by Brandon Reiter
How much can you sell your new product for?
If you are creating something new, the most difficult dilemma I find many of my clients face is how much they should charge.
What will people pay? Can I produce it at an affordable rate?
With new products, it can be tough to find something on the market to compare it to in order to get a price. This is why you need to figure out where your product lies on what I like to call The Eraser Spectrum of Value.
Let’s say you came up with the original idea to put an eraser on the end of a pencil. Pencil erasers are a very useful product, but how much value does it bring to consumers compared to existing alternatives? In other words, what problem are you solving and how much would people pay for your solution?
In the case of the pencil eraser, the problem being solved is being able to quickly correct a writing mistake. What are the existing alternatives? You can buy a separate eraser, you can simply cross out your mistake, or you can use white out.
While pencil erasers are very useful, there are plenty of low cost alternatives that essentially do the same thing albeit less conveniently. Therefore, the ultimate value that a pencil eraser provides is not that high in the grand scheme of things. With a low value proposition, the selling price must be even lower, otherwise no one would buy it.
Now let’s look at the other end of the spectrum…
Imagine you just came up with the idea for the first seatbelt. The problem being solved is… well… dying in a car crash. The alternatives to the seatbelt? Not wearing one, riding a bike, walking, etc.
The value of a seatbelt is pretty high because there are not many alternatives that can easily provide the same value, especially since it’s main function is to prevent the consumer from dying.
While a pencil eraser and a seatbelt are both very common products used by millions of people everyday, you would be way more apprehensive to buy a car without seatbelts than you would a pencil without an eraser. Why? A seatbelt provides way more value, and the alternatives are far more risky/inconvenient. But just because an eraser isn’t as valuable doesn’t mean it cant be a viable business.
If you can produce it at a lower cost than the value it provides, it can sell.
Once you get a figure out where your product lies on the spectrum, you can come up with a value and see if you can produce it at a lower cost. Even though seatbelts are highly valuable, I still can’t go out an sell them for $1 million. As for the eraser, because the value is so low, it would be almost impossible to sell one for $5.
You have an idea. It solves a problem and creates a value. If you can produce it at a cost that’s less than the value it creates, you can create a viable business with an appropriate selling price.