How can someone set the product pricing, budgeting or revenue model? I mean what are the criteria to measure product price, ROI and how? Because stakeholder always wants ROI before starting.
Product pricing can be done in multiple ways.
- Competitor based – if you are entering an industry which already has some players, then the best way to price your product is based on the competitors offering.
- Cost based – this type of pricing is very rarely used in a technology driven model. But yes, the costs can definitely give an estimate of the minimum amount you should charge to make your product viable.
- Value based – this is what most of the products’ pricing will be based upon. This is not easy to determine. What you can do is try with different prices and measure the number of customers you are having at different price points. There will be one of the prices where you will see a kind of inflection if you plot the graph of price vs revenue. You can then use that price as your reference for the product.
If you are entering a completely new industry, pricing will be the most complicated thing to achieve cause you won’t have any references. However, it is more a function of your study of the market and the kind of segment you want to cater to. Cause if your target is high end customers, you will have to make sure that your price is on higher side. As people have this perception, that a low priced product might not match their standards.
So a lot of factors come into play while pricing of the product.