There are many great ideas out in the world for digital products or services. Whether it’s the next home-run mobile app, or a great digital business using a responsive website, concepts are out there in in big numbers. Every day in our business we meet with new would-be entrepreneurs who have a basic concept and want to know how much it will cost to build it. Usually when they hear the price tag for their idea, they realize the actual complex dedication and effort involved to create something. In many cases, they choke on this because they haven’t actually assessed the real value of the concepts they came up with. Many of these problems can be addressed with a little bit of planning on the business side upfront.

Close up woman hand using calculator and writing make note with calculate about cost at home office.

1. Determine A Pricing Model

Establishing a method to price any product or service is the foundation to creating an intelligent model for an effective return on investment. Basically, if you don’t know how much something should sell for, it’s difficult to project how much cost you should put against it.

So how much should you put against it?

For more tangible businesses, these prices are often determined by the cost of the manufacturing itself. However, in the digital landscape where there are many routes to generate a final product, experimenting with a pricing structure at the business model stage can help determine which design and development monetization path to follow.

While many projects may not be ready to establish a business model up front, playing with different approaches can narrow down certain cost structures and help you make some assessments on expectations…. Expectations that will help guide the decision of how much cost to put against it.

When developing a good pricing model to monetize against there a few things that you may want to look at:

  • Are there other products or services already out there, and what do they charge?
  • Is this product or service a form of entertainment, or a tool that is a necessity in people’s lives?
  • If it’s entertainment, you’ll be looking to tap into the disposable income of your customers and you want to be careful not to overprice your product.
  • If you view it as a vital tool to either their business or lives, then you may have stronger ground to spend more on quality development and charge a bit more.
  • If it is a vital tool, are there other things that it’s replacing, and what is the general cost of those items? They may already have budget set aside for these pieces and are you pushing past that?
  • Is there an actual demand for this product or service, even if it doesn’t already exist?

Doing some research using each of these questions should help provide both tangible data and intelligent assessment of purchasing appetite.

2. Establish An Estimated Audience Size

While we cover this topic at length in this blog article here, there are a few key things to keep in mind when preparing an assessment:

  • Try to pre-think the digital marketing budget you have in order to be somewhat realistic with the amount of audience that you can actually reach out to. While we are able to imagine endless amounts of budget, I would suggest coming from a more real place and then making arguments for how you might be able to expand audience awareness.
  • As mentioned in the article above, use available advertising platforms to see targeting data within a specific segment that’s relevant to the actual purchasing of your product or service. This gives you a real idea of legitimate audience size for purchasing, and not just how many people out there might check out your website.
  • Write down your methodology. Often times we create the stuff we get a number, and then we have no idea how to repeat that number. Keep track of each step in the logic process you came up with to determine the audience size so you can go back and potentially find the flaws and adjust it at a later point.

3. Determine Key Conversions

When you have a price set for the product or service, you want to take a look at what it will take for someone to actually commit their finances and become a customer. We like to think of this as a simple binary choice; something like “If they like it, they’ll just buy it.” But the truth of the matter is that people usually need to be guided down a path towards purchasing…a path in which they become comfortable with the product, service, or company and ultimately engage in it.

This path is called a monetization conversion path. Each of these conversions start at a point of awareness. They begin engaging with the product as they become aware of it the conversion path begins. The goal for you as the business owner or product lead, is to begin tracking as early as possible and then follow the data at each action until the purchase is made.

These actions can be pre-thought, and will provide the breadcrumbs necessary to give you intelligent data in which you can structure the different forms of engagement.

Let’s look at a simple e-commerce version of this flow:

  1. Customer lands on the e-commerce homepage of the website selling shoes.
  2. Customer sees a promotion for a brand that they are a fan of and clicks that promotion.
  3. When they land on the promotion page they see the offer being made by the company and they click through to see the details of the shoe on the product page.
  4. They select their size and color and then they add the product to the shopping cart.
  5. They then visit their shopping cart to assess the items in it, and begin the checkout process.
  6. During this checkout process, they add their address the shipping information, and their payment information.
  7. At the completion of the checkout form flow, they submit their data, and receive a thank you page with related product items.

While there are many variations to this process, we have noted the key conversions that will lead to somebody engaging in the purchase of a pair of shoes. If this data is tracked and we see an unexpected conversion value, there maybe work to do either on the product side of the technology side. The goal should be, over the course of time to strengthen the conversion rates for each step as much as possible.

Hand drawing Lead Generation Business Funnel concept with white chalk on blackboard.

4. Develop a Conservative Funnel

Next you’re going to take your audience size, and run it through your conversion flow. This is called creating a monetization conversion funnel. Starting with the most real audience possible from your research above, you will put intelligent conversion guesstimates against the transition of each step in your conversion flow. If you already have data, this should be a relatively easy process. However, if you were missing data, you may need to check yourself with some additional logic for why you think the percentage transitioning from point to point is the number you’ve proposed. Don’t forget to document this.

When making these assessments you can spend a lot of time trying to find reports that have been published about these different conversion points within your specific market. Or you can take a conservative approach and generally think intelligently about how many of those people are relevant converters at that particular point in the funnel. Obviously if you get data, you can begin to adjust this and validate whether your estimates were correct or not.

The goal here, however is to start conservative. For the same reason you don’t want to overreach on the audience size, it’s often helpful to try and underestimate your audience versus overestimate them. Then, when the real data starts to come in if your audience is exceeding the expectations, you probably have something strong to work with.

5. Develop a Commiserate Test

Once all of these pieces are in place, and you have a working monetization conversion funnel, then you may want to test it out in the real world. The great news is, in today’s business landscape, it’s easy to generate audience testing through a number of digital advertising platforms. I tend to look for a couple of key components in these tests:

  • Intent: Are there users that have the intent to not only learn about your product or service, but actually purchase it? The best place to get this insight is by using Google ad words as a testing tool and implementing a small budget slice to try and get back a useful amount of conversion data.
  • Concept excitement: The social channels offer a variety of simple add platforms that can be accessed to see how certain segments of audience react to advertising of a specific product or service. These platforms give you a great opportunity to present both visual and textual messaging about what you are trying to accomplish. Most importantly, once you use the targeting tools and set a budget against a specific audience, you should be able to gain some insight into how interested that audience might actually be in the concept you’re putting forward. Facebook ads, and Twitter ads can both be very powerful for this.

Once you put the tests out there, make sure you have a way to track the resultant data set for conversions. We like to use mix panel as an option for conversion tracking. However, there’s some other great tools out there including Kiss Metrics and Google Analytics. Additionally, mobile app platforms usually offer a built-in system for analytics as well.

Without data look at your conservative conversion finals, and see what’s working and what’s not. You may only have a few instances of actual purchase that happen from your initial budget spend, but you might have enough data to give insight on how to adjust the funnel themselves. These adjustments might include expanding the audience size you need on a marketing front, or tweaking the called action on a specific page to drive the next step in the funnel.

With this data, you want to return to the initial projections you made with the combined prices, and the actual audience size you estimated. Using your newfound funnel knowledge, you can decide if you want to adjust the pricing, try acquiring more people within a specific audience, or just pivot away from the idea altogether. Either way, you should have a relatively good perspective at a relatively low-cost. That will give you the insight as to how much, if any, you should invest in this product or service.