Average Customer Daily Income

I would love to see startups talk more about their Average Customer Daily Income (ACDI).  I don’t hear founders talk about this enough.

When pricing a product, there is much talk about what people would pay.  Comparisons to a cup of coffee are common (buy this product! free if you just don’t get coffee for one week).  Being someone that loves my coffee (rip it from my dead hand) I view these arguments as lame.  Instead, lets base these product prices on ACDI.

Say your average customer makes $50k a year.  Their ACDI is ~$100 after tax.  Each day, to stay debt free, they have to figure out how to spend less than $100.  I look at markets in general and see pricing based on this, perhaps by accident.  Consumers don’t want to spend more than their ACDI on a product or service.  If we all looked at the % of ACDI as part of how we qualify our costs, we would do much better.

What I didn’t state above is the ACDI is before hard expenses like rent, food and phone.  This brings their ability to save down, but I think the American consumer is priced into spending their ACDI when they are in consumer mode.  As an example, a ticket to Disneyland is $50 a day (for a 3 day pass).  Match in a hotel and you are looking at ~$100 in vacation costs per day (plus food and ‘non essentials’ that are splurges above ACDI for vacations).  We can go back to assuming the ACDI of a park attendee is $50k a year.  Most likely a lot more when you mix in food and travel, but that sounds about right.

Pricing web applications hopefully just changed a bit in your mind.  $25 a year for flickr can be sold as a steal at .25% of one day with the ACDI of 50k.  $10 per month breaks down to 10% ACDI.  Horribly ballpark, but knowing your customer and pricing to their ACDI.  If your ACDI is $300, pricing of $100 shouldn’t flat out turn people away.  Customers infers that this doesn’t look at your comp and student accounts.

The trick for saving money is knowing how and when to spend it.  What if your customers had more ACDI because they knew that the new truck they just got was a whopping $17 a day?  Your $25 app is a much easier sale if your customer has the problem of too much money.

The problem of too much money isn’t a problem of many.  It can be an occurrence, not a problem.  Startups solve problems, and sustainability of communities trusts that these solutions don’t drive your base into spiraling debt.

Some thoughts on pricing, your thoughts? What if charities marketed to ACDI instead of cups of coffee? I think I for one would give more.

  • adiirockstar

    Interesting concept… But how would you adapt it when you're selling to businesses instead of individuals?

  • Ryan Hunter

    Andrew, I've spent a ton of time in my career developing various ways to price and license technology. This is a very fresh idea. As you note in the beginning of your post, the trick will be to put the portion of the ACDI into a concept that the consumer can grok. Hence, the cup of coffee analogy. I wonder if there are better ways to get the point across? Great work.

  • Ryan Hunter

    As an example… I just saw this on a Boing Boing post:

    http://bit.ly/3jXOGR

    “A US-based genomics company announces that it can perform genomic sequencing for under five thousand dollars. In my budget, that's 'fully loaded 8-Core Mac Pro and a monitor,' or 'sweet new Canon 5D with one nice lens.' But unlike those tools I covet, DNA is forever.”

    So while I love the notion of ACDI from a price modelling perspective, I think that a consumer requires more context…

  • joshyarber

    This is quite an interesting concept. I see the problem being small startups want their own personal ACDI to increase. Since they ARE their company, thinking about what others should spend isn't in their big picture a lot of times.

    In small business classes they teach us to create a budget and include things like office rent, expenses, etc. and price accordingly. I think if more startups considered their customer's ACDI, they would provide greater value and increase their loyalty, something a lot of companies have lost sight. Increased loyalty builds a marketing team of customers/clients that will, in the end, sell your product/service for you whether by word of mouth referrals or repeat business. ACDI is something successful startups pay a lot of attention, hints to why they're successful.

    Case in point, 37signals. @Adii, Maybe they use ABDI (Avg. Business Daily Income?)

  • Deano

    This is such a timely post, because sometimes the ACDI is a factor when looking at services that provide multiple service levels… For example, I just checked out http://typekit.com today, basically a web service selling “font usage for your website for one low monthly/annual fee”. The only problem is, the annual fee at the upper end is well past my ACDI! And at the lower, more acceptable end, the featureset SUCKS too much. So, even though this startup has accounted for multiple ACDI levels to a point, they stopped thinking of the non-financial incentives, and/or their service model only works under such a tight-focused market that I'm just never going to be a good fit, regardless.

    So, I think an additional point to make is, while it's nice to have something like ACDI guiding pricing, it's equally important to realize that the pricing, whatever it is, needs to provide appropriate or even excessive value to the consumer (and I would suggest that this is more true for LOWER ACDIs, where the choice essentially boils down to pay for excellent things and make do without a lot, rather than pay a small increment for a so-so solution).

    Anyway, cool stuff! Perhaps ACDI is also the “natural” point at which individuals who are beholden to other interests (the bank, parents, spouses, etc) don't need to consult with a higher power to make the buying decision. I definitely notice the difference in trying to buy something I really want if it's over $200… And if an annual service crests $99, I tend to take MUCH longer thinking about it, whereas I am a Flickr Pro user who barely uses his account, simply because $25 wasn't even an afterthought for what I could get in return.

  • human3rror

    hmm. good things to think about.

  • Deano

    This is such a timely post, because sometimes the ACDI is a factor when looking at services that provide multiple service levels… For example, I just checked out http://typekit.com today, basically a web service selling “font usage for your website for one low monthly/annual fee”. The only problem is, the annual fee at the upper end is well past my ACDI! And at the lower, more acceptable end, the featureset SUCKS too much. So, even though this startup has accounted for multiple ACDI levels to a point, they stopped thinking of the non-financial incentives, and/or their service model only works under such a tight-focused market that I'm just never going to be a good fit, regardless.

    So, I think an additional point to make is, while it's nice to have something like ACDI guiding pricing, it's equally important to realize that the pricing, whatever it is, needs to provide appropriate or even excessive value to the consumer (and I would suggest that this is more true for LOWER ACDIs, where the choice essentially boils down to pay for excellent things and make do without a lot, rather than pay a small increment for a so-so solution).

    Anyway, cool stuff! Perhaps ACDI is also the “natural” point at which individuals who are beholden to other interests (the bank, parents, spouses, etc) don't need to consult with a higher power to make the buying decision. I definitely notice the difference in trying to buy something I really want if it's over $200… And if an annual service crests $99, I tend to take MUCH longer thinking about it, whereas I am a Flickr Pro user who barely uses his account, simply because $25 wasn't even an afterthought for what I could get in return.

  • human3rror

    hmm. good things to think about.

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