How to price something by Jason Fried of 37signals

Lately I’ve been spending some time with local entrepreneurs who are looking for business advice. Inevitably, the topic of pricing comes up. “How do I know how much to charge?”

There are lots of answers.

You can make up a number and see if it works. You can test a few different prices at the same time. You can do traditional market research and see what you find. You can read pricing books and academic papers on pricing approaches, techniques, and behavioral psychology. You can see what others are charging.

The good news about pricing is that you can guess, be wrong, but still be right enough to build a great sustainable business. Maybe you’re leaving some money on the table, but, like my dad always says, no one ever went broke making a profit.

However, you are not allowed to ask people:

• “What would you pay for this?”
• “Would you buy this for $20?”
• “How much do you think this is worth?”
• “What’s the most you’d pay?”

And these are the questions I hear people asking over and over. You can’t ask people who haven’t paid how much they’re willing to pay. Their answers don’t matter because there’s no cost to saying “yes” ”$20” “no” ”$100”. They all cost the same – nothing.

The only answers that matter are dollars spent. People answer when they pay for something. That’s the only answer that really matters.

So put a price on it and put it up for sale. If people buy that’s a yes. Change the price. If people buy, that’s a yes. If people stop buying, that’s a no. Crude? Maybe. But it’s real.

You can dig into the why’s more deeply over time, but you have to start somewhere. And the best place to start is with real answers. This is why we picked $10 for a Basecamp Breeze email address.