How To Set Prices For Your Info Product: Some Tips And Lessons Learned

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Next Monday, I’m increasing the price of my Create A Profitable Online Store course for the 3rd straight time.

And since I’ve experimented with pricing quite a bit in the past 2 years, I thought that it would be an interesting exercise to talk about some of the lessons I’ve learned while pricing my course and to discuss different pricing strategies targeted towards information products.

As you probably are aware, pricing is an extremely important factor in sales. Not only does pricing affect the number of units that you can potentially sell, but it also has a profound effect on the “type” of customers that you receive as well.

In today’s post, I’m going to talk about some of the pricing mistakes that I’ve made over the years and some of the unexpected outcomes that I’ve experienced through various pricing experiments.

My Big Pricing Fiasco

idiot
As far as pricing screw ups go, I made plenty of mistakes early on with my online store course. Those of you who have followed my blog for a long time probably remember that I launched my online store course a couple of years ago with multiple tiers.

  • The first tier was priced at $199 which included my 400 page ebook along with unlimited email support.
  • The second tier was priced at $299 which included the ebook along with live office hours, email support and 24/7 access to a library of tutorial videos.
  • The third tier, which never saw the light of day, was supposed to be priced at $999 which included everything above in addition to a custom installation of the shopping cart and template by yours truly.

Just so you know up front, I really did not want to support 3 pricing tiers and I only did so at the influence of my colleagues. Not only is offering multiple tiers a major pain in the butt, but it can also be an implementation and administration headache as well. But here was the rationale and it made perfect intuitive sense at the time.

By offering multiple options, the theory is that you are changing the mindset of your customer into deciding “which product to purchase” as opposed to “whether to make a purchase altogether”.

The other reason for having 3 tiers is that you can influence a customer into buying a specific tier while still catering to your low end customers. In my pricing scheme above, I wanted most people to signup for the $299 tier 2 package so I priced it slightly higher than tier 1 but drastically lower than tier 3.

Sounds like a pretty good plan right? But just hours before launch, I got cold feet about having to support tier 3 customers and decided to remove the tier 3 option altogether. And what ended up happening was that I launched my course with only 2 variations priced at $199 and $299 respectively.

The problem with having only 2 choices is that more customers will gravitate towards the cheaper package and that is exactly what happened. My sales for tier 1 ended up much higher than expected which was absolutely not what I wanted.

To make matters worse, I was getting questions from both tier 1 and tier 2 customers and I had to keep track of who signed up for what because there were different levels of support involved with each type of customer.

Long story short, I eventually ended up upgrading all of my tier 1 customers to tier 2 and decided to consolidate everything into one all encompassing option to reduce my burden of support.

Lesson learned: If you are going to offer multiple tiers, make sure you are prepared to deal with the additional headaches of segregating your customers. My biggest mistake was that I wasn’t really prepared to support both groups differently. And eliminating my third tier at the last minute completely destroyed my “price anchoring” strategy.

Dealing With Customer Issues

Money Back

Even though I had what I considered to be a successful product launch, I was getting a good number of customers who would signup, download my ebook and then ask for a refund almost immediately. And needless to say, this made my blood boil because they were essentially stealing my product.

When I consulted some of my colleagues, a good number of them told me that I was pricing my product way too low.

For what you are offering, I’d charge around a thousand dollars.

A thousand bucks!!! That’s preposterous! The reason I priced my class the way I did was because I wanted it to be accessible to a wide range of people which was part of my rationale for offering the cheapest tier in the first place.

Plus, I wanted to launch my product with a bang and I strongly felt that having a higher price would be a huge detriment to sales. But little did I know that my pricing scheme was one of the biggest contributing factors to my refund rate.

The Counter Intuitive Effect Of Raising Prices

Raising Prices For Dummies

Once I had a decent number of videos in my library, I finally listened to my colleagues and increased the price by $100 to $399. It was still a far cry from a thousand dollars but it was a step in the right direction.

And to this day, I still remember how I felt when I made the announcement via email. As I typed up my newsletter, I felt extremely uncomfortable. I felt that my sales were going to completely dry up. I felt that my refund rate was going to skyrocket.

But then a strange thing happened. Instead of sales decreasing after the price increase, sales actually shot up! Perhaps at that point, word of mouth had already spread about the quality of my product, but it still seemed kind of odd that sales would suddenly increase after raising prices by 33%!

And what was even more odd was that the number of people asking for refunds was drastically reduced as well.

Here’s another strange trend that I’ve noticed over time. The quality of students enrolled in my class has improved with every increase in price!

Whereas I use to have freeloaders signup only to ask for refunds because they didn’t have the motivation to begin, I started getting more students who were determined, hungry and serious about starting their own shops.

Lessons Learned

chalkboard
Those of you who’ve followed me for several years know that I run my course for fun. While the money is a factor, I mainly do what I do because I like the challenge and I like interacting with motivated people. And it is in my best interests to attract the most motivated students possible because quite frankly I want to see everyone succeed.

Here’s what I’ve learned from pricing my course over the years.

  • The price that you set will determine the type of customers you will receive. If you price your product too low, you will attract the bargain hunters and the cheaper customers. If you want to attract premium customers, you need to set prices accordingly and your price should reflect the quality of your product
  • Be prepared if you plan on using psychological pricing tactics on your customers. First and foremost, you need to to assess whether offering and supporting different price tiers is worth your time and effort. Second of all, if your sales page comes across as salesy and gimmicky with lots of “bonuses”, you’ll tend to attract lower tier customers as well.
  • Don’t be afraid to increase prices over time as your product improves. If the quality of your product is up to par, then your sales will not be affected and may even increase
  • The prices that you set for your product will establish a perceived value among potential customers. By setting prices too low, you may be driving away your target market because they may think it’s too cheap to be any good.
  • Audio and video material has a higher perceived value. Furthermore, if you hold any sort of live office hours or live webinars, you can command even higher pricing.

Overall, setting prices for your information products is more than just supply and demand. There is a definite psychology involved and you have to figure out ahead of time what type of customers you want to attract.

Next week, I’m increasing the price of my course because I want to provide value to those who are serious and determined to succeed with an online business. If you are motivated to learn, I promise that I will give you my best effort in helping you launch a successful online store.

Further Reading – Pricing: Psychological Mind Games That Stores Play

photo credit: Alex E. Proimos Corey Leopold

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16 thoughts on “How To Set Prices For Your Info Product: Some Tips And Lessons Learned”

  1. Sandy says:

    Why was it hard to support students with your 2 options? Wouldn’t answering questions by email be the same with both tiers? Great post!

    1. Hi Sandy,
      Yeah, that probably wasn’t clear in the article. Basically I had 2 sets of customers, ones with email support only and ones with live support and access to video tutorials.

      What ended up happening was that I was getting lots of questions that were already covered in the videos. With tier 2 customers, it was just a matter of pointing them to a video and/or creating a special video to answer their questions.

      But with tier 1 customers who only had the ebook, I had to manually answer the question by email even though I already had the answer recorded on video. This ended up being double the work.

  2. Hi Steve,

    Very interesting post.

    I would love to know where your customers coming from that are joining your course.
    Is it your excellent landing page or alternately do you get it from other trust building efforts like email perhaps?

    I think because you are offering one info product, there is no confusion and it is also clear that care about your students success by providing lots of support. I suspect many people will pay more.

    As an idea to increase sales even further, have you considered offering recurring payments?

    Good luck with the new price!
    Quinn

    1. Hey Quinn,

      Most of the customers are coming straight from the blog and newsletter. In general, a landing page is not sufficient to sell a pricier info product. You need to establish a relationship of some sort first.

      I considered have a recurring payment option in the past, but when it comes down to it, I want every student to stay in the course in the long term so I can stay in constant contact. Starting and running a business is not a short term thing and I want to hear about the longer term issues and success stories.

  3. This is a really good summary of pricing courses, workshops, etc. Like you Steve I always felt a bit off to set a price too high. But it makes sense that you get a higher quality member that way.

    On the consulting side, it’s a tough balance of attention and time, and what that costs you in terms of the service. Maybe separating out the ebook, with minimal support in terms of Q&A, or putting together a Q&A after you get so many questions, or updating your blog with these questions would be better than answering every email. The higher end program could have vids and audio and you could always upsell from the base offering I guess. So many things you could do.

    I really don’t mind helping folks and they shouldn’t always have to pay for it, but if time demands warrant, you really have to figure out a system or process that makes it work your investment of time.

    The one big take away from this experience is you may not always get it right out of the blocks but you can surely adjust as needed and improve all the aspects of the offering, and how you manage the backend of things.

    1. Hey Mark,
      It’s much easier now with only 1 option. When I get a question that will apply to the rest of the class, I simply make a video and/or post and put it online on the membership site. The main problem with my initial model was that tier 1 customers didn’t have access to the membership site so it ended up being a support nightmare.

      But yes, you can always make adjustments along the way! Thanks for the comment.

  4. I consider pricing both an art as well as science. You can do all the research you want on pricing, but at the end of the day the customer will only pay for the perceived value they get from your product. The challenge is to find the value that customers get and the types of customers that get attracted by your product and corresponding price.

    You have done a fabulous job of experimenting and finding that sweet spot that provides good value to customers and nice profit to you.

    I had come across a nice Infographic on pricing that I thought you and your readers might like – http://www.smallbizviewpoints.com/2013/03/30/do-not-undersell-how-to-set-prices-for-maximum-profit/

    Would love to hear your views on some of the techniques mentioned there.

  5. Wendy says:

    What an interesting story. You tried what people told you would work and then when it didn’t work for you, you were able to find a system that did work.

    In my case, I was initially put off by the price but then after reading your blog, other reviews of your class, and trying a few things on my own, I came to realize how valuable the right kind of support can be. I am hoping to sign up for your class on Sunday. I only need $55 more.

    1. Thanks Wendy. Looking forward to having you in the class.

  6. Hi, Steve.

    I have been seriously enjoying ALL your posts for the past few years now everytime with some new inspiration to start my online business.
    Although I have been running my number painting business for the past 10 years physically all by my lonesome, I was always for some reason convinced that teaching other “unemployed” people how to get started and be successfull in you very own easy to do business was what I was upposed to do.
    Although some of my friends and even family tried to convince me to keep on doing it by myself.
    I found that those opposing the information sharing idea was going to give my “business / customers” away to my competition. But what I found was that my competition steel my business anyway by simply just watching me from afar off and then going out and attempt to just do business and be “as” sucessfull as I am. But then I found that these “competitors” did NOT know what they were doing in the first place by providing inferior quality product, and service and upon that doing it for peanuts also, thinking that they will get more business than I get.
    I laugh when I think of these “competitors” because they start, steel business, ruine the market, then stop doing it altogether because they suddenly cannot afford to do it due to financial restriction due to their “LOW” pricing just to get my business.

    I found many of these “fooled” customers who told me that they no longer want these numbers we paint because they never last. But because I have the “REAL” experience in number painting, I “REALLY” deliver a product which outlasts any of my competitors by years, not days as some of their numbers last.

    1. Thanks Nico! I will go and check out your site now.

  7. Excellent piece. I don’t offer anything like this, so have never paid attention to pricing. This was a great introduction for me. I’m sure I will use the information at some point!

  8. Sharon says:

    Steve, this post couldn’t have come at a better time. You’ve just about convinced me to ditch my idea of offering tiers.

    I just invested a few hundred dollars in ads to build a small interest list (around 200 opt-ins) for a video e-course that I’m planning to produce. I’m not yet at the point of launching, but I’m looking ahead and already wondering about how to price it.

    My video e-course will teach a specific type of exercise that can be learned locally in most big and medium sized cities for $10-15 per session for a “general” audience, but the unique aspects of my course are super-niched where it’s tailored to a specific audience who most likely can’t find this tailored version locally. It’s also very hard to find this on DVD.

    In addition, I’m considering having a private Facebook group (or e-mail access) where the students can ask the teacher questions and maybe even upload videos of themselves doing the exercises and get expert feedback.

    Since there are ad costs, partner percentages, and some overhead costs that must be paid in order for this to be a worthwhile venture, I figure that $97 is the least I can charge (which I can easily justify since 7-10 local “generic” classes would cost around the same as this course in total), but I wonder if I should try charging $147 or $197 right off the bat since you wrote that audio and video and office hours have a higher perceived value? Add to that the fact that my product is positioned carefully/ “niched-down” to cater to a specific group within a market, and I feel a bit more confident about justifying a higher price, but I’m still not sure what to do.

    My main concern is aliennating my list with too high of a price point where I fail to get enough students. That would ruin over a month of testing and sink the hundreds of dollars spent already. Therefore, I’d rather err on the side of charging too low for the first class and then increase steadily in price next time, so if you can recommend a price point, I’d greatly appreciate it!

  9. Sharon says:

    P.S.
    Another idea I had was to run a split test with two different price points during the launch, but I don’t know if it is technically possible to do this without messing it up entirely.

    For example, if the same person clicked on the sales link on Day 1 of the launch and arrived at the $197 landing page, didn’t buy, and then re-clicked a link a few days later where the price changed to $97, or vice-versa, that that may spell trouble.

    Your thoughts?

  10. Great post. I agree that how much you charge really determines the types of customers you have. I’m currently trying to price for my services and it’s really hard to not be tempted to undervalue myself.

    If you price yourself too low, I think people won’t take you seriously. Most people buy something because they think it’s of value to them, and many will justify the dollar amount if they really want to buy it.

  11. Thanks for the tips. This is very useful, like me I am planning to have online business someday.

    Yes I believe that prices of any products in that matter will be based on the supply and demand ratio. The more the demand the higher your asking value for your information products.

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