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.