Ask HN: Costs & Pricing?

[lewstherin]

Hi,

We are working on a product targeting businesses. This involves supplying hardware (that we source from elsewhere) and software to go along with it. About 50% of the cost is going towards the hardware. Now, we are trying to essentially figure out two things: 1) How much it would cost us?: Currently we have taken into account Hardware & software costs (basically how much it would take to sustain us for the period of customizing the product), shipping, supplementary hardware to be kept in the inventory and misc expenses like costs during the pitching period etc.

2) How do we price the product: We are working in a market where our customers might be reluctant to come onboard initially. So we figure the pricing model should be aggressive. That said, we are low on capital and hence we need to make some money from the initial customers also to sustain ourselves.

Are we ignoring anything major in deciding the costs? How do we build an effective model for pricing? Any links or articles on the subject would be of great help.

Thanks in advance.

[michael_dorfman]

Regarding #2, my standard recommendation is Don't Just Roll The Dice, a free e-book that covers the territory nicely. You can find it here: http://www.neildavidson.com/dontjustrollthedice.html Don't underprice yourself too quickly. Price has a signal effect, and is viewed as a proxy for quality. You should definitely aim to make money even on your early customers.

Regarding #1, there's no magic-- just total up the expected expenses, and leave some breathing room.

Note: the only relationship between #1 and #2 is that you want to make sure your price exceeds your cost. Otherwise, the price should be independent of your costs-- the key factor is the perceived value you provide the customer.

[lewstherin]

Thank you very much! You've been a great help.