Defining a Cost Structure in a Product Development Lifecycle is a crucial aspect to determine your product’s evolution, built, maintenance and customer adoption. It comprises costs of Development, Infrastructure, Operations and Compliance required for your product’s sustainability. During the phase of Business Model Planning and Product Strategy generation, you need to start estimating costs to determine potential pricing models, and expect profitability.
Cost determination needs an extensive assessment of Infrastructure, developed Features, Competitive offerings and customer willingness to pay. Common strategies to determine a product’s cost include –
- Considering a Margin cost.
- Charging based on value perceived.
- Aligning with Competitor pricing.
- Offering freemium or tier level pricing.
Base price determination from above strategies could be completed/set appropriately by performing Market Testing, like A/B testing with different price points, Evaluating Customer Life-time and Retention, Customer Feedback via Surveys.
You would wonder whether you want to consider changing your pricing without hurting profitability. The answer is YES! There is always a need to change pricing as Infrastructure costs may rise over time. As you add more features to offer more value to your customers, development and sustainability cost may increase. Given the changes in Market Dynamics, you may want to consider offering competitive pricing.
So, how would you consider retaining your customers, considering your product is best in the Market? The strategy is to always consider introducing Options within the pricing-layers. Options include –
- Adding a Tier-level pricing instead of increasing base prices.
- Add cost to Premium features.
- Offer discounts without undercutting the original value.
- Territorial pricing, based on location.
Issac plays key role in collaborating across teams like Finance, Engineering, Design, Marketing, Sales, Customer Support, Operations to forecast long-term expense, maintenance, customer acquisition cost, tools, surveys and understanding customer lifetime value (LTV). He finalizes a backbone to design the product’s Cost Structure.
Premium feature access
- Freemium version
- Limited basic journaling Features
- Have to create a user account to access free version
- Limited data storage
- Customer Support available
- Trial version
- 3 days free trial
- Unlimited features
- Have to create a user account to access free version
- Keep card details on file
- Payment
- User will be charged after trial period
- No Payment in trial period (until 3 days)
- Payment will start at 12:00am of day 4 of account creation
- Full Paid version
- Monthly charges
- $2.99 monthly
- All features
- User will be charged at 12:00 am on the same day of 1st payment date every month
- Yearly charges
- $29.99 yearly (Competitor pricing is – $19.00)
- All features
- User will be charged at 12:00am every year on 1st payment date
- Monthly charges
Additionally, he also works on determining a Cancellation policy for his customers who have accessed full version of the product.
Cancellation policy
- Trial version
- Cancellation is allowed before 12:00am on 3rd day of signup/ account creation
- No charges if canceled
- Payment details will be deleted
- Full Paid version
- Monthly charges
- If subscription is canceled, after user account creation date cycle, user will be charged full
- User will continue to have access of their account for until the payment cycle is complete
- After this – no access to the account
- Account data will be maintained for 2 years
- Data of user will be maintained until 2 years of account creation
- Yearly charges
- If subscription is canceled, after user account creation date cycle, user will be charged for the full year (365 days of account creation)
- User will continue to have access of their account for until the payment cycle is complete
- After this – no access to the account
- Account data will be maintained for 2 years
- Data of user will be maintained until 2 years of account creation
- Monthly charges