Product models questions nobody wants to ask out loud

Once a price is published it is hard to move, and most of the trouble comes from questions nobody asked before publishing it. These are those questions, with the answers that hold up and the ones that do not.

All figures are invented placeholders used to make the arithmetic visible.

What to take away

Questions about the number itself

What is the lowest price at which this is worth selling?

Unit cost plus whatever markup covers the fixed costs and risk the unit has to help carry. On a unit cost of 42, a 25% markup is 52 and a 50% markup is 63. That is a floor and not a price, because nothing in the calculation refers to a buyer.

What is the most anyone would pay?

Whatever their alternative costs them, described in their terms. If you cannot state the alternative in a sentence, you do not know the ceiling and you are about to price by feel.

Should we just match the competition?

Their price tells you something about the ceiling and nothing about your floor. Matching a competitor whose costs are lower than yours is a decision to lose money at volume. The layer-by-layer version of this comparison is in pricing architecture.

Round number or a specific one?

A specific number invites the question of how it was derived, which is good if you have an answer and bad if you do not. There is no general rule here worth repeating, and anyone offering one without reference to your buyers is guessing.

Questions about discounts

What does a discount actually cost us?

Compute the extra volume needed to hold gross profit. At a 50% gross margin, 10% off needs 25% more units and 20% off needs 67% more. At a 30% margin, 15% off needs double the volume. Have that table in the room before anyone is authorized to offer anything.

Who is allowed to approve one?

One named person with the authority to say no, and a written threshold above which it goes to them. A discount policy owned by a committee produces the discount the committee is comfortable with, which is always larger.

Can we charge different customers different prices?

Commercially you already do, through discounting. Where the buyers compete with each other, price differences carry legal edges, and the federal price discrimination statute is where they are set out. Read it against your facts with a lawyer before you design a tier structure that formalizes the difference.

What about a promotional price with an end date?

Fine, if the end date is real and enforced. A promotion that never ends is a price cut you have not admitted to, and it resets what buyers think the product is worth.

Questions about time

How will we raise this price later?

Decide now. A trigger, a notice period, and a list of who is protected and until when. Introduced at the start it is a term; introduced later it is a concession you have to buy back.

What happens to customers on the old price?

Whatever you say, in writing, before anyone asks. The worst answer is a different one for each customer who complains, because that is the arrangement that ends up in a file nobody can reconcile in three years.

When does income from this sale actually count?

Earlier or later than the cash, depending on how you account. It matters for planning as much as for tax, and the two methods are set out plainly in IRS Publication 538. A growing product business often looks profitable while short of cash, because inventory is bought before it is sold.

Questions about what you are actually selling

Is this one product or several?

If two variants have different costs and different buyers, they are two products with two floors and two ceilings. Blending them into one price is how a firm ends up subsidizing its worst line with its best. The classification underneath this is in business model types.

Does the first sale have to pay, or can the second one?

Both are viable models and they need different things from you. Subsidizing the first sale requires knowing how many follow, and knowing that requires data you may not have yet. What each shape demands is set out in product models, and the arithmetic of a sale that has to be recovered later belongs in unit economics.

When an argument will not settle

Some pricing arguments do not resolve because they are actually arguments about strategy. Whether to be the cheap option or the expensive one is not a pricing decision, and no amount of margin analysis settles it. When you notice that, stop the pricing meeting and have the other conversation instead.

Common questions

How long should this whole exercise take?

A week for a single product if the cost data exists. The part that takes the time is describing the buyer's alternative honestly, and it is the part worth the time.

We already published a price we now think is wrong. What now?

Do not change it quietly. Decide the change rule you should have had, apply it to new customers first, and give existing ones the notice you would have written. Quiet changes get found.

Should the price be on the website?

Publishing speeds up small deals and anchors large ones. If your product's value varies a lot by customer, publishing a starting point rather than a full list is the usual compromise.

What do we do about a customer who will not pay the new price?

Decide in advance what you would accept, and hold it. A price you abandon on the first refusal is not a price, and everyone in your market will know within a quarter.