How to Price Digital Products Wisely

‘The moment you make a mistake in pricing, you’re eating into your reputation or your profits.’

Katharine Paine’s saying spots on how the importance of pricing your products correctly. Not only does the right price bring high revenue to your business but also creates a good brand reputation. Wrong prices, meanwhile, put your business in the ground.

You can go through the process of pricing physical products easily by combining the cost of materials, labor, machine, and the profit you want to earn.

Pricing digital products, however, is a whole different story. You create them once and sell them unlimitedly. Plus, this type of product doesn’t require the material cost, no shipping, no manufacturing, and no storage. So the way you evaluate your digital items seems much more difficult and complex.

In this article, we’ll give you 6 strategies to price your digital products so that you can find and apply the right one for your business. But before digging into the details, let’s briefly discuss the consequences of pricing products incorrectly.

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How Pricing Digital Products Incorrectly Affects Your Businesses

There is a growing trend towards selling intellectual products. You can create and sell digital products to share your knowledge and experience in a specific niche.

Ebooks, online courses, graphics & digital arts, and photography are the most common types of virtual products recently. Some companies also build plugins and themes since they see a huge opportunity in the WordPress content management system.

You’ve put a lot of effort into the product, from conducting customer research, designing an excellent downloadable file, and incorporating feedback. You now jump to the final step: pricing.

Giving the right price to your products brings you many things. You get a push in sales, loyal customers, and also a good brand reputation. A too low or too high price will drive customers to your competitors’ businesses. This is called ‘Customer Psychology’ which will be explained in the next section.

Seller and Customer Psychology

The art of pricing digital products requires you to understand customers’ psychology.  Many business owners make mistakes in pricing their goods. Neither over nor under-deliver won’t work. You need to not disappoint buyers and keep them happy to pay.

  • Under-deliver – It’s when buyers pay more than the real value of the digital download. This ends up with their disappointment and there may be chances that they spread bad words about your business. It will seriously hurt your business.
  • Over-deliver – Your downloadable file provides more value than its cost. Buyers may wonder about the product quality. ‘Is it that good as what that advertise?’ ‘Why is the price so low compared to other companies?’ From your side, you may feel that you don’t get enough for the effort you’ve spent. Consequently, you lose revenue and profits.
  • Reasonable price for a standard – Your product is at a low price with similar quality and purchasers understand that. You earn a good amount of profit while purchasers know the product is worth what they pay for. Then both you and your customers are happy and find it fair with the trading.
  • High price for a great product – You invest a lot in your digital product and set a high price for it. Fortunately, customers are willing to pay for and enjoy it. This happens as a win-win relationship.

5 Strategies on How to Price Digital Products

You have multiple ways to set a price for your intellectual items. You can base on the core product value you deliver to customers. The Tiered pricing model is also recommended if you run a SaaS business. Besides, Try Before You Buy, Added Bonus, and Psychological pricing strategies are worth your consideration.

#1 Choose Value-Based Pricing

We have another strategy namely Cost-based pricing. This pricing method combines how much it costs to produce your product and the profit you want to make after taxes and expenses.

Since it’s unable to price your products based on the creation cost, you should go with the value-based solution. It determines the value you bring to buyers or how much return customers get from their investment in your products.

Take a WordPress business web development ebook as an example. Your ebook teaches potential business owners how to build, launch, and run their sites as well as using these sites to make money.

The better answers your digital products bring to customers to resolve their problems, the higher value you deliver. Then, you can base on this value to price your products.

#2 Use Tiered Pricing

Tiered or Freemium pricing refers to the model that allows buyers to try your digital products for free with limited features and functionalities. Then, they can pay to get advanced premium capabilities.

With this method, the quantity goes with quality. The more you pay, the more features you get, and the better solution the product provides. You’re able to reach various types of audiences. For free users, you can show them the huge differences between free and premium virtual products. The paid customers, meanwhile, should receive updates on related products so you can upsell and cross-sell.

You can apply this pricing strategy to most digital products, from online courses to ebooks, and software. For instance, students take the free beginner writing course with basic writing tips. They can pay for the premium courses to access SEO as well as content promotion lessons.

As a WordPress plugin business, PDA team makes use of the tiered pricing model too. We provide a free PDA version which is available on the WordPress repository with core features to protect your WordPress media files. You can upgrade to its Gold version to secure unlimited file types, auto-secure new file uploads, integrate with top plugins, and tons more other useful features.


#3 Offer ‘Try Before You Buy’

Unlike the Tiered pricing, Try Before You Buy lets you offer the full digital product/service for free in a certain period of time. For example, a 7-day, 21-day, or 30-day free trial.

Customers have a chance to get to know your products before deciding to make a purchase. This helps build the great trust of users in your business and shows that you’re confident about your product quality.

Ensure that you set up an autoresponder to remind users about the expiration time of their trial period. We suggest you should provide special offers to convert free-trial users to paying customers before the trial ends.

Plus, you can consider giving a money-back guarantee policy to give customers the feeling that they’re not risking their money. If your intellectual products are good enough, you should see just a few refunds.

However, you should have a clear refund policy to make sure users don’t buy your products by mistake or just copy them.

#4 Added Bonus to Digital Products

We all get excited about free bonuses. Offering free gifts with purchase is always an ideal solution to engage buyers to take money out of their pocket, not only for physical product sellers but also for digital goods providers.

One thing you should notice is the value of the free gift added to the main digital product. If you’re selling an online WordPress web design course, don’t just give learners general stuff like web design checklists. This information is easily accessible on the internet. Instead, try to pack their course with free awesome templates and they’ll appreciate your gifts a lot.

#5 Understand Psychological Pricing

This is the most basic pricing strategy but it works well for almost all types of products, including intellectual items. Rather than pricing your ebook or software at $50, $100, or $150, charge them at $49, $99, and $149 respectively. Since the price is $49, customers will have the feeling that the product cost about $40, not $50.

Take PDA Gold, a WordPress media file protection plugin, as an example. The main plugin costs personal users $15.9 per month. You need to pay $89.9 for its Amazon S3 WordPress Uploads extension to sync your private files to Amazon S3. To secure WordPress folders, give File Access Restriction extension a try at $69.9.

How to Find the Right Pricing Strategies for Your Digital Products

Despite having different choices of digital product pricing models, picking one for your business is not an easy task. Besides the creation cost, there are so many additional expenses that you need to pay attention to. Ask yourself these questions before pricing your goods.

  • What is the cost of hosting your digital download?
  • How much do you need to pay for the taxes of that product?
  • What is the profit you want to generate from that product after taxes and expenses?
  • Are your customers willing to pay that certain amount to get your download?

To answer these questions, you need to conduct customer researches or even look at how your competitors are doing and learn from them.

You should consider associated costs as well, for instance, the Customer Support fee. Selling digital items doesn’t just end at the checkout. Especially, for plugin and theme providers, the post-purchase support even requires more effort than in the pre-sale stage. Users need your assistance when installing, getting started, and using your products.

What Is Your Digital Product Pricing Strategy?

Pricing digital products require a similar effort as what you put into creating them. Customer shopping psychology is complicated. Either under-delivering or over-delivering won’t yield any good results in the long run. Your product price must reflect the product value.

We’ve explained the 5 most common strategies on how to price digital products, including value-based, tiered, try before buy, added bonus, and psychological prices. Each of them defines your product cost in a different way. You can apply multiple models at a time too.

So what’s your digital product pricing strategy? Share with us in the comment box below. You can also check out our case study on the top 5 models for a lucrative WordPress plugin business here.