Pricing in reverse: use a product's price to figure out what you need to build

We started by creating our product, picking a price point, finding off-the-shelf packaging and going from there. End result is a box that's too large, costing us up to $25 to ship. Our product is currently priced at $95, including shipping anywhere in Australia. Already our sales are low due to the cost.

I'm starting to see value in picking an easy-to-ship product, or designing a product around ease and affordability of shipping.

Our next steps are: choosing a fixed-price postage satchel so we can maintain consistent postage ($11ish), having boxes custom-made that fit in that satchel (not much more expensive than what we're getting now) and then tweaking our product to fit those smaller boxes.

As an Auction Marketplace, with highly motivated prospects, searching for what you offer, only a click and a buck away, and an extremely low barrier of entry, I would argue that Adwords is as close to an efficient marketplace as possible, and represents the high end of the cost per customer within the framework of profitability.

Suppose you do have an ebook. Theoretically, certainly, you can find the price at which no consumers purchase your book, and the price at which nearly every consumer who sees your book purchases it. Thus you have a demand function. Optimize your demand function, and you have the ideal price for your book.

Sure, you can go backwards. Again, theoretically, peg a price, then write an ebook such that its demand curve results in your desired optimal price. Practically, it's impossible to measure potential consumer preferences and interest with much accuracy, but at least it starts you off thinking about what the consumer wants. And the more your consumer wants your product, the more demand shifts outward. I agree that this "backwards" model may be a beneficial mindset, because your product will already be optimized for consumer wants.

But why would you use Google AdWords as your measure of demand? I could spend a month writing a speed-reading ebook, create an search-engine-optimized website, and notify my friends. With $5/month hosting I already own, my cost structure is essentially zero. Every e-book I sell is pure profit, and I never touched AdWords.

The trick is optimizing AdWords spending. For every $1 I spend, will I gain $1 of revenue? If yes, keep spending until that's no longer true. Ceteris paribus, a $100 video course will generate more revenue per $1 of marketing spending than a $20 ebook, because you have 5x more chances to make the sale. That's too much of an abstraction, however. Maybe only 0.01% of click-throughs will be a $100 video course, but a solid 1% of click-throughs will buy a well-reviewed $20 ebook. So thus it's actually more profitable to advertise on Google AdWords

Perhaps a conversion rate of .015 is a decent ballpark for estimating AdWords revenue. But not total demand for the product.

Sure, but if you assume away all other sources of traffic, you're finding a break-even price. The reason this might actually make you profitable is because you've got nearly-pure profit flowing in from "free" sources: word-of-mouth, organic search engine results, good reviews, etc.

Which means your price may be much lower than optimal, if your book appeals to an audience with lots of disposable income. Or, perhaps, only people searching for "speed reading" on Google will actually buy a book about it, and no one else in the world cares enough to spend $20 on improving such a skill. And your price may be far too high to be profitable. There's a ton of selection bias in using Google AdWords as your baseline.

Plus, you discount 2.5k searches for "how to speed read," 2k searches of "how to read faster," and 1k for "speed reading techniques". You can't easily add them to the formula, since they all have different conversion rates. Users searching for "how to speed read" will be far more receptive to a ebook about speed reading than someone searching for "speed reading" in general.