Cheap! Cheap! The Perils of Low Cost Being Your ONLY Advantage

How low can you go? Turns out, pretty low! But should you?

I’ve chatted to a few people recently about product pricing. Some people have been saying they’ve been told that being the cheapest solution is a great strategy and can give you an edge over the competition. Now, these things can be true, but there are some caveats and watch-outs, so let’s get into it.

On the one hand, it makes sense, right? With the cost of everything rising, and budgets more constrained than ever, offering a solution at a lower price point means people will come and buy more of your thing. Yay, revenue!

Some Different Ways to Price a Thing

There are a few common ways to price a thing, whatever that thing is. In this example, let’s assume it’s some kind of SaaS subscription product and you’re going to charge X units of your local currency per month. But, how do we define X?

Cost Plus: We work out how much it costs us to make the thing (which, because it’s software, primarily consists of fixed costs plus stuff like employee salaries and our cloud hosting). This is our floor price, so we add a bit of margin on top and charge that.