I believe the subject line said it all. What converts better? $100, $99, or $97?
And should you even worry about something like this?
Some people would say yes.
After all, look around for split test results and you’ll see results like “changing a button color yields 1 million percent increase in conversions!”
But today I’ve got something a little controversial to share with you. And when you watch this new video, I’m betting you’ll agree with me.
What Price Has The Best Conversions: $100, $99, or $97?
Look around and you’ll notice that there is a trend when it comes to pricing products and services online.
Many people who sell online use prices like 99 dollars or 97 dollars, but never use a round number like 100 dollars.
And when you ask them why, the answer is usually the same:
“Well, I heard that 99 dollars or 97 dollars converts better than 100 dollars because 100 dollars feels like a lot more money.”
I’m Derek Halpern, and you’re watching Social Triggers, the place entrepreneurs and executives learn to get ahead in business and life.
And in this video, I’m going to explain why this idea is flawed. I’ll also show you what to do instead when it comes to “price testing.”
Why Companies Use A 7 or 9 In Pricing
Like I said, most people use a 7 or 9 in their pricing. You’ll see this online. And you’ll see it in retail stores. Even I do it!
And when you ask why, the answer almost always is: “I heard it converts better.”
Or in some rare instances, they’ll say: “Years ago, I saw test results that said the best number to end with for online sales was 7.”
But the bottom line is that no one can furnish any of these so called test results. Not for selling online, anyway.
There may be some random studies out there that suggest this for retail pricing. But that has NOTHING to do with online pricing.
So, the question is:
If a 7 or a 9 really converts better than the whole number, WHY IS THERE NO STATISTICALLY SIGNIFICANT TEST RESULTS ON IT?
There are countless blogs about split testing. And not one of these blogs have ever featured a statistically significant study on the effects of a 7 or a 9 as it relates to online selling.
Because price testing is inherently hard.
You need hundreds of transactions from variable sources before you can build a truly “statistically significant” test result as it relates to price.
And that’s EXPENSIVE.
Lets run some hypothetical numbers.
You send paid traffic to a landing page and see a conversion rate of a half of a percent.
That means, you need to send 200 clicks to make one sale. If those clicks cost a buck, you’re spending 200 dollars to make one sale.
But you can’t price test one sale versus one sale. You need to generate hundreds of sales.
So, let’s say you want 100 transactions to run a price test with paid traffic. In reality, you want more. But Let’s say 100 to make it easy.
That means, you’re spending 40,000 dollars to conduct one price test. And it won’t even be a good one. As i said, 100 is rarely enough. Especially since it changes based on traffic source.
Now here’s the kicker…
Are you really going to spend that much money just to figure out if you can sell something for 97 or 99 dollars?
If you’re just starting your business, selling something for 97 or for 99 isn’t going to be the difference between success or failure. Yes, there may be an uptick in sales, but there’s NEVER going to be a big enough uptick to make or break your business.
So, to answer the question: What converts better?
I say: It doesn’t matter!
And that’s probably why you don’t see any online split test results about 97 or 99 or 100 dollars.
Now, let’s talk about what you SHOULD test when it comes to pricing.
When you’re price testing, you’re looking for what’s known as price elasticity.
That means, you’re looking to raise your prices until you see your conversion drop off so significantly that it doesn’t make sense to keep it at the new high price.
As an example…
Let’s say out of 100 clicks, you convert at 10 percent at a 20 dollar price point. That means you make 200 dollars because you’ll get 10 transactions at 20 dollars.
But let’s say out of 100 clicks you convert at 3 percent for 100 dollars. That means, for 3 sales, you’re making 300 dollars.
Now, of course, more money doesn’t always mean its the right decision.
Maybe you’re looking for MORE customers as MORE is part of your business model (meaning you have backend stuff you want to sell).
But if revenue is the model, it would make sense to try raising prices to 100 dollars.
But if you raised it to 200 dollars and you saw a half a percent conversion, then you’ve got a problem. Because you’d make LESS.
And that’s the turning point… when you make LESS from the same traffic. And that’s a BIG problem.
You want to find the price point at which you can make the most revenue with the same traffic.
And doing that, can be the difference between making a successful business and a failed business.
That’s why price elasticity is the most important pricing test to focus on.
That said, there’s ONE psychological effect I want you to know about.
It’s known as the left digit effect.
Long story short:
When people view prices, they look at the left digit, and rarely the right digit.
So, in many cases, 39 dollars seems a lot cheaper than 40 dollars. And 99 dollars seems a lot cheaper than 100 dollars.
But there’s one caveat:
New research came out that suggests this:
When selling products or services based on a feeling or emotions, a round number like 40 dollars may work better than a number like 39 dollars.
But you know what?
I’m just going to sell it for 39 dollars every time. Because I’m not going to waste my time and money testing for a dollar.
I’m going to test for price elasticity, and you should to.
Now, I have a question for you. How do you price your products or services online and why? Do you plan to test for price elasticity after watching this video? Leave a comment and let me know. I’d love to hear your insights.
And when you’re done watching the video, I want you to do something simple: share your experience with pricing your products and services. What worked? What didn’t work? Or, if you haven’t done anything rigorous, that’s okay too. Just let us know how you came up with your prices.
Haha amazing! The lead up to your point was perfect. You’re right, in the online world I guess it doesn’t really matter. I’ve bought something for $100 and something for $97 and the $100 thing was waaaaaaaaaay more valuable than the $3 difference.
In reality, it’s all about the “precieved” value of what you’re offering.
I’ve tested at $97 and $99, and from my experience, $99 converts better. There are many products selling for $97. According to an article I read about a year ago, and I don’t remember where, the price of $97 is the most common price that is used by scammers. I don’t know if this is true of not. It’s just what I read.
I agree that it’s potentially expensive and difficult to test for, and that you should worry about price elasticity. But that does not mean that the 9 doesn’t matter.
If results from studies done in retail are valid in online sales (and I don’t see why those psychological mechanisms should stop working online), you’re not “testing for a dollar”, but potentially for an extra quarter for every dollar earned. (In his book Priceless, William Poundstone suggests an average 24% increase in sales with charm pricing.) Smart money often outperforms averages, but even if we’re only talking about a 10% difference, and you reinvest that additional revenue in traffic, the effect is quickly compounded. An extra 10% week-over-week would quickly put us into make-it-or-break-it territory.
I buy the argument that it won’t work for all products and all services all of the time, but I wouldn’t toss out old best practices without a good reason.
Hi, Im a business owner and I round it, example, if my sale is around 197, I sell it 200. When I go to a store I will buy a 200 dollar not 197 because I Round it myself. I still fine 197 as a 200, I feel like Im not saving. If I compare prices, like 250 with more specs, vs, 197. I tell say ok I go for 250, because I have more of the product for just 53 more dollars…not sure if Im making sense to you.
Anyway this is my way of thinking as client and a small business owner. My logic might not even work…… thank you with video, got me thinking there to look through my prices again.
This is an awesome video and article man. Very helpful. Price elasticity is the key. thanks for the great insight man.
Thanks for the honesty and clarity Derek. Good to know there’s no solid evidence of what really matters re $97, $99 or $100. Like a few others here, I feel cheesy with the $97 thingy – it really doesn’t match my professional service. All of my coaching and consulting fees have been rounded off for 6 years and I’m sticking with that formula for my online programs now. Having said that, I get why some choose to use it.
Thank you for the price elasticity perspective, thats really cool, so much appreciated!
Loved this, Derek. What I took from this? “Stop dicking around with price theories, do amazing work and test for elasticity.”.
And I shall.
BOOM. I thank you, sir.
Great video, Derek!
Here’s a question: What if in some markets, a BIGGER price actually converted better, because it creates a higher perceived value? Just a theory, and I have no evidence to back that up, but it’s something to think about…
I also wonder if having a round number might attract some people simply because it’s different and most everyone else is using 7s and 9s? Like when JC Penny’s started using all round numbers, and played that up as being more “honest” than the other guys.
Ah, the art of pricing. Yes, I do agree that there’s no solid proof as to which of which works best. Therefore, knowing the goal first must be laid out. Thanks for these insights Derek!
Hi, Derek. I love your videos but sometimes it’s hard to keep watching because you “high pitch” some words really loudly – idk if that makes sense. Just an advice! 😉
I was confused what i first saw the title. haha .. Low price always attract in first look.
There certainly are conflicting messages out there on how to price your product and whether ending in a 7 or a 9 makes a difference. My approach is to price my product on what I believe my audience can afford to pay. I’ve developed an online training course, aimed at persons with a disability and their families, that coaches them on the 5 breakthroughs to become the person they are meant to be.
I fall into that category myself and know that there is not a lot of cash lying around for training. On the other hand, if i price it too low, it can appear that there’s not real value in it. I’ve landed on a price structure that I think my audience can afford …. and it ends with a 7.
Man you’ve been researching this a long time. I remember you months ago asking around precisely about this. It’s cool to hear the definitive take on it, and it makes a lot of sense.
On my part, I’m a freelance copywriter. I price per project and I never bother with 7s and 9s. I quote round figures. The way I see it, if I’ve done a good job selling my services, the $2 or $3 difference in price won’t matter. And if I’ve done a lousy job selling myself, then no pricing strategy in the world is gonna land me that job.
Ultimately, the decision to work with me or not has been made by the client waaay before I ever quote the price.
A very insightful post you’ve got here, thanks for always sharing quality and actionable advice with your community.
I’ve always thought most people take split-testing over-board, so I’m glad your post insinuated that.
Thanks for always keeping us informed.
I am so happy watching your video Derek.
Even though I know about the psychology of ending number of 7 and 9 in pricing, I still go for rounded numbers such as 40, 100 and 250 for my Ebook and training. I put a lof of effort in creating credibility and authority, and I want people to buy my Ebook or attend my training for the value (not because of the pricing).
And, I believe that choice of words in our sales page or copywriting will be able to motivate (or force) people to buy out products.
I am new in online business and I might be WRONG. Ha ha
Your best video yet! I especially like the example illustrating how much traffic you need to reach statistical significance with a low baseline conversion rate (in this case, .5%).
Before people read too much into their test results, they might want to try an A/A test. I ran nothing but A/A tests for 8 months in my business, and I had some pretty interesting “results” ( http://kadavy.net/blog/posts/aa-testing/ )
Now, how do you determine significance in a pricing test? That’s a bit over my head. I always just go with whatever makes the most money, but if it’s not a huge difference, it may just be the misleading story that statistics tell our brains.
Love this subject! I’ve been advised many times to end my prices in 7 or 9, but it just felt too incongruent to play that kind of game when my work is all about being totally trustworthy, open, and real with people. Right now I offer only services and stick with round numbers that call my clients to invest in themselves in a big way. I anticipate I may feel more okay with the 7’s in offering online products, but we’ll see when I get there….
Thanks for this, Derek! I always enjoy your mix of energy, entertainment, and high-quality value.
I’ve done some price testing. I tested 19.97 vs 29.97 and got more than double the sales at 19.97 than 29.97
Also when we tested an add-on we tried pricing it at $10 vs $15 and got more sales at $15 but I chose to split the difference and charge 12.50. 60% of people buy it
What’s interesting is we tried offering the add-on outside the cart instead of as an add-on inside the cart and only 10% of people bought it.
I’ve never tried testing whole numbers vs a little under.
There’s a flaw in your presentation. You threw up a lightbox offer in the middle of the video. That pissed me off, and I suspect it pisses other people off … but they’re too polite to say anything.
Walt, there’s a flaw in your comment: you assume I actually want readers who get mad about a popup. Closing a popup takes a half a second, and if something so slight bothers you, you’re probably not a good fit for Social Triggers.
That just happened! LMFAO!
“WELCOME TO NEEEEEWWWW YOOOOOORRRRKKKKK! CONCRETE JUNGLE WHERE DREAMS ARE MADE OF… THERE’S NOTHING YOU CANT DOOOOO!”
Derek, I just wanted to share with you that, because of a disability I have, I often cannot read texts on an image, make a video play or access some courses that are in other platforms that are not accessible to my assistive technology. This is why I bought Zippy courses, because I want my courses to be good like yours. I don’t care if you videos have pop up, I am just glad that I can play them. I’ll keep on buying from you any day. You and your team really walk the talk and I never had to ask for a refund because I could not read and learn from your course. You are the first course online I could use with little difficulties and you are always improving your courses and your blog. You are the last person anyone should be mad online. Thanks for caring and giving me a place where I am not treated like a second class citizen that have no right to learn, or be denied my refund when a seller course, does is not accessible to me. I never comment, but I just had to say that, because you are the only course I never had to go more out of the usual way to learn. I hope to be a successful model for Social Triggers someday.
And this is why I follow Derek Halpern.
YESSS! Awesome 😉
Your topics and explanations are always concise and easy to understand! I have recently launched a travel blog and your videos have helped me understand a variety of different things about marketing! Thank you!
Fantastic video . When testing prices for larger amounts I found people rather see different prices like $2560, $2320, $2570 than see everything the same price like $2499
I don’t understand your work, product, and business give me more detail please on my email
Thank you for tackling the pricing game.
I charge ‘normal’ prices for my services and until lawyers and doctors start charging me fees ending in 7 or 9, I’m not either.
I did offer a special price over the summer at $97, and it made me feel cheesy and like all the others out there. I prefer being more unique.
I’m not crazy about the image these game playing prices give off, and image is what I and my business is all about.
Thanks for the $100, not $99 or $97 advice.
Thank you for the price elasticity perspective. Much appreciated!
Pricing has little to do with it if you’ve done everything else right.
Typically $97 is for digital products.
Clothing on the other hand (ecommerce) is usually priced at $19.95 or $24.95… If you price clothing at $17 or $27 it subconsciously confuses people and you may lose 10% of customers.
What’s most important is “does the customer LOVE what you are selling?”
It’s not enough for them to just like it. If they don’t absolutely love it they won’t buy it.
Derek, I asked in a mastermind I am in about the pricing psychology strategies behind prices ending in 7’s last week, because I am seeing a lot of people use 7’s but I can only find studies in support of 9’s. (I recommend 9’s to my clients).
In the handful of replies, most mentioned that they get better results with 7’s, and/or they haven’t tested any other number because 7 is what everyone else is doing. The general consensus was to run my own testing and go with what I found worked for my audience.
So nothing I didn’t already knew.
This mastermind costs me $150ish AUD a month, and not 1 person mentioned pricing elasticity, something I read about in a book ages ago but had completely forgotten about.
Thank you for your FREE blog and for being thorough. The comments are also really insightful into how people perceive numbers. #geekalert
Culturally numbers make a difference, too.
In Japan, 4 is “death” so no $49.
$39 is great because reads as SanKyu (“Thank you!”)
Derek, thanks for the interesting info on the left digit principle!
Valuable info Derek. Many thanks.
Maths can help:
Units Price Income
500 $100.0 $50,000
300 $200.0 $60,000
50 $500.0 $25,000
In order to contribute to this topic let me share this ebook for your readers:
Don´t Just Roll de Dice
A usefull short guide to software pricing
All the best for you.
I had a mate the was a production potter based in Coober Pedy, opal capital of the world. He gave me his take on it years ago. He said you just keep going up until people stop buying, I don’t think he had favourite ending number.
In the end it’s was about perceived value, a lovely 12″ bowl was say $32 and a coffee mug was $8. Raw material cost was negligibly different a few cents, labour difference was also negligible, in fact the coffee cup had a handle which might, in fact, have made the labour slightly more. The gas to fire well that was relative to how many items you could fit in the kiln so yes the bowls cost more to fire but compared to the overall cost, again negligible.
So he got four times the money for one item compared to another, each of which have almost the same manufacturing cost. But then he sold more coffee cups than bowls. So as long as you maximise the profit in each case, you’re laughing!
On a personal note, I buy lots of stuff like WordPress themes, plugins, subscriptions etc and almost invariably they are priced, like $47, $197 and so on.
This is irrelevant to me as I look at those figures and think, “geez, that’s seventy bucks and two hundred and eighty bucks”.
USD to AUD of course. 🙁
I tested this extensively at two companies I worked in doing email marketing (databases of over 1,000,000 subscribers each). I never tested any 7’s, but I tested tons of .99s and they always outperformed the next even number in statistically significant price tests (over thousands of transactions). This performance difference occurred even if the difference was just 1 cent.
You’d think folks would be too “smart” for it to make a difference, but this was a test that never had results that were in any way conflicting or confusing – $.99 always won. What was also really interesting was the difference for different price points ($49.99, $39.99, $29.99, $19.99) and the huge difference in purchase rate between them.
Over $49.99 and under $99.99, we found the best price point to be $79.99.
Over $100 – $129.99, $149.99, $179.99 and $199.99 seemed to be the “break points” that would change behavior.
Rob that’s great information, thank you. Did you ever test whole dollar figures, such as $79 vs $79.99 or was it always with the .99 following?
We did some testing along those lines although did more testing for price points like $24.99 vs $29.99. I want to say we did a couple tests where we didn’t tack the $.99 on the end, although this was a few years ago and I can’t remember 100% if we did or not.
In our case, if our price ended in anything less then 9.99, we were leaving money on the table. I extensively tested price points like $24.99 vs $29.99, $34.99 vs $39.99, etc. There was no measurable performance boost by having a lower price unless it went UNDER then next lower $10 increment (for instance, $34.99 would NOT get a higher response rate than $39.99, but $29.99 would get a dramatically higher response rate then $39.99).
I’m not going to suggest these findings apply to all businesses, but for us they certainly worked.
We were selling a popular downloadable software product which had versions priced between $49.99 and $129.99 (with the $49.99 one being the most popular). Our goal was to get trial users to buy the $49.99 version, which we did by discounting as low as $29.99 OR offering the $79.99 version for $49.99, or bundling in a plug-in or 3rd party product for $49.99.
Once folks owned the $49.99 product, the bulk of the sales came from annual version upgrades ($29.99, typically with a bonus plugin or 3rd party product bundled with them) OR upgrades between the product types (like getting someone to pay $29.99 to upgrade from the $49.99 version to the $99.99 version).
When I started there we had a database of about 100,000 paid customers and about 1,000,000 opted in current and past trial users. Despite being about 1/10th the size, the customer database generated about 10x the revenue of the trial database (a trend that continued even as both databases grew to about 3x that size).
Thanks for sharing, Rob! Fascinating.
Thanks for sharing this Rob! very helpful!
A number of years ago (probably 40), my mother rented an empty store to have a yard sale. It was a good move as she got lots of walk in traffic. She priced a lot of stuff at a dollar to get rid of it, yet the stuff wasn’t selling (remember that a dollar was worth a lot more 40 years ago). Someone asked her how her sales were going and she commented that people weren’t buying the $1 items. The person she was talking to told her she needed to change the price to .99 cents and she would sell it all. That person was right. Once the price change was made, sales took off.
Need to know about stupid pricing issues, do a little research with people who have lots of yard sales….just say’n!
I don’t agree. This assumes you create traffic in order to test. Let’s say you have a business, traffic and sales already. This assumes the traffic, if paid, is profitable. It’s not a new cost. Testing makes sense. The cost of the traffic isn’t a cost of the test.
When I buy things I look at the full price and the value of what I am getting. If there are the same or similar products sold elsewhere then I compare and buy the one with the best value. I don’t ignore the price, whether it’s a 97, 98, 99, or 100. I try to take into account what I would do in instances like this when designing my own solutions.
One word: Awesome! ahha
I have two friends (highly spiritualists) that precificam ALL based on numerology. One thing that has to give the sum of a crazy specific number of them there.
It works for them and they feel very safe.
Me? I go for the 7’s…
I love this blog post. I totally agree no need to waste money on price testing. Love this video going to share it now. Thanks Derek!
Great video! I’ve always wondered what works best, but I guess it really doesn’t matter :p I’ve tried $95, $97, $99 and $100. Obviously, I have no quantitative test results to prove which number worked best. As I’m sure most people do, I kind of just go off of a feeling I have — I feel that $97 is so common with Internet Marketers and online products, that perhaps more people associate that pricing technique with “scammy” IMers, so I try something like $95, which seems more honest, simply by not being associated with most other online products.
Who knows, right? I like the price elasticity strategy though.
Thanks for the resource :p
I did this same thing, Brad, as my clients complain about scammy marketing and MLM’s. Sales dropped significantly, so back to the 7’s I went. Just because my clients say they feel a certain way, well, they’re buying habits show a completely different story.
I must be the only person in the world whose autocorrect changes from their to they’re. :-/
I’m so used to using a 7 in my pricing that when I try to use a 0 I stumble through my offer and don’t sound as confident, which translates into less sales! So I’ll stick with that 7 and focus on price elasticity. Great video Derek.
I just use round numbers 5’s and 0’s. Most of my sales happen on the phone though, and it’s just easier to quote round numbers, it flows in the conversation a lot easier, and doesn’t cause anyone to stop and think. Because what I offer is a service, I don’t want the kind of people that are hung up on price, I want people who see the value and are ready to act as soon as they purchase.
This seems like an awesome opportunity for a big company who can afford to put money into the testing and then charge for the results. I’d be first in line because I find the price point issue fascinating but like it’s mentioned, we don’t have a lot of data to run off
This is a timely talk for me – we just raised a price from $297 to $345 and are about to see how it goes. Why 345? Because! 3 – 4 – 5. I just have a good feeling about it vs $350 or $349.
I don’t do ENOUGH of this…raising prices up and up to see where the break point is, where you don’t earn as well. Thanks for the reminder to keep on this!
I think the overarching point of this piece is Think Big. Find the price elasticity point of diminishing returns before you waste resources testing $97 vs $100. Derek’s hit this theme on the head in a few places: don’t waste time improving your conversions by half-a-percent when you could more easily double your traffic.
In my experience it comes down to seeing your funnel as a whole and constantly looking for the lowest hanging fruit, which means constantly trying to get better numbers and constantly testing the ROI at different parts of your funnel. Would content marketing double your traffic? What about ppc? (Do you have a handle on the acquisition cost and lifetime value of your customers from each lead source?) done those? Ok maybe the next stage is a new sales page, a better autoresponder sequence, a more persistent reminder series, etc.
Everything can be split tested, and here’s where we get to my one caveat with the far more experienced and successful Derek’s point: big amplitude variations don’t require huge sample sizes. If you test a new sales page and it converts twice as well with 20 visitors on each variation, that’s statisticalky significant. Even if there’s no statistically significant difference with a small sample size, That fact on its own is a data point, telling you to find lower-hanging-fruit elsewhere. But Derek himself recommends testing price elasticity. If that can be tested, maybe $97 vs $107 can be as well. If there’s no big dif, hey, go with $107:)
Great video Derek!
Perceived supply and demand can improve price elasticity too. Create urgency and supply shortage to sell at higher prices 🙂
False scarcity is so 2013. Consumers don’t buy the BS hype anymore, except for perhaps the not-so-savvy seniors.
And can you really feel good about tricking grandma into buying from you?
C’mon. You can do better. 🙂 <3
this was great derek! thanks so much!
I agree with this and do think the second part is especially important: the left digit matters more than the right. So something priced anywhere between $90 and $99 is going to do better than $100. But the higher up you go, the less it matters. As someone else mentioned, if you’re doing B2B sales in the multi-thousands, just make it an even number already!
Besides odd-ball pricing (e.g. 34.99 versus 35.00), what about this: say that, in a salary negotiation, $50K/year is requested. $50K/year is a nice round number and easy to do some calculations on, like taking 20% off, so the counter-offer might come back as $40K/year.
Contrast that with asking for $51K/year. It “feels” more precise, so the other side is going to think about it in terms of smaller differences, instead of big round differences, so a counter-offer is probably going to be closer to the original ask than the $40K in the first example.
I can’t remember what this effect is called, but I’ve used it and it seems to work.
Anyway, I’m curious if anyone else has some good experience, results, or references for this.
Hello the Lovely Derek, personally the 99/97 etc thing doesn’t work on me and I have always dismissed it from my own pricing and from consideration when making a purchase.
My prices are what they are and people like and want the value I give them or they don’t.
But then faffing and over analysing things like a pound or two aren’t worth my time in the long run so I just go with my gut. I’ve read those ‘reports’ about colour of buttons, pricing strategies etc and I just take from things what makes sense to me – like I no longer offer discounts etc at launches – I offer added value as an incentive.
Anyway enough rambling from me. Fabulous video Derek – as always.
Love this. I do web design services and consulting and my pricing has always been value based. I currently test for price elasticity but I didn’t have a word for what exactly I was doing so this is extremely helpful for further research.
Thanks as always Derek.
I’ve been online since 2005 and a coach since 2008. I’ve tested pricing for years and have found that products sell best (at least for me) at mainstream “7” pricing brackets ($47, $197, etc.) but when it comes to my private coaching, I always price it at nice round number like $5,000 or $10,000. Especially at higher price-points, the money-mindset is totally different and a 5, 7 or 9 doesn’t negatively affect buying choice. Plus, it’s super easy for my CPA to keep track of: she knows anything ending in a “7” is a product and “0” is a service.
I love this, Randi: “anything ending in a “7” is a product and “0” is a service.” I think that’s really going to work for me, as I redo my offerings.
That’s really interesting info. But still, can it really make an impact to use a “0” ? Well, maybe it just sounds more straighforward to say 5.000 than 4.997. Thanks Randi.
“Plus, it’s super easy for my CPA to keep track of: she knows anything ending in a “7” is a product and “0” is a service”
This is such a great detail that impacts the streamlining of process and making it easy for the people worth you do work more efficiently thus more productively.
Very nice, Randi.
oopps that’s supposed to be ‘people you work with work more efficiently…, lol too early in the morning.
Do you have a link to a split test for this?
I assume this is through her own personal split testing, but it does make a lot of sense.
When you’re buying something for that high of a price you have to be fairly committed, and a 9 or a 7 value won’t make a difference.
I own a business that sells software that helps businesses easily & automatically get more 5-star reviews online. And we offer several choices at different price points (ending in 9, incidentally…!).
This is really good advice for any business. Price elasticity is so much more important than conversion optimization when your business is new. I like to first establish what my product / service is WORTH to my customers, and price it there. I’m going to then use this advice to test what the market / customer perception is of the value of the product. Slow but steady price increases will work great until I see a drop-off in the conversion rate. That will maximize my revenue / gross profits. Then I can optimize my conversion rate in other ways.
So to follow up, Derek, how would you then manage your sales team’s perception of the value of the product / service while conducting these test? And how would that affect the outcome of the test? Could it be a self-fulfilling prophecy of “lower pricing is better” if you don’t have a rock-solid sales team?
First time commenting.
I completely agree, though I think all pricing strategies are relative to their domain (in person, website, online marketplace…etc). In person, I’ve sold the same product at a ridiculously higher rate when priced at $20 rather than $19, $21, or something with change. I have a philosophy that people have an innate desire to trade rather than pay. In my example, they’re paying when something is an odd number because they’re either forced to pull out multiple bills and coins, or they’re forced to receive change. At a price point of $20, they pull out a single bill and in turn receive the good they wanted. Though this concept seems far fetched, I’ve witnessed it happen enough that I try to stick to $5, $10, $20, and $50 price points as much as I can. In terms to online pricing, I agree that it doesn’t matter so much if you have your own website (i.e. no visible competition to your products) — though there is something to be said about the psychology (not sales conversion) that odd numbers like $47 or $113 catch consumers’ eyes more. But when you’re competing in an ecommerce marketplace like etsy (see my shop as an example: etsy.com/mynaturalesstials), eBay, or Amazon — you’re competing for visibility and thus need to give thought to how the search engine operated in regards to your price points (i.e. someone searching with a max price of $50, so $50 will appear first before everyone priced at $49.99).
I have heard ending your price with a 7 phycologicaly conveys to the consumer the price was calculated based on facts and actual product value.
I agree with what Mike said about pricing things at a nice round number for in-person sales. I find people a lot more willing to just give me a $20 bill and get what they’re buying, rather than having to get change, etc. I mainly sell books I’ve written, so I’m never quite sure about the price point for things listed on Amazon. Is it better to be the lowest priced book in your niche so people think they’re getting a good deal, or does a lower price than others in the same category make people feel like they’ll be getting an inferior product? That’s my current conundrum.
I think it has a lot to do with the industry you are selling. All the manufactures we work with have MAP pricing. Minimum Advertised Pricing. All our competitors have to sell at this price or be cut off by manufactures. So we have to entice customers with gift cards, free gifts, bundle in packages, etc. Walmart is a good example with their rollback.. They always do under .50 cents.. Example is a t shirt rollback to $6.47 cents from $7.44 .. Seems to work for them..
We’ve tested the last 2 digits of price in several categories on Amazon.
The top five results were 99, 95, 88, 77. 50.
35.00 converted significantly less than 35.99. This is crazy logic, but in line with how we’ve been programmed our entire lives.
I want to offer my services for free and accept donations instead.
Mandi, I think that’s a pretty inconsiderate attitude if your service is worth anything. Profit is a measure of the value you are contributing to the world. The people most in need of improvement will not pay anything and not take action on your valueless service. In addition you will be putting the onus on more “generous” clients to subsidize the freeloaders.
Great post Derek, now that I’m getting into the realm of selling vs. offering services this has been a slight barrier in my mind while I try to figure out the “perfect” price that will sell. Years ago in an economics class we went through this same debate. Love your posts!
Liz, I’ve been a web designer for years and am trying to get more revenue streams than just trading time for money. So I too am trying to get sales going in addition to services (and eventually more selling than service). But it is a hard thing know just how to do the transition. Are you then selling webinars or online courses?
Great insight! I don’t see many ppl talking about this so I’m happy to see the topic covered. Also, awesome new site and loving the video intro.
Great points. Need to do more focus on price elasticity. Brian Harris wrote a good piece on it here: http://blog.videofruit.com/online-course-price/ that follows the model you mentioned.
Anyway – relatedly, adding a price table with several options made a huge impact on my sales. That might be a better thing for people to test than digits.
I test like this all the time…but the price points I test still all have sevens at the end. Ha!
Awesome video. Food for thought for sure. I just launched my website on Monday and so I’m not at the price my product or survive point yet BUT this was nice to think about while I’m not in the thick of it.
Originally I would say that I’d price at the lower and with a 7 price. 47 sounds so much lower than 50.
Then again…maybe the pain I’m saving people from (dead bedroom marriage in the making and possibly the big D) doesn’t need to feel cheaper.
My first product will be around the 50 dollar mark but at least now I don’t have to over think it. Just price it and roll. Once I’m bringing in some money and data…then I can test for price elasticity.
I didn’t know price elasticity until today.
Thanks for serving up that info on a platter Derek.
PS: Did you get the bug in the end? Haha…I love your bloopers.
We are just testing bundling pricing. Any insights?
What about 3 digit pricing? Let’s say 279 vs 280 vs 285.
I rarely comment but had to this time. This was the best piece of advice as I’ve always struggled with pricing. So this just a thank you.
Derek!! Thank you 🙂
I’ve been waiting for you to give your two sense about this topic for a long time.
I had a feeling you were going to say what you said.
You’re so right. It’s so easy to get caught up in 9 or 0, red button or yellow button, etc. and when starting out it’s not going to make a significant enough difference to warrant too much time worrying about it.
Love learning from you. Thank you xoxo
Or ‘two cents’
I think it’s only important to choose one and stick with it for consistency. It looks silly to have prices that all end in different digits.
I was just listening to the Smart Passive Income podcast. Pat had Ramit Sethi on and he agreed that the digit at the end is a totally pointless thing to think about. I have to agree with both of you.
I price my products according to the value I provide. I write business plans for people seeking bank loans to start new companies, and along the way I coach my clients and deliver exceptional business knowledge they need to have. I charge between $3000 and $5000 USD for this service depending on how much financing they need. And my best clients understand that spending $3000 to get $300,000 is pretty much a no brainer.
I’ve been testing for price elasticity for 5 years since I started my business, and incremental increases in pricing have yet to deter my best clients. They only push away the people I wouldn’t want to work with anyway.
What’s your website please.
Deordis — that is THE Jessica Oman, renegade planner
I came with my price based on the idea that I need a low barrier paid product to help segment my list to compare those that buy vs those that don’t buy. I’m at $9 right now for my product and as I add more content to it I will increase the price.
You are right, for online product, you need a low-entry price point to sift the buyers from the freebie seekers.
I think you are doing the right thing…
You just need to test for price elasticity as Derek mentioned in his video.
I wanted to ask the community here if there’s any tool that helps with testing for price elasticity?
Anyone with any help?