(This is an spergout he did in response to a discussion of pricing that was more or less prompted by this article. The context is a startup where I’m playing first sergeant to the founder.)
Basically pricing is the difference between the founder working two jobs forever or paying rent with the startup. I’m learning that people just don’t listen to you unless you are expensive or have the right set of labels (pref both). I already looked up the formula, I can tell you how to calculate how much to charge, you gotta plug the numbers in on your end.
I’d ask you to pitch that info to the founder and just ask him what it’s worth. That way everyone’s putting enough work to value it, maybe even take the advice.
1: Find your ‘floor rate’. Y Combinator calls this ‘ramen profitable’ when they’re looking at software subscriptions. This is not based on anything related to your business. It’s a function of how much do you have to charge to make a living only on the business. If your guy has to make 50k a year to make house payments and eat, work backwards from that number. How many video stream gigs at $15/gig is that? How many of those gigs are in your market, period? Looking at your pricing and what I know of your costs: If you’re making 15$ a game on recording games, you’d have to record 3333 games a year to make one full timer salary. That’s like ten games a day every day of the year, but I don’t think they do games every day of the year [in your market].
And managing the amount of people to do ten games a day every day would get crazy. You would also have to sell ten games a day every day. How long does it take to get this gig, on average? All of that to say, every gig you sell at 65$ a game is taking you FURTHER AWAY from full time money, because of how much time/money it costs vs. how much you make. At even 100$ a game, the math is better but tough to scale. 50 bucks a game is still 1000 games a year, 3 a day to sell, close, organize, update to site, etc. In other words, you gotta charge more. Walk up the rate, sell subscriptions to the platform, something. If you can’t justify $130/game, you can’t offer the service, because you will die of overwork before hitting that 1k games a year. Or it will take 5-10 years to hit that number. I don’t know how much you CAN charge for it at the top end. But I do know how much you HAVE to charge for it to be worth your top salesman’s time, your CEO’s time, your top specialist’s time.It would be your kind of work to go through your existing pricing chart and make a SPREADSHEET:
At the top, how much money does your guy have to make in a year to quit his other job. 50k? 70k? Put in
-how much each service costs,
-if the cost is recurring or one time
-what you’re selling it for, price wise
-how many you are selling right now,
-how much time each deal takes to get,
-if it’s recurring revenue like a subscription or one time,
-what’s the median length of time someone subscribes to that service if so
-and a rough estimate of number of buyers in the market for each product/service
With that spreadsheet in hand, you can make real decisions. You can see, “OK, to hit 50k/yr, we’d need to sell 5k of X product. That’s looking like 2 years of man hours per year. Huh. Charge more or do something else.”
I have more. Was in the middle of writing the next step that would get you sales for the next year. But if you don’t have that spreadsheet, doesn’t matter. If this is something you guys do for fun on the weekends, do it however you like. If this business is supposed to pay someone a salary, you can ‘do the math’ and know in a 3-6 month window, when the founder goes full time. Or what products will make you less money as you sell them. I’ve more or less explained the formula. Make the spreadsheet, get the numbers that you need to plug in.
Once you have it, I would bet money you would be in a position to ask him, “Hey, I’ve run the numbers, and you could be full time on this thing by next December. I have our best selling products, sales targets, everything in one of my finest spreadsheets. How much is that worth to you?”
Oh yeah, missed a paragraph. After you make the SPREADSHEET: look at it for things you already sell a bunch of, that you could probably walk the price up a bit, that have enough potential customers to get you to yearly target revenue (that is, if you’re selling $500 team subscriptions, make sure there are more than 100 teams that could/would pay).
Then sell only those things for a year. Keep doing existing gigs. Let people ask about other stuff so you can note demand. But only sell the winners that can get you full time. Do it for a year, see what happens.