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Your time, energy, and money are valuable, but many people struggle to assign a dollar amount to each. Creators running crowdfunding campaigns often need help deciding what to offer backers and how to price each reward level.
Janene Liston helps her clients build value and know what and how to charge their customers confidently. She reminds her clients that having a profit mindset in their businesses makes them smart, not greedy.
Janene is a Certified Pricing Professional, experienced in value creation, and a European Public Speaking Champion. She believes each person possesses the wisdom they need to thrive in life, but sometimes they need help tapping into it. This belief led her to “pack up” her pricing experience to step out of the corporate world and into the entrepreneurial world.
When I interviewed Janene, I asked her about pricing crowdfunding campaigns.
Why is pricing products and services so difficult?
Thomas Umstattd, Jr.: For many creatives, pricing their products and services is the hardest part of launching a Kickstarter campaign or Patreon page. Why is choosing a price so hard?
Janene Liston: First, it’s difficult because people fear rejection. For some reason, we attach that rejection to our personal value and worthiness, which brings up baggage from our growing up years. It can be very uncomfortable.
Second, most people simply don’t know how to choose a price. They believe there is a specific method to follow, but they don’t know what it is. If they do choose a price, they often feel uncertain about whether they’ve chosen correctly.
Thomas: It’s particularly difficult for people who are offering a service. For example, a photographer who’s been taking photos for free will find it difficult to start charging. When they do set up a fee schedule, they often charge too little.
It’s hard to know what your time is worth, especially for people who struggle with their self-worth. Choosing a price point is more psychologically challenging than choosing a logo or writing copy for the page.
How do you know if you’ve priced yourself too low?
Thomas: Whether you’re running a business or creating art, people often price themselves too low when they’re starting out. What are some signals that you’re not charging enough?
Janene: It is a common problem, and there are several signs that you need to adjust.
Customers Tell You
If your customers tell you, “You should be charging more,” please heed their advice. Your customers know the value of what you’re offering.
Thomas: Sometimes they’ll use different wording and say, “Wow. This is a great deal!” If people always talk about your product’s price as a “deal” or “steal,” you may be priced too low
Spinning Your Wheels
Janene: If you feel like you’re working hard but making little progress, you probably need to charge more. For example, if you have loads of customers but you’re having trouble meeting your financial goals or needs, you’ve probably priced yourself too low, particularly for service-based businesses.
For product-based businesses, if you’re delivering more value than your competitors but are still priced lower, you’re not operating with a healthy or profitable pricing strategy.
Thomas: You might think you could put your competitor out of business with that strategy, but you’re more likely to put yourself out of business because you run out of cash.
When I launched my first Patreon page, we had $2.00, $5.00, and $8.00 levels. The first 15 people to back the campaign chose the $8.00 level, which told us that we priced that level too low. It was supposed to be the luxury level that only a handful of people would want. It was a limited level, and it sold out.
We ended up hiding that level on our page so that new backers couldn’t buy that level for that price. Then we copied the level and raised the price to $20.00. That way, the people who backed at $8.00 still got the benefits for that price, but new backers at that level would pay $20.
It was a hard lesson learned, and we left a lot of money on the table by pricing it that low. We just didn’t value what we’d included in that $8.00 level.
Price Point Positioning
Janene: How we position prices next to each other on a page says something.
There was a famous example of a newspaper that started offering online publication. During that transition, the paper priced the print subscription at $80, the online-only version at $125, and the print and online versions combined at $125. Their pricing strategy was to push people to buy the combined subscription.
If they had priced the combined subscription higher than the online-only, people would have gravitated to the cheaper online-only version.
Thomas: One of the advantages of having multiple price points is that you create a market. You can influence which package people choose.
Some people have a worldview that dictates they only always buy the cheapest option, while others only buy the most expensive. But most people are looking for the option that provides the biggest bang for their buck.
Make your most profitable level the most attractive level. Patreon backers don’t support people just because they want the rewards. They back campaigns because they want to support creators. Some folks forego the rewards and simply donate to support the creator.
What is price anchoring?
Thomas: What is anchoring, and why is it important for pricing?
Janene: My perception of a price is influenced by many things. I might think about how much money I have in my wallet, but the value of the product or service is influenced by what’s around it. You can use price anchoring to steer your customers’ behavior, as did the newspaper I mentioned.
You can also use anchoring to help lessen the blow of a higher-cost product or service. One way to anchor a price is to use the copy preceding the price tag to mention statistics that use bigger numbers than your price. For example, if you mention that products like yours typically cost thousands of dollars, your $250 product doesn’t seem so expensive.
The benefits of anchoring generally happen at a subconscious level. Studies show that these fine-tuning tactics are effective.
Thomas: Once you understand anchoring, you’ll see it everywhere. You’ve probably noticed that Amazon places the original price with a line through it right next to the sale price. Even Apple uses anchoring techniques. In Steve Jobs’s original iPhone presentation, he billed the iPhone as three devices in one: an iPod, a phone, and an internet communication device. Each device would cost $500. But instead of selling the iPhone for $1500, they priced it at $600.
If price anchoring works for a company as sophisticated as Apple, it can work for you.
It can sound cheesy if you don’t do it right. For example, if you ever hear yourself saying, “But wait! There’s more!” you’ve probably fallen into the trap of cheeseball land.
Janene: Anchoring can be used in a sleazy or eloquent way. Whatever you’re selling, you need to talk about it in a way that aligns with your values.
What are some signals that your price is too high?
Thomas: How do you know if you’ve priced your products or services too high?
Janene: If what you’re delivering doesn’t bring the value you promised, you may be out-pricing yourself. Many people out-price themselves when they make a product that feels exciting to create rather than making what their customers want or need.
Thomas: Value is subjective. One man’s trash is another man’s treasure.
The iPhone came out when I was in college. I couldn’t afford one, but I knew what they could do, and I knew the value. I knew people who had purchased an iPhone but were only using it as a phone and a camera. It was more valuable to me because I knew what the iPhone was capable of. The value to me was high, but as a college student, I couldn’t afford a $600 phone.
The higher your price, the more people you exclude. Sometimes exclusionary pricing is intentional. Consider a country club. People pay substantial club fees so they can exclude people who can’t afford it. People want to feel like they’re in the exclusive in-crowd, and pricing is one way to give that feeling.
You can offer that exclusive feeling on your Patreon page by limiting your rewards or giving them only to your most passionate fans. Reward their passion rather than their money
Janene: When you’re selling something, you often get requests for discounts. I teach people not to offer discounts but to offer bonuses instead. Instead of adjusting prices, you can include new and innovative rewards in your packages.
Thomas: On Patreon, changing the price point on your reward levels is hard, and it creates a lot of friction. People tend to cancel if they have to pay more than they used to. Kickstarter doesn’t allow you to change your price points. But on Patreon and Kickstarter, you can change what backers receive.
On Kickstarter, you can offer stretch goals. For instance, you might say, “I need $10,000 to produce the album, but if we raise $15,000, I’ll add two new songs.”
That’s one way of enhancing the benefits of that reward level. The backers don’t pay more, but they may get two more songs. To help you meet your stretch goal, your backers will spread the word and tell their friends to hurry up and back your campaign so they can all get more music.
Stretch goals are built into Patreon’s platform. They’re simply called “goals,” but once you get 1,000 backers or raise $1,000, a new benefit for everyone is unlocked. You have a lot of room to experiment with what you offer in your package.
Janene: Another strategy is to use a reverse auction. Instead of buyers outbidding each other to pay the highest price, sellers try to underbid each other, and buyers get the lowest price available.
Thomas: It’s similar to a reverse coupon, which has worked well for selling our courses. You begin by offering your product at a low price and encouraging buyers to get it while the price is low because the price will increase in the future.
We underpriced our first course by a long shot. Instead of raising the price randomly, we occasionally let people know that the price will increase in two months so they can purchase before then and get the best deal. It functions like a coupon in that it has urgency and anchoring, but we’re not actually lowering the price. Instead, we’re anchoring it to the future higher price.
It’s a good strategy for raising prices, and it prevents people from being disgruntled about the higher price. You give them plenty of notice about the price increase so that it’s not a shock.
Pricing Strategies for Patreon and Kickstarter
Thomas: What tips do you have for someone setting prices for their rewards on a new Patreon page?
Steer Behavior with Price Points
Janene: Remember that you can steer people’s behavior by offering multiple price points.
You don’t have to price your packages with equal dollar amounts between them. If you want to steer people toward your bottom levels, price the bottom and middle packages closer together and price the highest level farther away from those dollar amounts.
Know Your Financial Goals
Do the math and determine how many backers you’ll need at each level to reach your financial goals. A simple spreadsheet can help you find those numbers. Maybe you need 20 backers at the $5.00 level and 50 at the $2.00 level. Use those numbers to guide you when you’re targeting people.
Selling is still about value. People have to understand the value behind something before they will buy it. Patreon appeals to people from an altruistic perspective, and yet, there’s a value component where people get excited about what’s offered in the packages. However, as the seller, you must communicate that value.
Thomas: In business school, we toured restaurants to learn about their fascinating business plans. At restaurants, each menu item has a different level of profitability based on the cost of its ingredients and the time it takes to prepare. While the steak is expensive, the restaurant may not profit much from it because the cost of the meat captures most of the value.
Restaurants often display photos of their most profitable dishes on the menu to steer patrons toward those. Restaurant patrons are more likely to order the dish that’s pictured. For example, you’ll often see flashy pictures of entrees with potatoes and eggs, which are traditionally cheaper ingredients, because those dishes have a higher profit margin.
With Kickstarter, the two most popular price points, in general, are $25.00 and $40.00. You’ll get the bulk of your backers at those two levels. Make sure those levels are “flashy picture” type dishes, where your cost of materials and preparation is low and your profit margin is high.
If you’re an author, you may be tempted to offer backers a signed copy of your paper book at the $25.00 level. It might sound like a good value, but if 1,000 people back your campaign at that level, you’ll be stuck signing and shipping 1,000 books, which is expensive and time-consuming. If you’re offering signed copies of your books, price that reward at a profitable and doable price point.
The key is to know what your audience finds valuable. Just because you think an audiobook is valuable doesn’t mean your audience will.
I was at WordCamp, a WordPress user conference, where a WordPress developer presented all the new features they’d worked so hard on. He received polite applause with each feature he listed, but when he said they’d improved the copy-and-paste feature from Microsoft Word to WordPress, he received a standing ovation. He was dumbfounded because all the other features required teams of people to develop, but the copy-and-paste feature was the simple fix that the users were most excited about.
When Apple revealed the new Dark Mode feature on iOS10, they received a similar response for a relatively simple change because people really valued it.
Janene: People often appreciate simple things more than big gestures. Keep that in mind as you decide what to offer people.
Connect with Janene Liston at ThePricingLady.com.
Use Novel Marketing’s Patreon Affiliate Link to earn an extra $50 for your first 30 backers.