This is a great check on your product plans-- for example, it will catch you trying to sell things for $20 when you can't make money at that price. When I think of "pricing in reverse", I think customer -> problem -> value -> price -> price -> cost. Check cost at the end. Most people think cost -> product -> price -> value -> problem -> customer. This leads to poor solutions and bad pricing. As Nate notes, using his method allows him to realize that he needs to create more value.
Pricing in reverse: use a product's price to figure out what you need to build
31–40 of 45 posts
Re: Pricing in reverse: use a product's price to figure out what you need to build
#32I think this article represents a great starting point when brainstorming, but obviously it should be only one of many tools in your toolbox. Some of the more critical posts here are attacking it as if the author suggests this is a fool proof formula for product success.
Re: Pricing in reverse: use a product's price to figure out what you need to build
#33It is definitely useful to do these sort of 'back of the envelope' calculations. A few things to bear in mind: -It is strongly in Google's interest to inflate bid prices. I would take their suggested bid prices with a pinch of salt. The Google traffic estimator shows that I should be able to get around a 4% CTR on [speed reading] at around $0.50 per click in the USA: https://adwords.google.com/ko/TrafficEstimator/ -T…
"Most people using Adwords have very little idea how to set up or manage their accounts and are paying a lot more per click than they need to"
Would you please share some general advice on this?
Re: Pricing in reverse: use a product's price to figure out what you need to build
#34I have been using this strategy since quite some time now to develop a frontend product. And then use the profits from that product to advertise and attract enough visitors that lead to at least 1 more sale - and create a perpetual traffic cycle out of it. (I'm writing a 60 page book on it.)
Some things I've learned from experience.
1. You don't want to use the Google Keyword Tool. Thats a good tool for keyword suggestions. Not for keyword bidding. You want to use Google's Traffic Estimator tool instead. You will have to login to your Google Adwords account to use it. (Adwords > Tools & Analysis > Traffic Estimator)
2. You don't want to use category defining keywords. You want to make it slightly long tail. Don't search for "crossfit". Search for "crossfit training". Don't search for "speed reading". Search for "learn speed reading". Why? Because Google starts minimum bids for category defining keywords from $1 - even if there aren't any competing advertisers on that keyword. This inflates the numbers in your formula.
3. After searching for a keyword in the Traffic Estimator tool, click on "Impressions" and hover your mouse over the cliff in the graph they show. That is the Max CPC you want to take while calculating your price. (http://i.imgur.com/upj77.png)
With the above steps, the CPC you get for learn speed reading is 41 cents. If you expect a 1% conversion rate, you need a product that sells for about $41 minimum.
If you go to the clickbank.com marketplace and search for speed reading, you will see that the most popular product on speed reading (Quickeye Speed Reading Software) is infact priced at $47.
Re: Pricing in reverse: use a product's price to figure out what you need to build
#35I don't entirely disagree with this article but I do know that Google Ad prices are driven by market demand which means that if you price your product to break even on Google Ad conversions you are really just piggybacking on your competitor's math. That's what they have found to work. If enough people use this logic you'll converge on an average market price - not what customers are willing to pay. TL;DR: You are pa…
... which is part of the point of this simplistic method : You're quickly able to pick the brains of all your (future, potential) competitors, without even knowing who they are, or researching what they're selling.
Maybe you can envision a higher-priced product with the same purchase rate (a win), or a lower-priced product with a vastly better purchase rate (also a win). But, using the assumption that there are people already trying to optimize their offerings in the market-place, the back-of-the-envelope calculation from the article is a quick sanity check.
Re: Pricing in reverse: use a product's price to figure out what you need to build
#36I have been using this strategy since quite some time now to develop a frontend product. And then use the profits from that product to advertise and attract enough visitors that lead to at least 1 more sale - and create a perpetual traffic cycle out of it. (I'm writing a 60 page book on it.) Some things I've learned from experience. 1. You don't want to use the Google Keyword Tool. Thats a good tool for keyword sugge…
I've noticed if you lower your Max CPC bid, the Traffic Estimator will show that you get a lower click-through rate, but at a better price. Do they restrict your add to less competitive time frames to give you that better price? Does that then impact your conversion rate, or is a click a click?
Re: Pricing in reverse: use a product's price to figure out what you need to build
#37I have been using this strategy since quite some time now to develop a frontend product. And then use the profits from that product to advertise and attract enough visitors that lead to at least 1 more sale - and create a perpetual traffic cycle out of it. (I'm writing a 60 page book on it.) Some things I've learned from experience. 1. You don't want to use the Google Keyword Tool. Thats a good tool for keyword sugge…
I've noticed if you lower your Max CPC bid, the Traffic Estimator will show that you get a lower click-through rate, but at a better price. Do they restrict your add to less competitive time frames to give you that better price? Does that then impact your conversion rate, or is a click a click?
If you lower your CPC bid then the Traffic Estimator shows you the rates for lower positions. The ad on the top of the page always gets more click throughs than the ad that is shown 5th on the page. And thats what Traffic Estimator takes into consideration.
But you should know that the Traffic Estimator is just that - an estimator. Your real cost per click and ad positioning with Google depends on a lot of other factors. Including things like how good your landing page is. And how better your ad is than others.
So determine the CPC at the cliff on their graph. And then optimize your Google ads. (Also, a lot of ad networks are cheaper than Google Adwords. So use Google Traffic Estimator to find an optimal price point. But start advertising your product at other places.)
Re: Pricing in reverse: use a product's price to figure out what you need to build
#38This is a a great article however confirms the sad fact that you need to pay Google (a lot of money) to drive customers to your website.
What happens if you don't need to pay for traffic? Do you still sell your book for $102?
Re: Pricing in reverse: use a product's price to figure out what you need to build
#39It is definitely useful to do these sort of 'back of the envelope' calculations. A few things to bear in mind: -It is strongly in Google's interest to inflate bid prices. I would take their suggested bid prices with a pinch of salt. The Google traffic estimator shows that I should be able to get around a 4% CTR on [speed reading] at around $0.50 per click in the USA: https://adwords.google.com/ko/TrafficEstimator/ -T…
"Most people using Adwords have very little idea how to set up or manage their accounts and are paying a lot more per click than they need to" Would you please share some general advice on this?
For someone without much cash, expeimenting in a new market I would give the following advice:
-Don't use broad match to begin with.
-Stay off high volume terms - instead make up the numbers by adding a large number of long tail terms.
-Consider geo-targeting: I've seen much lower CPCs on ads targeted at a small region.
-Take your time - getting big fast will cost you.
My email is in my profile if you have specific questions
Re: Pricing in reverse: use a product's price to figure out what you need to build
#40Earlier quoted context omitted.
I've noticed if you lower your Max CPC bid, the Traffic Estimator will show that you get a lower click-through rate, but at a better price. Do they restrict your add to less competitive time frames to give you that better price? Does that then impact your conversion rate, or is a click a click?
If you lower your CPC bid then the Traffic Estimator shows you the rates for lower positions. The ad on the top of the page always gets more click throughs than the ad that is shown 5th on the page. And thats what Traffic Estimator takes into consideration. But you should know that the Traffic Estimator is just that - an estimator. Your real cost per click and ad positioning with Google depends on a lot of other fact…
> Including things like how good your landing page is.
That will impact CPA, not CPC.