Tips on pricing a hardware product?
I'm currently finishing the development of a hardware product with the help of a few friends but we have yet to figure out a pricing strategy. The problem we face is we have actually no idea of the amount a company is willing to spend. Without going into much detail of what the product actually is (I will publish it here once we have the first prototype working) I was wondering what pricing strategies you recommend for a hardware startup, considering it's our first product.
Hardware is tricky. I've previously neglected to do any detailed market research before building which lead to near disastrous results. (and tons of wasted money and time)
If you have done the legwork, the rule of thumb for consumer is about 3x your COGS. But, it does look like you're doing B2B so asking how much a potential costumer would pay and then get a LOI (or even a signed check) from a company first would be the perfect way to validate it.
You lost me on 'LOI' (sorry, not a native english speaker and not really familiar with economic terminology). But yes, multiplying COGS by a factor of 2, 3 or 4 seems to be a common approach.
Sorry! Letter of intent. Basically a letter stating they will buy your product. Often used to raise money with VC's etc. But for you, it's a good way to prove your product!
The way I chose to price my product is through markup.
https://en.wikipedia.org/wiki/Markup_(business)
Then it's a case of validating that the price you have chosen based off the markup, is a fit for the target audience.
Seems like a simple yet powerful approach. Thanks!
One way to do a price survey: https://vimeo.com/104618151
Thanks, will look into it!