I had an interesting discussion the other day - the topic: How to find the “right” price point for my product/service.

The first remarkable thing about this question is the simple fact that someone was actually thinking about pricing - in a time when everything seems to be for free (on the web at least - certainly not at your local gas station). So this person was in fact selling something (which is the second remarkable thing - as nobody seems to care about the boring task of selling anymore - at least in the lofty Web 2.0 circles).

Anyway - that was not the point. Pricing was the point. Here’s another great article by our old friend Joel Spolsky about the topic. Let me pull out a few points:

• Founders usually imagine that they are selling their wares to people more or less like themselves - which is to say, smart, discriminating consumers. But they would do well to remember that there is a stark difference between selling to consumers and selling to businesses. All things being equal, start-ups should almost always opt to sell to other businesses.
• Businesses will happily spend large sums of money on fixed costs, because those costs can be spread out across so many of their customers.
• Consumers, though, are a different story. On the whole, they tend to be very thrifty and price sensitive. They’ll choose the $18 cell phone plan instead of the $21 plan if they believe they can live without the extra $3 in features. This thriftiness means a company does not make a lot of profit per sale, which means it’s going to have to sign up a whole lot of consumers to make up in volume what it gives up in terms of margin.
• Volume doesn’t come easy. At the very least, a company will need to do something to reconfigure the brain cells of millions of humans so that 1. They know the product exists and 2. They want to buy it.
• Though lots of small businesses describe themselves as the low-cost providers in their industries, actually being the low-cost provider is pretty difficult to pull off.

The article explains these and many more points in more detail - go ahead, read it and build a B2B business.

Posted in Entrepreneurship