May 25, 2019 by Kam
Valuing Your Product
Value determines everything about the success of your product. This guide will walk through what you need to know as a software developer thinking about building new products.
Table of Contents
Value is how people think about the benefits of your software. Depending on what you sell, this can be quantified in a variety of different ways.
Your product might help moms save money, it could help painters sell more paintings or be for entertainment.
Your value should be so evident everyone can see it. IF it isn’t, you’re going to have a hard time selling your product.
Value will be a huge determinent in the success of your business. If you enable businesses to do something they could not do before, you are creating value (assuming they want to do the thing you made possible).
This can look like a lot of different things but for Grand this can be pitched a variety of ways:
- Cost savings: We make it possible for anyone on your team to add integrations without needing developer help.
- Value creating: We help companies grow faster by enabling their developers to focus on the product (and build better software)
The cost savings has a clear, you save me $500/month and I am willing to pay you $100 for that. The value creating option is more ambiguous.
Enabling a fast growing startup to grow 10% faster might make a $5 million dollar difference in their valuation. That product could be worth $1,000 a month.
Could you save the customer 1 hire? Developers cost $10,000 a month. Congrats, your same product is now worth $5,000 a month.
Value, and how you articulate that will determine the ease of which you grow. Spend time thinking about the options, and plan accordingly.
Who to sell to will be another very important metric. I know nothing about selling to consumers so I will pass that onto others who do.
Ideally, you want to sell to businesses. Businesses that are making money. Software developers often target small businesses and underprice. Don’t serve the startup market.
Startups don’t have money. It is very hard for you to build a business if your customers don’t have cash.
Because of this, you want to target those businesses who have the pain you fix & have cash to fix it. There are tons of ways you can figure this out, but use sites like:
- Job Boards
To get a feel for how big the company might be. A good proxy for revenue (on the low side) is number of employees * 5,000. Employees cost more than that but start there.
If you have 7 employees at your small company it is reasonable to assume your burn is $40,000 a month (at least). A company burning $40,000 a month won’t notice your $9/month tool.
Good luck getting the owner to talk to you with that price either. Price is part of the experience of a product. $9 software feels like McDonalds.
A good product should be $50, $100, $500 a month! You are pouring endless hours into it. I know you think about the bug you have in the shower and you deserve to be paid for that time!
Just imagine what it would cost if you charged $100/hour :)
The goal is to create a sustainable business!
If your customers are burning $40,000 a month they would rather pay you $100/month and make sure you’re not going to go out of business in a year than pay you $9.
You can disregard this advice if you have never thought about a bug in the shower. If so, lucky you.
Value is the benefit you provide. Price is the amount you charge for that value. If you provide $10,000 of benefit, you might be able to charge $1,000.
You want to get good at articulating the value, so when you mention the price it is a no brainer. There are tons more people who are more experienced and knowledgable about pricing but this will get you started.
Start with the value you provide a specific customer (businesses of some sort) and work backwards from there.
Thanks for reading. If you have suggestions on how to improve this guide don’t hesitate to reach out :)