“The number-one theme that companies have when they really struggle is they are not charging enough for their product.
It has become conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible, under the theory that if it's low-priced, everybody can buy it, and that's how you get to volume.
And we just see over and over again people failing with that because they get into a problem called ‘too hungry to eat.'
They don't charge enough for their product to afford the sales and marketing required to actually get anybody to buy it. Is your product any good if people won't pay more for it?”
This quote is incredibly powerful and applies to just about every business. What Andreessen is basically saying is that everyone is trying to be like Facebook, Uber, Instagram, etc., because they want as many customers or users as possible.
Here's the main problem with this:
Volume costs money
If you've ever started a website (a decent one), you know that you have to pay for hosting, domains, email marketing software, etc. In fact, just hosting and email marketing alone can cost you thousands per month.
This doesn't even include accounting services, analytics, employee compensation, lease space, freelance work costs, office equipment, other marketing software, etc.
It can cost a lot of money to run a business. You can't just get all these people coming to a website, app, etc. for free. That's just not how it works in the world of bandwidth and marketing.
Even if you want to do low cost products or services for the masses and just do free marketing strategies like blogging, social media, YouTube, Podcasts, etc., you will probably run out of time before your business starts becoming profitable.
“Natural” forms of marketing like SEO, social media posting, and other free methods take much longer to get traction than paid methods. Many businesses just don't have time to wait for those to kick in.
What businesses have to do
You have to raise prices enough to cover costs while still over-delivering on quality. And their are a few benefits to raising prices that you may not have thought of:
- You won't need as much sales or traffic volume to reach income goals.
- Some people will start to associate your product or service with quality because many people believe you get what you pay for.
Also, before you launch a new product or service, do your research on what it costs per visitor to visit your site, app, store, etc. Then, estimate what you'll make per visitor based on conversion rates and pricing.
Make sure you leave yourself some wiggle room in case you don't quite hit your estimates.
This will give you a better chance of not falling victim to the big mistake many businesses make, which is not charging enough money.
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