Pricing a Product

So you’ve gone through the rigamarole of coming up with a product that solves a need in the marketplace and you’ve validated your solution with potential users, but now you need to figure out how much to charge people to use said product.  What follows is a framework you could use to try and solve this conundrum internally with your team or by yourself.

1. Ask clarifying questions.  Ask for background information on internal costs and pricing or competitor prices and costs.  
2. Customer’s willingness to pay.  What is the maximum a customer is willing to pay?  BATNA - Best alternative to a negotiated agreement, i.e. if Enterprise charges $40/day to rent a car then say our car rental app is the first of its kind with automated driverless cars coming then we’d price around that.
3. Competitive pricing.  Use alamo, rent-a-car, hertz, etc.  Write out advantages and disadvantages of my product and why it skews my pricing one way or the other.  
4. Cost-based pricing.  Takes into account the cost of the product and adds markup afterwards to come up with the price.  You would tally up the unit cost, literal cost of the item, as well as the overhead cost.  May include rent, shipping, or stocking fees as well.  Unit cost of a rental car would be $15/day.  Overhead costs would be parking, maintenance, insurance add another $10/day for a total cost of $25/day.  Add 40% markup results in a price to users of $35/day for car rental.
5. Maximizing profits is typically the first priority, but others may present themselves as more important.  You may want to maximize market share by lowering the price, which could produce network effects, i.e. product value goes up as more people use that product.  May price product higher to give the product a higher perceived value. 
6. Could use supply/demand curves to also help in coming up with a price.  

This is a brief, but effective way to quickly determine what price you could charge a paying client for using your product.