- There are more and more handmade businesses out there
that are selling digital products these days.
That can be printable items or digital downloads,
such as patterns and planners, you name it.
Some sellers have a mix of digital and physical products,
others have a completely digital product offering.
And I see many of these handmade sellers run into problems
when they are pricing their digital products
because it's a bit of a different process
than pricing physical handmade products.
And there are four quite common mistakes
that I see them make.
So in today's video,
I want to talk about those four common mistakes to avoid
when you are pricing your digital products
to help you set a price that will sell your products
but that also will cover your costs.
Ready? Let's dive in.
(bright music)
Bonjour, my name is Deb and I'm the founder of Tizzit.co,
a membership community for makers and handmade shop owners
just like your fabulous self.
You can learn more about our community, Tizzit HQ,
via the link that I'll put below this video, but for now,
let's jump straight into today's conversation:
four mistakes to avoid when pricing digital products.
Before we start talking about the common mistakes,
let's quickly clarify
what the term digital products actually mean.
When you sell a digital product,
there is nothing physical that gets shipped to the customer
at any point in the transaction.
So it's important to understand
that they are different from print on demand products.
Print on demand products still get shipped to the customer,
they just get printed or produced or manufactured
by someone else that's using your designs.
So today we're talking about digital downloads,
things like patterns, cards, planners or artwork
that people would download and print themselves.
So we are basically talking about anything
that's digitally available
and that people can instantly download to their computer.
So now that we've covered
what exactly the term digital product means,
so we're on the same page,
let's move on and talk about the four common mistakes
that I see quite often.
The first mistake I see sellers make
is forgetting that there is still a cost involved.
It happens very easily because with digital items
you think that because you sell digital files,
you don't really have a cost to make them.
Of course, there is no material or supplies cost,
you won't have to account for things
like wire, beads, paint, felt,
because of course, your product is digital.
There is also no labour cost.
Now you may have a bit of labour
if you manually process orders
and send the digital files out,
but if that's the case, I would actually really recommend
that you consider automating that.
There are many, many tools now
that are available to help you make the download
instantly available to your customers
without you having to manually process anything,
which frees up a lot of your valuable time.
But if your digital files involve
a bit of personalization or customization
then by all means you would add that labour cost
into your total cost calculation.
The main cost you need to account for, though,
in digital products that many, many sellers overlook
is overhead.
Because even if you sell only digital items,
you do have an overhead.
It might be for design software
that you have to subscribe to
like Adobe Photoshop or Canva.
But for things also like website
or hosting fees, utilities, rent,
you want your digital pricing to take those into account.
So for example, if you add up those costs,
you may find that you actually have
a $250 overhead each month
when you add up your website and hosting fees,
software fees, and the like, it starts to add up quickly.
You want to be clear on how much your overhead is.
What those fixed costs for you are every month
that you incur no matter how many products you sell.
And then you want to use that overhead cost
that you calculated as your breakeven point.
Now you can ask yourself how many products do I need to sell
at what price point to cover this $250 expense
that I'm going to have single every month?
So how many products do I have to sell
at what price point to breakeven
to just get to the point
where I'm starting to make a profit?
So if you decide to price your digital patterns
at, say, $8 each,
you're going to have to make 32 sales
before you start seeing a profit.
But if you sell your patterns at $12 each,
you only have to sell 21 to break even.
Now I'm not saying $12 is the best price,
that's just a random example.
What you need to do next is ask yourself
if it's easier to sell 32 of your products
at $8 in your specific niche,
considering your market and the research that you have done?
Or is it easier to sell 21 products at $12?
You can see how very important it is
to account for these costs in your product price
or you may set your price too low
and not cover your expenses or struggle to make a profit.
The next common mistake I see in digital product pricing
is forgetting to factor in perceived value
and perceived costs when choosing a price
and basing your price on competitors' prices only.
The perceived value of your products
is the perceived benefits that your ideal customers feel
they get by purchasing your products
minus the perceived cost that they foresee.
So to calculate these,
you have to clearly understand who your ideal customer is
because the perceived benefits
and perceived costs of your products
are going to be very different based on who you're asking.
For example, let's say you sell patterns
that can be used on a Cricut/Cricut,
I don't know how to pronounce it.
And your patterns includes a tutorial video showing
how to load your pattern into the machine
or perhaps some colour ideas for colour combination
that looks very good together for this specific pattern.
You know that by including extras
that benefit someone who is just getting started
using a Cricut/Cricut machine,
your products will be very valuable
in the eye of that specific customer
but not as valuable to someone who is very experienced
and just wants the pattern.
The customer who is a beginner will see your listing
and say "I will pay a bit more for that
"because I value the tutorial and colour ideas
"since I'm not very knowledgeable about these things yet."
But the experienced customer may say,
"I don't really need all those extra bells and whistles
"and I don't really want to pay for them
"because I can buy just a pattern for a bit cheaper."
So you can see that even in the same niche
you want to be really clear on who you're targeting
with each product and each collection
and with your shop in general
so that you can understand what the perceived value
of each of your items is in the eyes of your ideal customer.
When pricing each product,
be sure you think about what are the perceived benefits
of this specific product,
the one that you're thinking of pricing right now,
in the eyes of your ideal customer?
Once you've done that,
you also need to consider the perceived cost.
Some digital products require that the customer do more work
and/or purchase additional things
after buying the digital product.
For example, if you order a digital design
for wedding invitations, you'll still need to get online,
upload that design and order it
from a printing centre somewhere.
Or if you order artwork, you will need to print that artwork
and then buy a frame to display it in.
The customer will factor that time and extra money
into their purchase decision
because they also have the option
to order pre-printed wedding invitations
that will be shipped to them directly
or pre-framed artwork that arrives
ready to hang on their wall.
And they'll compare cost versus time and effort
before making their purchase decision.
So when you're looking at perceived value
and how your ideal customers are looking at your products,
you need to consider both the perceived value
they are getting from them and the perceived costs
that they will encounter if they purchase your product.
And factor both of these into your pricing decision.
Then you work through different pricing
and resulting sales scenarios.
If you'd like to dive deeper into this,
we talk about how to do it and walk you through the process
in the Tizzit HQ pricing course
which I'll link to down below.
Go and check it out.
Now on to the third mistake I see sellers make
when pricing digital goods,
which is that they think they can't change their price
once they set it.
And I want to tell you,
don't feel like once you set your price,
you need to leave them there forever
because you should always, always, always
be testing and experimenting and adjusting your prices
based on what you see and what you learn.
Nothing is set in stone
and especially not with digital products
and you don't need to find the perfect price immediately.
In the digital pattern example we talked about earlier,
you will never know if 8 is better than $12
for your digital patterns if you don't experiment
and try to slowly increase your price
to see what the market can bear
and what happens to your sales when you do.
The fancy business term for this is price elasticity.
How much the demand for your product can change
when you increase or decrease the price of your products.
You might find, for example, that $9 and $10
don't reduce your sales, but at $11,
you encounter that psychological upper limit
where your customers decide that that's too expensive now.
Or maybe not.
Maybe you might may find
that you can actually push your price to 13 or $14
before you hit your upper limit.
So this is really something that you have to keep in mind,
you have to be testing, you have to be experimenting.
And don't only look at your quantity of sales
because even if you sell less product at $13,
you may make a lot more money.
Less can be more.
The final mistake I see sellers make
that I want to address is trying to include design time
in your pricing equation.
I frequently have sellers ask,
"Hey, Deb, do I account for the time
"that I spent actually creating my digital products
"in my labour costs?"
And the short answer is no.
The time it takes you to come up with the idea
for your design or the design time
for your digital products is not a labour cost per se.
Think of it this way.
If it takes you 10 minutes
to come up with a brilliant design,
it doesn't make it less valuable
than if it takes you 20 hours, right, and vice versa.
And if you were to include 20 hours
in your labour costs or your overhead,
it would absolutely blow up your prices
and be unfair to your customers
because after the original design is done,
you can actually re-sell the same digital product
without needing to re-invest 20 hours each time,
so that's the beauty of selling digital products, right,
that's what makes them very scalable.
So how do you afford the time to create new designs
and come up with new ideas?
By making sure your profit margins are healthy enough
but not inside of your labour or overhead costs.
So in that sense, yes, it is included in your price,
but as part of your profit margin,
not inside your overhead or labour costs.
You can see that there are a lot of variables to consider
when pricing your products, digital or physical,
and I have a video that walks you through
each step of pricing your handmade products
that's showing somewhere around my face
on your screen right now for you to go and watch next.
So go and click on it.
Make sure to subscribe as well,
and until next time, au revoir.