You’re not charging enough for your product. Charging too little, or nothing at all, is the most common mistake I see founders make.

Why do founders do this? And how much should you charge? Let me break it down…

A Common Problem

I cannot tell you how many founders I meet that have an awesome product but charge little or nothing for it.

They have 1000 excuses. “We need to make the product better first.” Or the classic, “We just want to get our foot in the door.”

The bottom line is this is a business. If you’re providing value to someone, you should capture some of that value.

We are not doing charity work here.

This problem is especially common among female founders, from what I’ve seen. Perhaps influenced by our gender mores, they are often reluctant to put value on what they’ve created.

How Much to Charge

When founders do charge, the price is often absurdly low. A product that saves a white collar worker 20 hours a month might cost $20/month.

That worker’s total comp including benefits is probably $75/hour. This means you created $1500 worth of value ($75 x 20).

And you’re only charging $20?

Here’s a rule to determine what to charge: charge at least 10% of the value you create. In this example, you would charge $150/mo.

Some products help you make more money, rather than save you time. In that case, the same math applies.

Let’s say a product boosts my sales from $10,000 a month to $20,000. You want to charge at least $1,000 a month for that.

This 10% rule of thumb is a floor, not a ceiling. Keep upping the price for new customers until you get serious resistance!

Charging based on value creation works for B2B and B2C. Some B2C companies rely on ads, but this only works at enormous scale — see Facebook, Instagram, etc.

Finding Out Who Your Customers Are

People value what they pay for. If someone isn’t willing to pay you for your product, they’re not the customer you’re looking for.

The people who will pay are getting the most value from your product. They will be the most engaged users.

That’s who you want to build for!

Don’t let cheapskates send you off on wild goose chases building X, Y and Z. Those features might be useless to your real customers!

Instead, build for the folks who are most engaged — the folks who are paying.

Building a Sustainable Business

Every business has to make money. Otherwise, you’re dependent on fundraising.

Fundraising is harder these days. And it’s especially hard for startups with little or no revenue.

Your company exists to accomplish an important mission. But you can’t do that without money coming in the door.

So you have to charge, and you have to charge commensurate with the value you create. That’s the only path to success.

Wrap-Up

My grandpa used to run a machine repair shop. He did wonderful work, but he charged practically nothing. And he never pushed customers to pay past due bills.

One day, my grandma took him aside and said, “Jim, you’re not being fair to yourself.” She was right.

Be fair to yourself. Don’t be afraid to put value on what you’ve built.

Have you struggled with pricing your product?

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