Download: MP3 (45.3 MB)
So who defines what your product is worth, anyway?
If you go back far enough, you’ll find all levels of trade and exchange, ranging from gold, animals, servitude, and more. In more modern times, we use paper, metal, and digital bits as currency to exchange for the things we want.
Business happens because at one point it was agreed between people that a thing had certain value and could be traded for other valuable things.
At its essence, you might say that the value of something is determined by what someone is willing to exchange for it. But is that all there is to it?
Knowing how to price your product can be very complex, so in today’s episode we’re going to talk about evaluating the value of your product and who actually determines what your product is worth.
Highlights, Takeaways, Quick Wins
- The value of a product is truly decided when money changes hands.
- You are not the one that defines your product’s value—your customer defines that for themselves.
- Value comes in all different shapes and forms.
- After the moment of exchange, how much you value the thing you purchased can change.
- No matter how you price things, you’re going to leave some people out.
- Figure out what your customers value more than the money they’re going to spend on your product.
- If the way you’re positioning your product doesn’t align with the values of your customer, you will lose.
- If your target customer never buys your product, it’s time to do something else.
- The values of your customer will determine the value of your product.
- Make sure that in some way, you are sustainable.
- 04:00 Kyle: How do you determine value, Cory?
- 04:03 Cory: I’m nervous, Kyle, about this show. I feel like we’re going to say a bunch of stuff and then people are going to get angry.
- 04:22 Kyle: Honestly, Cory, I don’t really care that people get angry. This is just a show. We’re talking things out. You can make your own determinations of things, but I think it’s pretty solid. We talked about this yesterday. I’m excited.
- 04:40 Cory: We’re talking about how to define your product’s value. In this particular episode, we’re talking specifically about products. We’re not necessarily talking about client work or services. We’re talking specifically about products this time. Kyle, the whole world of pricing, all that stuff, is vast. We could spend dozens, if not hundreds, of episodes talking about pricing, pricing models, costs, and value.
- 05:20 If you’re looking specifically for information or guidance for pricing for client work or anything like that, go to ValueBasedPricing.com. We have a master class here at seanwes that is designed specifically to help you get great clients and price on value without worrying about competition, ask the right questions, and get amazing results.
Who Decides a Product’s Value?
- 05:57 Cory: We’re talking about products today, and we’ve said this on a few episodes before when talking about value. In the title it says, How to Define Your Product’s Value (Spoiler: You Can’t). In total openness, I need to say this.
- 06:34 Ultimately, at the end of the day, value is subjective. What I value something at may be different from what you value it at, and the only way to truly know how much someone thinks something is worth is, in its essence, defined by how much they’re willing to exchange for it. Again, we’re talking about the point of sale, the point of exchange.
- 07:08 If I walk up to you, Kyle, and I say, “I want to buy your wall of bricks,” because you’re a brick layer who lays bricks, you say, “That’s great. I would like to sell it to you for $500.” In that moment, you have told me what you think that wall is worth. You think that wall is worth equal to $500 or, actually, slightly less than $500.
- 07:58 You want the money for yourself. For me, I have to decide that your wall is worth more to me than the $500 that I would pay for it. If I didn’t value it at $500, I would say, “Well, I don’t really want to buy that for $500. I’ll pay you $400 for it.” In that situation, we value the wall at different amounts. However, if you then say, “Alright, I’ll sell it to you for $400,” now you only value it at $400.
- 08:30 At the point of exchange, the amount you exchange for the product is what you value it at. This goes on to so many other things, like long-lasting value. Is there any kind of recurring value or other kinds of worth that can be generated after the point of exchange or the point of sale? The value of a product is truly decided when money changes hands.
- 09:03 Kyle: This is a tricky situation, because if you come to me, Cory, and you say, “I want to buy this wall from you,” and I say, “What would you pay for it, Cory?” Even if it’s super valuable and you’re really excited about it, you’re going to say a decently low price, something that seems “reasonable” to you. Especially when you’re working between multiple businesses, like if you offer a B to B service. If they’re the ones that need to tell you exactly what the pricing should be, they’re going to choose the low end.
- 09:48 Obviously, they want to get something good quality for the lowest price possible. That’s just good business. The trick here is to figure out why people value this thing. What is it going to add to their life? What are they searching for to add to their life? Turn that into, how exactly do I price this thing? Value and price are not exactly the same.
- 10:18 Those are some things to keep in mind here as we balance this. We’re not really saying you should reach out to everyone and say, “What would you pay for this or that?” I know many people that have done that, but most people are going to choose the low end, what seems reasonable to their current financial situation. That’s okay, but some people won’t pay the price that you value your product at for the audience you’re trying to reach.
- 10:51 Cory: I once had a guy find out that I was a designer, when I was more into doing design, web design, and things like that. He owned a local coffee shop where I lived, and he said to me once, “You do graphic design, right?” I should have known, as soon as someone said “graphic design,” but he said, “I’m trying to get a design for the bags of coffee I produce.”
- 11:33 He was telling me about the place he sources from. He was like, “I could get these nicer ones, but I get these low end ones,” which was another red flag I should have seen. I said, “That sounds like an interesting project.” He said, “How would you feel if I paid you in coffee beans for some graphic design work?”
- 11:59 I didn’t take it, because that’s ridiculous. This is going closer to services, and there are parts of this that are relevant, so I’ll just say it. In that moment, that man valued that graphic design, the design of the new coffee bags, or even my work, at less than an $8 bag of coffee beans. It was a very low rate of exchange. He didn’t see the true value in that, or at least what I would have considered the true value—or what I would have been able to help him see the value in.
You are not the one that defines your product’s value to anyone else.
What you value your product at may be different from what other people value your product at.
Changing Measures of Value
- 12:54 Cory: That’s why we have this idea of Value-Based Pricing when you’re doing projects like that. I could have talked to that guy and said, “Alright, let’s have a discovery period if you’re really serious about this.” I could have shown him how good design can increase sales. He was telling me what he valued that at, and without any further conversation, we valued that service differently.
- 13:20 I couldn’t have said, “Alright, that will be $3,000,” because he wouldn’t have paid for it. He didn’t value that exchange at that rate. He didn’t see it as being worth that much. When it comes to products, sometimes there are things that don’t bring any monetary return. You’re wearing glasses. I have a water bottle here. We have paid certain amounts of money for them. At the time that we bought them, we essentially said, “Even though this isn’t going to bring me a monetary return, it’s going to add some kind of value to my life.”
- 14:04 That might be having something convenient to drink water out of or, for Kyle, being able to see. Value comes in all different shapes and forms. Worth comes in all different shapes and forms. It’s at the moment of exchange where the value of that exchange is determined.
- 14:35 My wife and I have been married almost five years. When I bought her ring, I think it was around $230. If you’re in the ring design world or you’ve bought your spouse a ring at any point in time, you might know that, on an average scale, that’s at the lower range of the scale for engagement/wedding rings. I bought it for her, and it was great. She liked it. It was fantastic. Five years later, the worth, to me, the value of that thing, has changed.
- 15:27 It has changed because there have been experiences, memories made, because it represents something. It’s different. I look at my ring right here. My ring cost $17 on eBay. That’s what I paid for it. It was great, it’s fine, but I look at it, and I would be devastated if I didn’t have this because of what it represents and the value it has to me now. That’s not necessarily monetary. As you explore this conversation of value, you have to bring into the conversation the idea that not all value is monetary return.
- 16:13 That’s okay. That’s part of the deal. When you price your product, you have to price it in such a way that you’re bringing value, and you know what kind of value you’re bringing to your customer.
After the moment of exchange, how much you value the thing you purchased can change.
Every Price Excludes Someone
- 16:31 Kyle: I want to bring this in real fast, because I was about to mention this topic. In the chat, Sarah says, “How do you find the right price for a product that’s not custom client work when everyone values it differently?” This is part of what I was going to mention. I think that this is what Cory was a little bit worried about at the beginning of this episode. When we talk about these things, it’s like, “Well, yeah, but somebody doesn’t want to pay $2,000 for a bicycle.”
- 17:07 You’re absolutely right. Not everyone wants to pay $2,000 for a bicycle, because they don’t use it all the time. They’re not a professional cyclist, or whatever it is. The people that do, maybe they rely on a bicycle for transportation. Maybe they’re professional cyclists. They will value that at $2,000 or even more, because they want to have a good, quality bike to use.
- 17:46 Someone who can afford a $2,000 bicycle, for example, and wants to have that in their life, isn’t going to go to Walmart and buy a $200 bicycle, even though that’s a lower cost. It’s all based on who your target audience is, what kinds of things they’re looking for, and what they place value on for that thing. Anyone in the world who wants a $2,000 bicycle and sees it in front of them, the exact same one most people are selling for $2,000, and it’s $100—sure, they’ll buy it.
- 18:24 It’s not that they want to pay more, it’s that they will pay more for a higher quality product. They’re going to be very hesitant of anything that’s lower cost, because who sells a $2,000 bicycle for $100? It’s iffy. That’s something to keep in mind as we talk about this. We’re talking about different levels of people who find what you’re selling to be something that adds to their life.
No matter how you price things, you’re going to leave some people out.
Know What Customers Value
- 18:54 Cory: A great question to tail off of that is, “What do your customers value more than they value the money they will spend on your product?” Grady asked earlier, “I have a SaaS product that I’m having a hard time placing a value to. I look at some of the competitors in our space, and they charge a per user, per month fee, as well as set up fees upfront, etc. Part of my problem has been feeling as if I can’t charge that much. There may be some anxiety in there as to whether or not my pricing gets rejected.”
- 19:29 “Maybe I should have asked if pricing is the same as value.” I asked him to explain a little bit more about what the app is, and so he did. I won’t share it here, because it’s not mine to tell, but it’s targeted at companies, and it requires some ongoing updating. They have to actually use the software, which totally makes sense. We have apps we use on an ongoing basis. As a team, we use Asana. We pay a monthly fee so we can get access to certain features.
- 20:03 In order to get our money’s worth, we have to update it. In this, he was saying, “I’m getting some push back on how this app works. It’s more around getting people to use the app. Part of it is that you would update the status of what you’re updating, a simple Go or a simple No. Making sure everyone in the company is on board,” so on and so forth. I asked, again, “What’s the push back?”
- 20:33 He said, “That people will not take the time to update and use the system. I tell them that if they want a culture of high performing, focused employees, you have to create that culture,” and his app can help them do that. The point of updating everything is to let those people in your company know if there are problems or issues this addresses, and so on. I’m looking at this conversation, and the push back I’m seeing is based on something very specific that every single business owner I know values more than money, and that’s time.
- 21:17 Business owners, people who are running businesses, almost more than anything else that I know, value their time. That’s why they will spend $2,000 on a course so they can learn something—or $86,000 on a copywriter, to make a return of $7.6 million. I had this conversation with a guy yesterday. They don’t want to sit there and spend their time, that they could be using doing something else, on something they could pay someone else to solve for them. I’m looking at this, and I’m saying that the way you market this SaaS app to these people is this:
- 22:04 You have to make sure your product addresses that and meets that need, so that they can continue to work on the things that matter most to them, whether it’s their time, energy, focus, or relationships. This comes through asking questions, continuing to ask questions, and saying, “What do my customers value? Do they value status? Do they value doing everything themselves? In the chat, we were just talking about $2,000 bicycles, and Aaron said, “Some people don’t want to pay $2,000 for a bicycle, but I know people who do. I was just looking at $3,000 electric bicycles yesterday.”
- 22:45 Then he said this, “I would never buy a cheap bicycle.” I said, “Why?” He said, “There are things that I value—quality, reliability, style, the brand and what they stand for, etc.” I look at that, and what Aaron values more than the money he would pay for that bike is very important to know as a business owner. That is what I use to develop and market the product, to address the issues and the things that Aaron values. You always have to present your product in a way that meets the needs and the values of the people you’re targeting.
- 23:36 Kyle: I was trying to find exactly when I got this… A little bit after the conversation you just mentioned, someone asked, “What about buying used bicycles of good quality?” They asked this to Aaron. Aaron said that he typically defaults to buying things used. He would do that. That’s another interesting aspect. Some people default to that and others don’t, and it depends on the value you place on things.
- 24:06 For example, every car I’ve ever bought is used. I don’t care about buying a brand new car. For me, personally, I think it’s a big waste of an investment, because it automatically decreases significantly in value the moment you buy it. I don’t care about having the newest, flashiest car. I’m driving a 2001 truck right now, if that tells you anything.
- 24:33 Cory: Oh, it does, Kyle.
- 24:35 Kyle: But there are things that I care about. I bought a used preamp on eBay, and if you’ve listened to any previous episodes, maybe we’ve cut all of that out, but there have been a few times that I’ve dropped audio. I bought this thing used for $100 I think, or maybe a little bit more, and it has lasted maybe six months. I did something I never do. I never buy used equipment for any of my setups, like computers or any of that, because I just want them to work.
- 25:15 I need them to work. Now, I paid $200 for a new preamp that has the warranty on it that I’m super happy about. People will pay different things. I could have gotten it cheaper somewhere else. I could have gone somewhere else and gotten a lower end preamp or a used version of the same preamp, but there are certain reasons I want to buy directly as a new product. The value I have for that is different than the value someone else has.
- 25:45 Cory: It’s important.
Figure out what your customers value more than the money they’re going to spend on your product.
If the way you’re positioning your product doesn’t align with the values of your customer, you will lose.
The Who & What of Value
- 25:48 Cory: Joe Allen is a great developer here in the Community, and he actually made the app that I use, SoundBoardStudio.com. This is an iPad app, and right now, I’m going to get the live version. It’s $38.99 for this iPad app. It’s a soundboard app. I can play soundbites. At the top of the description in iTunes, it says, “This app does what an $1,800 unit does, and does it better.”
- 26:34 I love that. It’s so good. When you look at the app world, you go, “Wait, $40 for an app?” At one point, someone came along—Steve Jobs—and said, “Here’s the deal. Apps are 99 cents or free.” All of a sudden, people were like, “Oh, that’s what I value an app at. 99 cents, sounds great.” It’s the same thing in the music industry. I have a lot of feelings about all of that. You look at that and you go, “How in the world is he charging $40 for this app? That’s outrageous!”
- 27:25 I say, “I’ve been through enough stupid, worthless soundboard apps in my lifetime, on my computer and on my iPad—” in fact, on the iPad I don’t think that were any that were even close to good—and I didn’t want to sit there and try and cobble together some terrible system for my soundbites for the show. I wanted it to be easy, out of mind, absolutely intuitive. While I’m doing a show, I want to be able to play soundbites, music, and all of that.
- 28:00 That, to me, was worth the price that I paid. In fact, it was worth more than the price that I paid. He’s not marketing to the crowd that only wants to pay 99 cents. He’s marketing to sound engineers and people who are doing this stuff for a living. The reviews speak for themselves. He has posted really great recaps and reviews on his work and his launches, really open and transparent. I love it. That’s the context of Joe, in relation to this conversation.
- 28:35 He asked, “As well as who, are there any ‘whats’ that determine the value of my product, and to what extent are any of them within my control and influence?” The “whats” that determine the value of your product are the values of your customer.
- 28:54 That’s why you have to know what your customer values. If they value their time, their efficiency, or their relationships with their family more than they value $40 and your app is going to help them accomplish those things in an efficient or better way, absolutely. The “who” is your customer. The “whats” are the values of your customer. Those are the things that actually determine the value of your product to that person. Remember, value is subjective.
- 29:29 Kyle: That’s why this topic is so interesting. We’re not really trying to talk about how to price things, but often, people think in those terms of, “Value equals price.” Value doesn’t necessarily equal price—value equals how much something adds to what you’re trying to accomplish. That could be in life in general. That could be in the work that you do or in a number of things. For example, take this preamp I mentioned a little while ago.
- 30:07 Aaron mentioned, “Did you change the tubes?” All these troubleshooting things. Honestly, maybe I could have done that, but some other things were failing about it, and for me, it was like, “This isn’t worth me trying to figure out what’s wrong with the thing. I just want to be done with that so I can do other things I need to do and not have to worry about this.” To some, that might seem like I just threw money out the window, because I could have fixed it.
- 30:35 Maybe I could have, but it was worth it to me to spend a couple hundred to replace the thing and just be done with it. The value for me was that I need to get this thing done.
The values of your customer will determine the value of your product.
If the Market Doesn’t Value Your Product
- 30:50 Cory: Aaron asked, “Any suggestions on what to do if the market doesn’t value what you do to the point of it not being sustainable?” There are two answers to this question. If what you’re doing is important for the world and the market doesn’t see the value in it yet—and you believe in it, and you think that this is something the world needs to have in it—then you just need to find a different way to make it sustainable, whether that’s in side funding, investment, or maybe you have a day job that supports what you’re doing.
- 31:27 That’s the other part of it. Maybe the market never sees the value in what you’re doing, and when I say “never,” I mean never. I saw this on Facebook, and I regret mentioning that I was on Facebook, but I’m going to say it anyway. I was on Facebook one time, and you know how you’ll go down and there are these promoted, sponsored posts, and there will be these auto-playing videos. Audio off, thank goodness. There was this auto-playing video for this little piece of rubber that slides onto your whisk, and after you mix something, like cake batter or cookie batter, you slide it off, and it’s designed in such a way that the plastic pinches the metal all around, and you can squeegee off all of the excess stuff that’s on the whisk.
- 32:39 I’m looking at that, and I’m like, “Actually, that’s kind of brilliant.” It felt like one of those TV ads where it’s like, “Buy now and get four for free!” It was really interesting. However, if the market, customers, people, never believe that this thing is actually worth the money, there’s nowhere for that product to go. That’s just the truth. The market is how you get sustenance for what you’re doing.
- 33:27 Really. Imagine in 100 years, all cars are self-driving, and there is literally no market for drive-your-own-car kinds of cars. If you make a car, but the laws are in place so you can’t drive it—it has to be self-driving—and it has to be autonomous, you have to move on. You have to adapt to what the market is doing. You have to consider, “Is this something that is changeable? Can I evolve? Can my product evolve with what the market is doing?”
- 34:19 If not, you have to determine, “Is this something worth fighting for, that I can bootstrap with my own money or figure out another way to pay for it until it starts sustaining itself, or is it time to do something else?” The market is very unforgiving. It does what it does and goes along its merry way.
If your target customer never buys your product, it’s time to do something else.
- 34:48 Kyle: This brings to mind a story that I’ve heard. To be honest, I haven’t done a lot of my research, so I don’t know how over-dramatized this may have been for movies. I know, at least, that it was a fact. When Apple first launched a computer, it was ridiculously priced for the time. People weren’t seeing the value. They were like, “Why do I need to have a computer in my house? I’m going to play solitaire and type some word documents. I don’t need a $1,000 computer,” or whatever it equated to at the time.
- 35:26 Steve Jobs was like, “No, this is exactly what we need to price it at, because we need to have this quality.” The difference is understanding what’s short term and what’s long term for you. At long term, Steve was absolutely right. He was 100% right. People will pay far more for a Mac than for a PC, because they value the things a Mac offers. Personal computers, in general, are seen as relevant nowadays. Back then, it wasn’t a thing yet.
- 35:58 It wasn’t to the point he needed it to be at yet. In some cases, I think, if you’re not selling what you’ve made, there may just not be the demand for it yet. It’s not that it’s not worth that value. It’s that you haven’t created an atmosphere where it is worth that value yet. You’ve got to work on cultivating that type of atmosphere. Yesterday, when you and I talked, Cory, we kind of touched on doing the lead magnet type of thing—giving something of value.
- 36:30 For example, you can go get Audience Building Course for free, and it’s awesome. That is evaluated at $200 originally. We have it on the site for $200, but we’re giving it away for free. That’s a gauge. It’s saying, “For $200 at seanwes, here’s the value we’re dumping into our courses. That’s a way for people to understand, “Why would I pay $200 for a course at seanwes, or more? What am I going to receive out of that? How high quality are these courses?”
- 37:09 That’s starting to connect with people. They’re like, “Okay, I understand why these things are priced like they are. I see the value and the benefit in this.” That’s a way to start bridging the gap between the low end and maybe your high end product that nobody sees the value for yet.
- 37:30 Cory: There is also a level where you have to consider the people you’re trying to reach. I’ve had this conversation with people in the past, where they’re like, “My target customer is the DIY person. They want to do it themselves, on the cheap.” As a general rule for that community, that target audience, the thing they value the most, allegedly, is their money. They want to save, they want the discount. I say this in a way that sounds terrible, but we used a term in college called “dumpster diving.”
- 38:14 We would go out at the end of the semester and see what everyone else had thrown out because they were moving back home and they didn’t want to fly it with them or ship it back. They would put their couch or their TV near the dumpster. Seriously! We would go down and get tons of stuff. We were like, “This is the best thing ever!” I don’t know what we valued in college, but apparently, that was great. That’s what these people value, the lower end, cheaper things.
- 38:45 You have to ask the question, “The thing that I’m doing—is it helping anybody, and can I keep doing it?” Is it sustainable? Can you continue to help people? Maybe all your business does is produce something, and the overhead to produce this was $80,000 but you’re only going to charge $200 for it. Or maybe it was $200 and you’re only going to charge $5. The margin isn’t going to be there.
- 39:34 A business has to make profit in order to work. This isn’t a greedy thing. This is the truth. If you want to keep helping people, if you have the means to help people, but you don’t because you’re targeting the wrong people or you’re not able to sustain yourself because your target customers won’t pay the amount of money you need to be sustainable, you’re actually going to end up helping no one. That’s just the truth of it. You have to make a profit. But what if you want to help people that don’t have a lot of money?
- 40:09 That’s totally valid. You just have to make sure that in some way, you are sustainable. Going back to the premise of this show, is your product aligning with the values of your target customer? If not, then something needs to change. If so, that’s how you apply that towards your marketing or the conversations you’re having with people. At the end of the day, they need what you have. You just have to show them how what you have, what you’re selling, is meeting their needs and aligning with their values.
Figure out whether what you’re creating is helping someone and whether you’ll be able to continue doing it by running this business.
Some People Will Highly Value Your Work
- 40:52 Kyle: I like where this show has gone. For the most part, we’ve talked about the high end of things. There are people who need to have lower priced options, and those are out there. The struggle for a lot of people is understanding the value of what they have and not feeling like it’s wrong for them to value that. There are people who make really high quality products, and they sell them for almost nothing. They talk about how quality they are, but people are apprehensive of that.
- 41:30 They think, “You’re saying it’s really high quality, but you’re charging $5 for this. That’s a little iffy to me. I’m apprehensive of that.” It’s because the person on the other end might be super dedicated to what they make or produce. They’ve researched these things and they’ve learned these skills, and maybe it takes them an hour to make something. They think, “Okay, $5 for each of these for an hour of my time. That’s fine. That’s good.”
- 42:02 Someone else can’t make that same product in two weeks. They’ve gained so much proficiency that they can do this in an hour. They’ve got the skills, the tools, and all the things they need to make this thing. They’re doing it really high quality, but they’re not valuing it because they think, “It’s easy for me to do this, to make this thing or produce this course,” whatever it is. They’re not charging what they need to for it.
- 42:30 Step back and see what other people value that as. Some people are extremely likely to want to pay you more. I know I’m getting into services a little bit here, but in the design world that I’m in, people will pay significantly more if you are proficient, because they want to get it done faster. If I can do something in a week that it takes someone right out of college two months to do, someone is going to pay more of a premium for that. They’re like, “Yeah, not only do we get a higher quality product in the end because you’ve built up this proficiency, but we also get it faster than we would with the other person.”
- 43:11 That’s valuable to them, but that won’t be valuable to everyone across the board. Some people don’t want that. They want a lower cost. They don’t care how long it takes. They don’t care what it looks like, necessarily. They just need to fill the gaps and check off the boxes, but those aren’t necessarily the people you need to go after. A lot of this comes down to self doubt.
Other people do value what you have to offer, and most likely they’ll value it more than you expect.