How to price your product — indie hackers shouldn't follow the usual advice

Pricing is a really difficult thing to nail. You’re pretty much guaranteed to get it wrong at first. And even when you figure it out, it’ll change.

Entire books have been written about pricing, but from what I’ve seen, very little of what is written actually applies to indie hackers.

So here are the bones of pricing — for indie hackers. 👇

Pricing strategies

Pricing strategies are the method by which you decide on your pricing. There are a ton of pricing strategies out there, but only a few really apply to us. I’ll spare you the details of those other ones and get right to the ones that count.

Competitor-based pricing

This is exactly what it sounds like. Take a look at your competitors and understand how their product compares to yours. Then price yours lower or higher accordingly.

When comparing products, it’s easy to get caught up in features. But think about quality, customer service, and brand recognition too.

The beautiful part of this strategy is that the more established your competitor is, the more they’ve tested and honed their pricing — so you can let them do a lot of the heavy lifting for you. It’s easy, low-risk, and while it isn’t the top strategy for software products, it’s a darn good starting point.

The main problem is that since you’re (hopefully) niching down hard, your niche may not have the same willingness to pay as the customers of your general competitors, so keep that in mind.

Value-based pricing

This is the golden child in software — and particularly SaaS — pricing strategies. Look at the value you’re providing. Talk to customers about it. And as a result, you’ll come to a price that they’re willing to pay.

It also incentivizes a great product with great customer service (as if you didn’t already have enough incentive). And it allows you to charge higher prices right off the bat instead of starting low, because you have the data to back up that decision.

Sounds great on paper, but it’s not an easy strategy to adopt. You really need to know your customers and what they’re willing to pay. And that requires a lot of research, including interviewing potential customers. If you happen to be building something that you yourself (and your peers) would be a customer of, then you’ve got a leg up here. But otherwise, it might take more time and effort than most indie hackers would care to give.

That’s it?

Yep, that’s it. I’ve researched the others, and they just don’t apply.

Well, maybe there’s one more. I’m a big believer in going with your gut, and I don’t see any reason why that wouldn’t be a good starting point for pricing. The important thing, after all, is that you launch. Prices can (and should) be adjusted.

I’ll get into how exactly to apply competitor-based and value-based strategies in a moment, but there’s one more thing to cover first.

Pricing models

In addition to the pricing strategies, there are pricing models which need to be considered. Here’s a quick look a the four models that you’re most likely to use:

• Tiered pricing: Let’s start here since, this will be what most of us go with. This is when you offer multiple tiers of your product. It allows you to access different user segments, increasing revenue, and even anchor the price point, making it more likely that customers will opt for your preferred tier. There aren’t really any downsides, though you do leave a little more money on the table than you would with usage-based pricing. Note: I would probably include Freemium pricing in this model.
• Per-seat pricing: This is another popular one, though it is almost exclusively for B2B products — it’s when you charge per user on a plan. It’s great because your revenue scales and is predictable, but it can cause churn and it makes it so people don’t want to add users… which is kind of the opposite of the goal. I saw that Patrick Campbell of ProfitWell once said that you should only go this route if each user has access to different things — if user A can log into user B’s account and everything is the same, this is not the right model.
• Flat-rate pricing: This means one price only, and one set of features. It’s the simplest way (both for you and the customer), but it ignores certain customer segments and leaves money on the table.
• Usage-based pricing: Think “pay-as-you-go”. It makes a lot of sense if the value you’re providing is based on transactions, gigabytes, etc. And it’s nice because the price scales with usage, increasing revenue, while reducing churn. But it’s hard to predict revenue, and really isn’t applicable to many of us.

How to price your product

Ok, so that takes us to the meat of the issue: How do you figure out your price?

First off, decide whether you’re opting for a one-time payment or a subscription model. I think it’s safe to say that we’re all on the subscription bandwagon, with the exception of info products, some browser extensions, etc.

Second, decide which pricing model makes the most sense for you. Let’s be honest, the vast majority of us are going to go with tiered pricing — it’s tried and true. If you’re one of the exceptions, decide based on my notes above. Or just look at how your competitors are doing it.

Third, decide on your pricing strategy, and use it to decide your price.

Here’s my unpopular opinion. Don’t use value-based pricing. Not in full, at least.

Yes, it’s the best way to go for most software products, in a general sense. But indie hackers are a different breed. And most of us have less time and fewer resources to throw at it. So instead of spending all your time on pricing upfront, a mix between the two strategies might be a better option.

Value-based steps

1. Identify your quantifiable customer personas. Here’s a template from ProfitWell for this. If you don’t have the required data, just make your best guesses.
2. Find your value metric — what exactly are you charging for?
3. Survey and talk to people within those personas. What price would feel too high, too low, etc.? And is your value-metric correct?
4. Build tiers based on what you’ve found
5. Apply it and see how it does. Adjust as necessary.

Competitor-based steps

1. Identify competitors who are similar to you
2. Analyze their product, price, and position
3. Compare their product and position (e.g. cheap/luxury) to yours
4. Either go above, below, or equal to your closest competitor. Or calculate an average price of your competitors for a benchmark, and go above, below, or equal to that.
5. Apply it and see how it does. Adjust as necessary.

The best of both worlds

Here’s my suggestion. It’s less scientific than value-based pricing, but it’s quicker, and it’ll get the job done:

1. Identify your target market
2. Identify your value metric
3. Identify competitors who have a similar target market and value metric to you. Note: If you have a different target market than your competitor, make an educated guess as to whether they’re more willing to pay or less.
4. Compare their product and position to yours
5. Either go above, below, or equal to your closest competitor. Or calculate an average price of your competitors for a benchmark, and go above, below, or equal to that.
6. Confirm that you’re happy with that based on what you perceived the value of your product to be for your target market (don’t bother doing all that fancy persona work).
7. Brand yourself accordingly
8. Publish the price and see how it does.
9. Adjust as necessary.

I broke it out into a few more steps, but don't let that scare you — this should be way quicker than value-based pricing. Just my two cents  :)

Things to consider when deciding on your pricing

Here are a few things to consider while you go through the pricing process:

• Competitor pricing
• The value you’re providing
• Costs
• How soon do you need to cover costs? Will you be able to do that in time? You’ll need to make projections about revenue for this.
• Customers’ willingness to pay
• Demand
• Price elasticity (i.e. are customers very conscious of price or will a change in price have very little effect?)
• What would you actually pay?
• LTV:CAC ratio. While most of your costs don’t really increase much with each customer for software products, marketing costs do tend to increase, so keep an eye on this. Most SaaS companies aim for 4 or more.

Pricing best practices

Here are some suggestions that I picked up along the way while researching pricing:

• Pricing should be a discussion had early in the process, as it affects your whole business.
• You’ve heard it before, but charge more.
• But despite the “charge more” maxim, I think it’s often best to start cheaper in the beginning. It’s better to start a little too cheap an increase than to start too expensive, as that will affect your product’s validation process. And it’s generally more important to have users in the beginning than it is to have profit.
• Keep your pricing simple.
• Pricing is a lot easier to get right when you are the target market.
• Make it inexpensive to get started.
• Talk to your early customers about pricing.
• Never stop pricing. Markets change, the economy fluctuates, so keep an eye on it your price. Many recommend reassessing every quarter.
• Make sure you nail your value proposition
• Anchor potential customers by showing a few options.
• Freemium is great sometimes. But it shouldn’t be taken for granted. Make sure it’s right for you.
• Localize the currency symbol
• Account for Purchasing Power Parity to your pricing
• Consider offering a free trial — even if you have a free tier
• End your price with a 9 if your product is cheap; 0 if it’s luxury.
• If you’re discounting your annual plan, use a dollar (or month) discount, not a percent discount. But be cautious with this — some studies show that annual discounts result in lower revenue.
• If you have an enterprise tier, it should have custom pricing so that you can charge them according to their requirements.

But don’t A/B test it

While A/B testing is usually a good practice, most will say it’s a no-go for pricing. It’s inherently unfair to some of your potential customers. And you need a lot of sales for the test to be statistically significant anyway — something which most indie hackers who are trying to figure out pricing don’t have. And even if you could get statistical significance, your findings won’t be absolute, they’ll be relative. It’s also a pain, so there’s that. So really, what’s the point?

Instead, just start at a price and increase it every now and then. Every increase is a test and you can revert if necessary. And of course, grandfather in your old users at their original price.

Wrapping up — you’re going to be wrong

My advice: Don’t overthink it. You’re going to be wrong about pricing anyway. Name a price, launch it, then massage it.

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