After you’ve settled on a pricing model and have established price range for your offering, it’s time to test your price and determine what the next steps should be. One of the easiest ways to assess a product’s price is through A/B testing, details of which you can find in the VWO article, “Stop guessing! Use A/B testing to determine ideal price for your product”, by Paras Chopra. Below are some of the highlights:
Offer different products at different price points.
Depending on your offering, your company should ideally present different products, features, plans, solutions, etc., each with a different price. For example, set a price for your base model, then present another product that has twice the value (additional features, functions, etc.) for twice as much, and offer another product that has half the features of your base model but is only 20% cheaper. If the conversion rate for your original base model is the same as the cheaper model (despite having only a slightly higher value), then that means that your customers are willing to pay more for your offering.
This process will take time and may need to be iterated numerous times, but that’s to be expected with most startup “experiments”. Remember, add extra value to your product when you are testing a higher price, and remove value when you are testing a lower price, depending on the what it is you’re offering.
In short, the purpose of this process is to ascertain the price sensitivity of your target market. Once you’ve homed in on this factor, you can now offer your product or service at a price that customers are willing to pay while maximizing your revenue.
Measure your revenue, not your conversion rate.
During the price testing phase of your startup, it’s important to keep in mind that the goal is not to necessarily increase your offering’s conversion rate, but to increase your offering’s revenue. It’s easy to assume that a higher conversion rate means increased revenue, but that’s not always the case.
For example, your company may offer numerous products (or only one) that sell incredibly well. However, if your products have a small price, you may need to sell a considerably high number of products to make a profit. This problem may be compounded by the manufacturing, development, and maintenance costs of your product, as well. Inversely, selling a higher priced product but at low numbers may be enough to maximize your profits, so it’s essential to focus primarily on the overall revenue your product generates.