Speaker 1: Get ready for your daily dose of marketing strategies and tactics from entrepreneurs with the gile and experience to help you find success in any marketing capacity. You're listening to Marketing School with your instructors, Neil Patel and Eric Siu.

Eric Siu: Welcome to another episode of Marketing School. I'm Eric Siu.

Neil Patel: And I'm Neil Patel.

Eric Siu: And today, we're going to talk about how much you should charge for your product or your service. So Neil, when you ... I mean, you have a couple of SaaS products. I'm curious, how did you figure out the pricing? For your heat mapping analytics tool, Crazy Egg, how did you settle on the pricing for that?

Neil Patel: When I first started or now?

Eric Siu: When you first started.

Neil Patel: I pulled it out of my ass.

Eric Siu: There you go. See? Sometimes these things come out of your ass.

Neil Patel: Seriously. I just made it up, and that's how I did my pricing.

Eric Siu: How much was it before?

Neil Patel: It was free, and then there's paid plans, and I think my paid plans were like $19.50 and like a hundred bucks or something like that. I just made them up. There was no logic behind it. I was like, "Oh, yeah, 19 ... " I just didn't go with 19. I'm like, "You've got to do $19.99. It converts better. $19.97." I would read these articles and people would be like, "Oh my God. He has like the Walmart philosophy. Everyone just assumes it's $19.00 even though it's $19.99, and you collect all those 99 cents and they add up, right?"

Eric Siu: Yep.

Neil Patel: Over time, I learned that if you're in your space and it's saturated and there's already other players, look at your product or service. Look what your competition offers. Is your product or service comparable? Do you have the same features? Are you better or worse? Assuming your comparable, you don't want to charge more than them because if you charge more than them, people are going to be like, "Why should I pay Neil? Eric offers the same product, and it's five times cheaper." Also, if your product is better, yeah you can charge more, but how much more drastically do you want to charge?
Like if I have one feature extra than what Eric had, and I don't even know, my computers that I'm selling, everybody would be like, "We wouldn't even use that feature, so why do we want to pay an extra $200 more, right?" You need to think about it from the logical perspective. The easiest pricing philosophy is make sure your product or service is better than the competition and match their price or just be a little bit under. Because if everyone's like, "Oh, wow. I get the same quality or better for less," they're typically happy and you're going to start taking away at their market cap or their market share. If your product or service is more, yes, you can still do well, but it's going to be harder for you to take away market share from your competition.

Eric Siu: Yeah, and you know what's interesting? There's this one company, and we've talked about this company. Maybe it's not good to reveal them on this podcast, but they chart $25.00 a month and $49.00 a month. Now the problem is when you get to a certain scale, let's say they're doing $16 million, $17 million a year, you run into a wall where [churn 00:03:06] has an issue and it prevents you from growing more.
What is interesting is when I was at this SaaS conference a couple months ago, everybody I was talking to was just talking about going up market, which just means they're trying to charge more money. Because what people realize is, when you start charging $19.00 a month, $15.00 a month, $9.00 a month, it becomes really hard to grow.
I think to give people something tangible to look at is I really like studying the research behind what Patrick Campbell ... I think it's Campbell ... has done at Price Intelligently. He's been on the Growth Everywhere podcast before. Check it out. He's also got a great YouTube channel too for you to review all the pricing. You can see how pricing has increased over the past couple of years, how churn has gone up, how the cost of customer acquisition continues to rise, and I think you need to at least look at that to arm yourself and then figure out pricing.
I think looking at what he has, that's one good thing, but there's also another guy to follow on Twitter. His name is [Patio11 00:04:03] He works at Stripe. Guy's based in Tokyo, and he's like a pricing nerd. He's written so many posts in the past that are still relevant today about how you should go about pricing your consulting services, how you should go about pricing your software products as well. Take a look at those. Arm yourself with the knowledge, and then from there, here's an example. With our SaaS product that we launched recently, we did a lot of customer development. We talked to a lot of people.
There's a couple questions that we asked, and I got this from Patrick Campbell, and it was, "Well, how much do you think this ... What's the most that you would pay for this thing?" Right? "What's too expensive?" Also, another question you would ask is, "At what price is this too cheap where you'd question the quality of this product?" Because, for example, if I see like a ... I don't know ... what's nice? Like a Mercedes-Benz?

Neil Patel: Well, the easiest example is you know all those manmade diamonds?

Eric Siu: No.

Neil Patel: Like Brilliant or Diamond Foundry and-

Eric Siu: Oh, yeah, yeah, yeah.

Neil Patel: ... stuff like that. It's the same thing where they charge too little because their cost is so much cheaper than digging them in the ground. People wouldn't buy them even though they look identical to a real diamond under a scope.

Eric Siu: Hundred percent. You need to ask these questions, and then there's actually Hiten Shah, your Crazy Egg partner, I think he shared something. I don't remember what it is exactly, but there's this graph where you start entering these customer development questions like too high, just right, and too low. You enter all these in, and after a while, it puts up a graph for you and it shows you what the perfect price is to charge. You can take it down to that level of detail. You don't necessarily need to, but I think if you just Google "Hiten Shah pricing map" or something like that, you might be able to find it.

Neil Patel: Yeah and from my end, I've done tons of stuff with pricing. Whatever you do, even if someone says this is the better way to do it, they're a god, they know everything, just don't take their advice blindly for it. Make sure you AB test, and when you AB test, don't optimize for conversions. Most people when they do price tests, they're just like, "Oh, okay, my original one, which is $10.00 had a hundred conversions, and my new one that is $20.00, right, has 75 conversions. And there's like I got less sales."
Because most AB testing solutions will show that the original won, but if your variation, the newer one, is double the price and you only got 25% less signups, you'll still generate more revenue. When you're doing AB testing on pricing, don't optimize for total conversions. Optimize for total revenue and look at chargebacks and refunds and profit margins over everything. Because even if the numbers pan out to be roughly the same, but the new variation you sold a lot less in your margins because if you have physical costs for some of your goods or whatever it may be, if your costs are a lot lower, in theory, you could make more money by selling less.

Eric Siu: Yeah, the final thing I'll have to add on my side is pricing is the biggest lever that you can pull, and there's a lot of SaaS companies I've talked to ... This doesn't have to be around SaaS, but it just so happens I'm speaking to a lot recently ... is that sometimes they're addressing their pricing we're talking four plus times a year. Just to Neil's point, AB testing and pricing super important. Just because a conversion is different doesn't mean it doesn't make you more money. Think about that, research pricing. There's certain methodologies to look into.
Arm yourself with the right knowledge, and then go with what seems right. Actually, the final, final thing I'll add is there's a lot of business intelligence or BI tools out there. You have Domo, for example. They help you make dashboards from the data that you have, and they're valued at $2 billion, but there's a bunch of other different tools out there. I have one that I pay for, $19.00 a month. I pay for [Sif 00:07:40], which I still think they're undercharging, but how is it that Domo can be valued at $2 billion, and how is it that Sif is only charging $19.00 a month when Domo is charging thousands? Think about that.

Neil Patel: Because Josh is also amazing at sales.

Eric Siu: That, okay. Good point, but look at how they go about pricing.

Neil Patel: The Domo founder is also the Omniture founder, which got acquired by Adobe ages ago for like $1.8 billion?

Eric Siu: Mm-hmm (affirmative).

Neil Patel: I think my number could be off, but in general, right? With pricing too ... and this is one thing that Eric and I really didn't touch on ... if you have a sales team, it's easier to charge really high prices because the moment you add sales, they say you can charge typically double the amount.

Eric Siu: Because they're freakin' expensive.

Neil Patel: Yeah, salespeople are expensive. We're both going through a process of just trying to hire a ton of salespeople.

Eric Siu: Yeah, by the way, if you want to come work for us for sales, for either of us, let us know. Okay, anyway, so that's it for today. If you want to check out our marketing go to singlegrain.com/giveaway, and we'll see you tomorrow.

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