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If you make digital products, price them out using the formula taught in this lesson
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So let’s get clear on the two types of digital products as it relates to this lesson.
The first is non-information based, like graphic design resources like textures, brushes, fonts, digital scrapbooking paper, patterns, and also printables like greeting cards, wall art, and invitations.
The second type of digital product is information based where you’re teaching something, like sewing, crocheting, knitting or weaving patterns. It could be online courses or e-books and even templates.
The distinction between these two types of digital products will make a lot more sense when we finish this lesson, so let’s get to it.
Here’s one pricing formula for digital products that I’ve found to be the most helpful. A lot of resources out there don’t even give you a formula and they ask you to just feel out your pricing, which for me, is way too vague and I would much rather give you a concrete formula like this.
But be mindful that this is not a perfect formula, and you’ll see why.
So the first step to pricing your digital product is exactly the same as pricing handmade physical products. You would add your materials and time spent designing and creating your product to calculate your cost.
Let’s say we’re pricing out a soft toy sewing pattern. All your sewing materials and supplies cost you $30 total and say it took you 15 hours to make the soft toy, take in progress photos, write up instructions and format it all together in a beautiful PDF. You’ve set your hourly rate at $25 per hour.
Now you’re going to take your total cost and divide it by the number of units of your product that you anticipate will sell. This could be over a few years that you plan on keeping this product up for sale. This will give you your final retail price.
Going back to our example, say you’ll sell 100 copies of your pattern in the next two years and then you’ll discontinue it. You’ll take your cost of $405 and divide it by 100 copies. Your final price per copy of your soft toy pattern is $4.05. And you can round that up or down to a price that makes more sense, like $4.00 or $4.50.
Now the big question mark you might have is with guessing how many units you might sell. I can’t give you the answer to this and you’re not in any better position. We’re just guessing with that number. And that doesn’t sit quite right with me. However, this is the most practical formula there is for pricing digital products.
Interestingly, I think the vagueness of pricing digital products has a lot to do with the nature of them to begin with.
When you get into the digital product space, you benefit from only needing to create the product once and then it’ll sell over and over again.
That’s a huge benefit of potentially passive or semi-passive income for you. Keep in mind that this product will continue to make sales for you over years so your income is stretched over those years.
Because there is balance in the world and some things are just too good to be true, a big disadvantage I’ve seen in the digital product space is that you don’t have the luxury of pricing any more than your competitors. At least not a whole lot more like you can if you sold a physical products that was handmade and totally unique. I say this specifically for non-information digital products like greeting cards, invitations, wall art, brushes, fonts and so on, where you’re not actually teaching someone anything.
That is not to say that you can’t charge a couple of dollars more than your competition. You absolutely can still do that, but you need to figure out how to be different or be better than similar products your competition sells. Maybe your craft pattern is really easy to understand in a notoriously challenging craft. Maybe you include a video tutorial with your pattern. Anything to get the extra leg up and prove to your customers why they should pay a little bit more money on your product instead of the competition’s.
So there’s pros and cons and give and take.
Pricing information digital products is a little bit different.
First, you have far more flexibility in determining your price based on the promised outcome of your product.
Especially if you teach information that helps people learn a valuable, monetizable skill. The more value it is in the thing you’re teaching, the more people will pay for your lessons. So take for example, teaching a course like the A Sale A Day Business System. I’m teaching people how to one day be able to make a living and an income with their crafts and handmade products. The promised outcome and benefit is that people can make money from taking this course. People will pay far more for this than they would for say a Craftsy course on how to make bread.
So a few questions to ask yourself when it comes to pricing information digital products are
What information are you delivering?
How will it change your student’s life?
And will it help them make money or save time? People pay top dollar to learn certain things, like how to pick up women or date, or how to invest in the stock market.
People generally don’t place as high of value in craft education like beading, sewing or crocheting classes. So if you’re selling something like that, then you’re pretty limited to charging more similarly to the established price points in your market for your type of product. You can still charge a little bit more if you want to, just remember to back up your prices by being very clear to you and your customer about why your product is priced differently.
So let’s recap.
We talked about the two types of digital products, non-information and information digital products.
We walked through the digital products pricing formula and how it gets you close enough to an appropriate price point for your product.
We covered the nature of digital products and because of how you benefit from passive income, you’re giving up the luxury to mark up your prices to something way out of the typical price range for your type of product.
And finally, we talked about pricing information products and whether or not you’re teaching something that people place a lot of value in or not.
There’s no homework for this lesson, considering it’s a slight tangent to selling physical handmade products, so I’m not making this a requirement for you to go through.
I’ll talk to you in the next lesson.