Innovation

How to Pick the Perfect Price for Your Product

PROFIT 500 winner ITS Canada uses a Customer Advisory Board to guide pricing and product development. Three steps to set up your own

Written by Sissi Wang

Raye Ackerman can thank his Customer Advisory Board for boosting his company’s profits. The Board’s feedback convinced Ackerman to raise prices for his trucking software products in 2010, lifting margins on each sale. The newfound profit helped Ackerman’s firm, ITS Canada, nab the #60 spot on our 2014’s PROFIT 500 Ranking of Canada’s Fastest Growing Firms.

The Board has become an extremely useful tool for Ackerman not just in determining product price, but also in informing him about what features and capabilities his customers want in a product. Board feedback led Ackerman to realize his customers wanted a different product than he had initially envisioned, and that they were willing to pay for it. Adapting to that information helped Ackerman and his team build a higher-price product and reap the profits.

“Pricing is pretty indicative of what a product actually is,” Ackerman says, “In order to figure out what the pricing should be for a product, we have to know what the product is going to be as well. Our Customer Advisory Board helps us figure out what’s important and not important to include in our product, and whether the investment we’re making in a product is justified.”

Ackerman uses different boards for each of the two customer segments ITS Canada serves. He conducts conference calls every year with the boards (each made up of 20 to 30 customers) to get their feedback on his software products and their price.

Here are three steps you can take to help you arrive at the perfect price for your product.

Build the board

Ackerman says you first need to gather customers to create a board. “We look for customers that want to give a lot of feedback,” he says. Those customers tend to talk to the company on an ongoing basis about problems they see with the product. “If they’re already that engaged at that point, the likelihood they’re going to be involved on the board is quite obvious,” he says.

Ackerman also incentivizes customers to join the board by providing free services and offering them deals on any new products the company releases.

Gather feedback

Once the board is created, Ackerman sets up a conference call and goes through an online presentation on a particular product the company is interested in releasing to the market (board members can see a mockup of the product on their computer screen). “We’ll go through the different features of what it is we’re actually looking to build, and have a roundtable discussion on how this product would work with the businesses and what would they want to be taken out, etc.” explains Ackerman. “At the end, we ask them to rate the product on a scale of 1€“10 on usability. [We also ask] whether it’s something they would use for their own business and what would they be willing to pay on a monthly basis for the project, and then for open comments.”

Use the feedback to inform your decisions

After the conference call, Ackerman takes the responses filled out online back to his project management team for analysis. They start looking at factors like how long it’s going to take and the exact cost to architect the product and to bring it to market, and perform revenue forecasting to identify how many customers they need to sell to in order to see an ROI on the product.

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How do you determine the perfect price for your products? Share your strategies and tactics using the comments section below.

Originally appeared on PROFITguide.com