parker explaining that when they were selling glasses for less than 100$ (because it cost them very little and wanted to offer a low cost pair), no one was buying, since there is an unspoken bias - paying 20$ for them made clients feel like they were low quality, even if they were just as good.

    So they raised it to about 100$ a pair and boom! Massive sales, become a huge player in the market.

    If your stuff sells cheap, it's thought of as cheap. Branding is a part of the price!

  • by imiric on 7/19/23, 6:59 PM

    Interesting to read this after yesterday's post about Silicon Valley companies strategically subsidizing their costs to undercut the competition and gain market share[1]. Maybe overpricing is a winning strategy in the enterprise world, but shareholders would probably rather see a larger customer base than a few high paying contracts.

    [1]: https://www.businessinsider.com/venture-capital-big-tech-ant...

  • by HeyLaughingBoy on 7/19/23, 2:35 PM

    This is much earlier than 2009 (the original). I remember listening to it as a podcast around 2004 or so. In any event, it's a great learning experience and I still think of it from time to time.
  • by aidenn0 on 7/19/23, 6:51 PM

    Some businesses are strangely irrational about overpricing. Occasionally I've seen something that was obviously much more expensive than the T&M required, but much less expensive than what it would replace and the company balks because "It doesn't cost you anywhere near that to make it."

    That's the exception rather than the rule though.

  • by bryanmgreen on 7/19/23, 10:40 PM

    On the flip side, as the business owner of a what I'd call an "affordable luxury" product (about $45 for a hand-blown whisky and spirits glass), its also easy to overprice the product.

    The most difficult thing is finding the balance and compromise in pricing because some customers will happily pay double the cost, but many won't.

    My product is very expensive to make and my margins are not great, but this price gets me the most market saturation in a very important growth stage (business is only 2 years old) while still keeping the business profitable

  • by grahamgooch on 7/19/23, 10:11 PM

    I was managing Accenture as a strategic partner and in one meeting we were discussing solutions for a division of Siemens. I represented the third largest ent Software company at that time.

    The Accenture EMEA head asked the room what can we offer to solve X.

    before I could answer, of my engineers stepped up and said Product X

    MD. How much does it cost? Engineer: $50000 per year

    MD turns to me and says. What do you have that costs $1M or more.

    Accenture made $2 for every $1 of our SW. They had no interest in selling solutions that didn’t move their and our goals.

  • by killjoywashere on 7/19/23, 9:48 PM

    My wife is an allied health professional who opened her own business. She serves a fairly high end clientele. Thankfully a friend pointed this out and said she needed to keep increasing the price until they as a group push back and her wait list goes down (her wait list is measured in months and has a very high conversion rate). She has increased her price by 6x in the last few years. And the wait list keeps getting longer.
  • by pcdoodle on 7/19/23, 6:31 PM

    I did a project for an event company that was to gamify a basketball and baseball speed pitch system (LEDs, Score Count, Radar, Etc).

    I sent them a text with a price for the project and they wrote back "How much for baseball?". It was worth two times as much at that point.

  • by djmips on 7/19/23, 4:54 PM

    This includes yourself.