In any industry, price is a crucial factor in deciding whether your product is a success or not. When a strong business in a given space lowers prices, competitors will often contemplate doing the same. There are also buyers who subconsciously believe that the higher the price, the better the product; in turn, cheaper products are often perceived to be on the lower end of the stick when it comes to quality.
Of course, all of these beliefs are not entirely true. There are products that are priced on the higher end of the market but do not really satisfy customers’ needs, and there are cheaper options that seem to be giving people exactly what they’re looking for. It seems like the popular saying “you get what you pay for” is not really that applicable any longer – at least not in all cases. There are times when you might feel that you’re getting so much less than your money’s worth, while there are winning situations when you feel that you are absolutely getting more than you paid for.
This is what you have to think about if you plan on marketing your own digital product. Whether it’s an image, an app, a piece of content, or any other resource, you have to be able to compute for what’s fair and reasonable.
The Transition from Traditional to Digital
Before you even worry about the pricing, however, there’s a discussion of whether it is really worth it to transition into digital. Of course, this isn’t a problem for those who develop apps or programs, as they have been digital right from the start. What we’re talking about here is the transition from writing, for example, printed books to ebooks, or printing photos on film to creating digital images.
Sadly, many creators have given up on their passion just because they feel that they should not be evolving with the times. Photographers have hung their cameras in one corner of the room. Writers have settled for editing or proofreading tasks because they feel that not being able to have an actual, physical printout of their book is not worth it.
In my opinion, this is a complete waste of talent and skill.
Why transition from traditional to digital?
• It is easier for your audiences to purchase.
• It is easier for you to market.
• It allows you to reach audiences that you haven’t been able to cater to before.
Business-wise, it is always a good thing to adapt to changes. This is no exception in the digital space.
Traditional versus Digital Pricing
Now that you’ve decided to go digital, or are at least pondering about making the switch, it’s important to understand the differences between traditional pricing and digital pricing.
Let’s use photography as an example. When you’re taking pictures, how would you normally price this service? Let’s say you spend around 14 minutes in labor just to prepare a physical print of your image. This includes around 5 minutes to retouch the image, a minute to order prints from your lab, a minute to unpack these prints you ordered, around 2 minutes to package your print, and 5 minutes to meet up with your client.
Computing the time you spent on a single print considering that you peg your annual salary at $60,000, then that’s $7 in labor for those 14 minutes.
Let’s look at your materials this time. Say you spent around $11 for that entire process. So that’s $11 plus $7. Add them together and you have $18. Now consider your mark-up, which a lot of people usually set at around x2.5 or x3. Let’s go for the higher end. $18 times 3 would be $54.
Now use the same formula for your digital image. You would have to take out the time spent ordering prints and meeting up with the client. This means that you probably spent 7 minutes on labor, and nothing on materials. That’s $3.50 times 3, which will give you $10.50.
So here’s a question: if you have both a physical product and a digital one, would you price one of them over $50 and price the other one at more than $10? Of course not! This means that you are hoping to push your customer to get the digital image instead because of the huge price difference. Because of this, it is obvious that digital pricing is more than just labor and materials.
Seller and Customer Psychology
When it comes to digital products, there’s one question that can help you decide how to price the product: is it reasonable and fair? It’s as simple as this:
• You under-deliver. When your customers pay a certain price and you end up under-delivering, this will result in disappointment. Especially in today’s digital world, you’ll find word about this spreading like wildfire in an instant. On your end, you could end up feeling guilty or indifferent. Either way, this will hurt your business.
• Low and reasonable price for a product. When customers pay a low price and get a product that they know is worth every penny they paid for, both you and the customer will walk away from the exchange feeling satisfied.
• You over-deliver. When your customer pays a low price for a product that’s supposed to cost a whole lot more, the customer would walk away either feeling that they just made the bargain of the century, or feeling guilty that they left you working hard for something you won’t fully get paid for. As the seller, you would eventually feel resentment towards your customers and would either let your craft deteriorate, or hate every minute that you’re working.
• High price for a great product. When your customers pay a high price that they know is truly worth it, this leaves the customer enjoying their investment. They become more engaged with the product because they know the price they paid for it. You, on the other hand, would be left with an overwhelming feeling of success. You kept your customer happy, and were paid a fair price for it.
So what do these outcomes tell you? Basically, that pricing is a balancing act. It’s not about you getting all the profit all the time. It’s not about dropping your prices so that customers grab your products off the shelves like crazy. There has to be a balance that leaves everybody feeling that the money and time spent was worth it.
Things to Remember When It Comes to Pricing
Now that you know how much impact pricing has on you, your customers, and your business, you see how crucial it is to mark the right price. Here are a few things that you need to remember while you’re computing that price:
• Offer different options. Customers will always compare your product’s features with the ones that your competitors are selling, especially when it comes to the price. Of course, the way the competition sets their prices is something you cannot control, but what you can control is what the customer compares it to. If the book you are selling is priced at $39, for example, you can offer a $79 package that includes the book and a few DVD’s. And just like that, the $39 book looks a lot more enticing than the $79 package, especially if the customer is only after the book. You can even add a 3rd option and make the $79 package more enticing than the cheaper option, therefore allowing you to earn more.
• Price higher. Even if you know for a fact that buying a more expensive thing does not necessarily mean buying the better product, this association is strong for many consumers. Don’t be afraid to price high. If you feel that it’s the right price for your product, then that’s the price that you set for it – even if it’s higher than your competitors’. Remember that people will still buy it as long as you clearly establish the product’s value in terms of your customers’ needs.
• It’s the same profit. Picture this: if you price a single product $40 dollars and one person buys it, you get $40. But if you price a product $4 and 10 people buy it, you still get $40. The only difference? For custom digital goods, the second scenario means that you put in 10 times the work and used 10 times the materials. The first scenario is ideal for customized digital products because you only account for labor and materials used to create a single item, but still managed to earn the same than if you sold low to a greater number of people. For design assets and templates that require no customization on your part, such as those sold in Creative Market, the calculation is different. You still invest a specific amount of labor and materials, but these are not reinvested every time you sell something. In earning increasingly high profits from a single effort, marketplaces like these open the doors to great passive income opportunities.
• Always test. A lot of people say that testing is not only time-consuming, but also very difficult to conduct. Although this is true, testing also gives you the kind of data that you need to set the perfect price for each product, which makes it a pretty worthy investment. Testing allows you to see actual outcomes with each strategy you apply, which will help you choose the best pricing approach.
Remember that when you go digital there is almost no limit to how much profit you can actually earn. You’ll be successful as long as you know how to price your products right and present them to the market in a way that convinces people to buy them.
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