Price Considerations for a Product Launch by Microsoft Group PM, Sri Nair

Why is Pricing Important?

A good price for your product will get you more customers/sales and help you make more profit immediately or eventually.

Factors deciding the final price of your product:

  • Customer Value
    If you are able to clearly articulate that the customer will benefit from your product, then there is nothing else that can convince the customer to buy the product, no matter the price.

  • Cost per unit
    Basically whatever you're selling - how much does it cost you to produce that product or provide that service.

  • Business Model/Strategy
    This will be the main factor that will affect the final price of your product.

Customer Value

  • Value delivered to customer when they use your product/features

  • Tangible and measurable benefit for the customer while using your product, for e.g.
    “SaveMyBills” helps analyze customer's cloud subscriptions and cleans up unused resources saving you up to 10% of total cloud spend.
    “ServiceHero” helps customers to create support tickets automatically from an email or phone call, saving time to resolve their customer issues by 15%

Cost per unit (Typical SaaS product)

Cost of Goods Sold (COGS) – anything that is directly influenced when your customer count increases.

What are the cost components to be considered?

  • Should be accounted for, if your product ships devices to customer

    • Cost of device sold to customer

  • Will change as you sell more units

    • Cost of Storage

    • Cost of Compute

    • UI Apps + other cloud services

  • May change depending on your product/services/ Org practices

    • Dev Ops & other engineering tools

    • People/Engineer salary expenses

  • Shouldn't be accounted for in product unit cost ideally!

    • Sales & Marketing

Product Pricing

Business Model/Strategy

To Summarize

  • Ideally try to get more users since that represents

    • Customer appreciates the value

    • More sales and revenue in future

  • However, COGS is also a good lever to improve your margins

    • Review your cloud spend and drive efficiency by optimizing the architecture

    • For e.g., identify areas of the product that are not being used by customers

    • Do the new features add additional value for which customer might be ready to pay more?

Sri Nair, Microsoft Group PM