How to Price Your New Consumer Hardware

This essay originally appeared in Hardware Massive Resources.

A brief intro to “pricing”

You’ve seen “Early Bird Prices” offering 50% discounts for consumer hardware products that are on the cusp of launch. As you browse Amazon in any given category, such as drones, you will see a variety of products with similar specs, but available at a wide spectrum of prices. So, how does any company decide what their product is worth to a customer? 

I work at Indiegogo, a crowdfunding platform for new hardware products, and my job is to advise entrepreneurs on their launch strategy. Pricing is a key component of that conversation:

Product Price x Units Sold = Total Sales

The total amount of funds raised is the center of success for a pre-order campaign, because it reflects sales volume, which demonstrates market demand for a product. These funds also provide capital to build a business with. The higher the total funds raised, the more successful a product is. 

Word on the street is that pricing as low as possible is critical to selling as many units as possible. Low prices are used as an incentive to consumers, to convince them to buy here and now. But, lowering prices does not always make sense if it results in inadequate funds for production, or if it does not match the positioning in the market.

This article takes a practitioner’s approach to pricing, focused on what’s profitable and feasible, rather than on pricing theory. The best place to start your pricing decisions is based on your own operations and customers.

Your price should mirror your product positioning

Pricing is not always about covering costs of production. At the core of your pricing decision should be identifying which set of customers will ultimately be your paying customers. 

These are some types of pricing that might be applicable for your new product launch:

Price point$$$$$$$$$
Pricing typeEconomic efficiencyMarket penetrationPremiumMonopolistic
Example of situation to use I can produce and distribute this product at a much lower price that my competitors, and match or better their quality.I want to get this new product into the hands of as many customers as possible. I might be able to recoup margin through value added services, subscription fees, accessories, repeat purchases, or volume.Customers have trust issues with product quality in this category, and my product promises reliable and transparent practices. We sell more than just a product.My product’s core technology is unreplicable and patented, so we are the only company who can offer this product.
Example productOnion Omega 2 Linux computer for $5Crazybaby Air Wireless Earbuds for $99Z CAM S1 Professional VR Camera for $1,500OSVehicle World’s First Open Source Vehicle for $19,000

Common mistake #1: I want to sell as many units as possible, so I will adopt a “low price strategy” for my product.

This is always going to be a mistake for your bottom line. You will not leave enough margin for yourself to effectively pay for marketing and growth efforts, and there will be operational costs that you can’t anticipate right way. During your customer servicing, you might have shipped a product late to a customer, and the customer may want a refund because of the delay. Or, after the product is shipped, the customer may not want the product anymore. Returns are something you won’t be able to accurately anticipate, and will impose financial loss for you. There are other costs that you may not be able to forecast, such as credit card chargebacks, or a shipping price spikes from your service provider. 

As a baseline, think of the 20/80 rule: your product should cost 20% of the selling price. Mark up your product 4x to start, and start whittling down your price from there. Keep reading for my take on how to build up your cost spreadsheet below.

Common mistake #2: I have a premium product in a new category, so I can charge a high price point and customers will understand why.

Premium positioning is not achievable right off the bat – it usually requires extensive user education through awareness campaigns to make it happen (this awareness can be driven by the industry at large, by influential parties, or paid for by your own marketing campaigns). Companies who may succeed with this type of pricing strategy are those who are offering an innovative product with massively improved user experience in an existing category, or they are carving out an entirely new category. However, this doesn’t always work, as the customers must be willing to pay comparable sums for substitute experiences.

Let’s imagine that you invented the first robot that can help you fold your laundry at home, and you want to charge $10,000 per unit. Unless you are substituting a service that is worth that amount, or unless customers understand exactly how easy it is to use this product and can imagine how much value this laundry-folding machine will bring to them, you can’t necessarily offer this price to consumers. This will take a lot of convincing through videos, demonstrations, and third-party validation to get the word out, and showcase to users why they would pay the equivalent price of a car for this robot.

Common mistake #3: I will sell my hardware for a really low price, and then make my money by selling the software or monetizing my app.

Think twice about this strategy. Unless the app experience is providing a core feature for the product, it will be hard to monetize the app. In the case of a home security camera, you won’t want to charge much of a premium on top of data storage costs that you’ll incur, since it will make your product unappealing. If you’re selling an IoT wearable product that unlocks gamification features through the app, you may want to rethink the value that is really being offered through the software. 

As corny as it sounds, think of this as as analogous to selling pizza: you won’t convince a user to pay for features that they don’t want, just as someone won’t come in and add extra toppings if they don’t want to eat it.

Building your cost spreadsheet

A common mistake that hardware teams make when looking at costs is not accounting for operational and marketing costs. These calculations should be built into your retail price calculation, as these are the funds you will need to continue to grow your business. 

Here’s are some of the items you should be aware of that will cost you money. As an example, we’ll imagine that this is the cost spreadsheet for a wireless earbud product that retails for $100:

Wireless earbuds ($100 MSRP)

Type of costWhat this includesExpected margin costDollar cost
COGS (Cost of Goods Sold)BoM (Electronic, mechanical bill of materials), including the cost of components and assembly costs. Don’t forget to factor in your fixed costs for tooling and production, especially if it’s your first run and you are cash-tight.20-30%$20
Shipping & logisticsCosts associated with warehousing your product, forwarding your freight to warehouses, shipping products from your production port to your destination, and shipping to customers’ doors.10-20%$10
Channel marginThese are the fees you will pay to your channels of distribution, whether it’s third party sales distributors, offline retail stores, or online retail stores.Variable based on product category and channel
(Example: typically 10-20% for online retail, and 30%-50% for offline retail.)
Marketing marginWhat you will pay via direct marketing or overall cost to invest in marketing your product. For example, it might cost you 15-25%$20

For this wireless earbud product sold at $100, subtracting all of the costs above, the company can expect to net a gross margin of $30 per pair sold, which equals a 30% gross margin:

$30 net margin / $100 retail price = 30% gross margin

Maintaining a 30% gross margin per unit is a great path toward profitability, as there will be other costs incurred as part of the business. This can include hiring new talent, paying office rent, and more.

Offer sensible disounts

So now that you’ve got an idea of what price to set for your product, how do you know when and how much to discount?

Discounting is a bit of an art. Once you’ve accounted for your core costs of business, it’s a matter of making sure that your discounts are valuable to the right people, at the right time. Let’s say that you’re selling a connected ski goggle: you’ll probably anticipate an increase in demand during snow season in December, or when people are planning to ski. Based on that, it might make sense to discount the product to incentivize purchases during the winter season. It may be tempting to discount on Mother’s Day, Independence Day, and every major shopping event, but you should avoid discounting too frequently, or else you’ll train your potential customers to undervalue your product.

Here are some basic principles to consider when deciding when and how much to discount:

Pricing factorsWhy this mattersConsiderations
Your customer’s price elasticity Will your customers care if your price is lowered, or does it not impact their purchase decision?There are some product categories where dropping the price doesn’t necessarily incentivize someone to complete the purchase. A good example of this is a refrigerator, a product that you only need to purchase once every few years, so regular discounts don’t make sense.  
Frequency of discountingSeasonality is a big factor for many products. Think about which holidays and market penetration opportunities you have to drive up order volume with promotional incentives.Don’t provide huge price cuts regularly. It’s tempting to lower the price every holiday. Instead, consider offering free accessories, and save big discounts for big holiday pushes, like Black Friday, or another relevant season for you.
Tradeoff between margin and volumeLowering your price can bring you bigger boosts in sales volume, but at a trade-off of how much cash you can take home.  For any discounting in which you’re going to break even (i.e. not make any money, but not lose money either), be sure that you’re pursuing a worthwhile opportunity. Once you set a low price, it will be tracked online in articles and on deal sites, which will make it harder to increase the price later on.

Final thoughts

We’ve gone through and covered the basics of what to consider when setting your price, how to build up your cost spreadsheet, and then when to change the price for customers.

The above materials are great to consider when you’re presenting a price to consumers, but distributor and B2B pricing (where your customers are businesses) is going to be more complex. Where pricing gets challenging is factoring in the intangibles, such as the marketing value that a third-party channel might bring in, or access to a specific group of customers with a specific retailer. You may consider offering a better price to different partners based on the value they can bring to your brand.

My best advice to you is to experiment with price points, but remember not to sell yourself short. You’ve got a long-term business to build, and you will need the right amount of capital to reinvest into it. 

Pricing isn’t just about making money for your business–it plays into the market positioning of your product as well. If you find that you aren’t able to sell units, try to adjust the price as a lever for marketing optimization. Often, consumer hardware can just be too expensive for mass consumers, or the price point isn’t right for a specific audience. Always talk to your customers and see who your paying customers are, so that you can adjust your product for them. Sometimes, it might mean going back to your manufacturer and working on a cost-down plan so that you can lower the price and sell ten times more units. 

How to optimize your crowdfunding campaign for success

This originally appeared on the Indiegogo Entrepreneur Site.

The ONE Smart Piano was the most funded music tech campaign on Indiegogo back in 2015.

In this post, I will be sharing optimization tips for the time that it’s easiest to freak out: campaign optimization. If you didn’t have time to complete an exhaustive list of pre-launch activities, fear not: I have been there before and these tips below will help you achieve an equal amount of success. The core topics of campaign optimization include content, on-site conversions, and measurement.

At The ONE Smart Piano, we created a piano device that can connect to your mobile device to teaches you to play with light-up keys. We prototyped the product early January to gear up for a launch on Indiegogo three months later, but we were met with unexpected delays in shipping, last minute prototyping, and filming schedules. I sweated buckets of worry since other campaigners told me that pre-launch activities could make or break the campaign, and we didn’t have time to complete most of them. I had a few people tell me to delay the campaign indefinitely.

We ended up giving ourselves another two months to finish our campaign videos. There are many reasons to delay a campaign, but I decided that extra months would throw off our schedule for the rest of the year and that more time wouldn’t make me feel more ready. Delays are a natural part of the crowdfunding process and you should embrace them as part of the plan. Everything external from planning media hits to driving traffic to the page will be forecasts, and forecasts change.

Even if you’re feeling nervous that you didn’t put your best foot forward in the pre-launch campaign, the best thing you can do is to treat crowdfunding like another marketing project: your goal is to get backers behind your mission, and the measure of that is their confidence to fund your project. Like all other marketing activities on the Internet, it is governed by a funnel of activities that lead to you reaching your target audience. Your job is to optimize that funnel.

Content optimization

You’re sending all of this traffic to your Indiegogo page from media hits and paid advertising. Don’t waste this traffic – convert as many visitors into backers as possible. Let’s face it – there’s no way you will appeal to everyone that lands on your page, but for the visitors that count, make sure your crowdfunding landing page is compelling to them.

For The ONE Smart Piano, we had many different angles to go after. At first, we tried to make the piano the “cool” instrument so we showed the piano being used by celebrities and listed all of the pop songs you could play. While it was sexy to show the piano as the hippest new thing in town, our target audience cared more about the learning and classic features of the piano. Parents cared most about the Smart Piano being an “economical solution to piano lessons” that offered “gamified learning experiences” for their kids.

To improve your message to your target audience, do these three easy and low-cost things:

1. Run Qualitative Research

To figure out what your core taglines are, use Google Consumer Surveys to vet them. At 10 cents per response, you can survey 100 people for $10. You can even target specific demographics and view the results based on different audience segmentations. These responses are going to be a lot cheaper than running Facebook ads to acquire survey respondents, which is often a costly and time-consuming pre-launch activity. Use Google Consumer Surveys to gauge your mass audience messaging.

To set up the survey, come up with four to five of the strongest hypotheses you have about appropriate taglines. Above is an example of survey responses, with a result that surprised me. For mass audience messaging, it turned out that simply describing the core function was better than using provocative language.

2. Maximize your top-of-fold content

A visitor’s first impression of your page determines whether s/he continues to scroll down to learn more about your product, so make sure your video thumbnail above-the-fold is a compelling image. One of the most undervalued assets on your landing page is the video thumbnail that appears above the fold. This image is not only the first image that a visitor will see on your page, but it is also the one that propagates on social shares. Create this image carefully.

I’ve outlined a few principles for this image that worked well for us:

  • Add a call-to-action, whether it’s a button or a line of text at the top or bottom of the image. When your project link is shared to Facebook, people will see this image and click-through to your website.
  • Use a color that can stand out and look sleek relative to other Facebook posts. A bright color, a gradient pinpoint to the center, or even a clear product shot on a white background, can draw attention to your image among the flood of posts in someone’s Facebook Newsfeed.
  • Make sure your text overlay isn’t in the center of the image because that’s where the video play icon will be.

3. Make sure your page loads smoothly

You’re probably going to use a lot of GIFs and large images on your Indiegogo page, so make sure your page load time is fast. We used many long infographic-style images to showcase the Smart Piano’s design and details, which would have been a disaster for someone with a slow Internet connection. Compress your images to make sure your page isn’t bottlenecked in a visitor’s browser.

It’s simple to reduce image file sizes without reducing quality. I like to use Compress Jpeg since it’s free and I can compress images in bulk. With this tool, I can’t tell the difference even though it’s able to reduce my image sizes by a whopping 70-90%.

In the image below, I was able to compress a large 2MB image into 490K image just by using this tool.

Increasing on-site conversions

This section is focused on what you can do to get people who visit your page to convert into backers. You can find a plethora of guides on driving traffic from external sources such as paid and organic media (i.e. Facebook ads, Google ads, press hits, etc.).

You’re probably getting a lot of visitors to your page – now you need them to become your backers. Two of our most successful ways of converting backers includes providing extra communication to those with questions and making it easier for interested visitors to fund the project anywhere on the page.

1. Providing excellent support converts customers

Create a support alias or email contact so that you can provide personalized responses and increase your chances of converting backers. When we opened up an extra communication channel, people were able to ask specific questions that they wanted a personalized response to. With these answers, visitors could better understand the pros and cons of funding and they successfully became our backers. Providing personalized support via email converted visitors at a much higher rate than simply answer their questions through public comments and Q&A.

Create a free Gmail account, or create a new alias for support through your existing domain. If you’re looking for customer support interface, Zendesk has a simple interface for helping you to prioritize your inbound requests, and you can link it to your support alias. Here’s a look at how you can organize your inquiries with the Zendesk interface:

2. Make your call-to-action buttons easy to find

Add buttons and links to specific perks you reference throughout your project page so that visitors can fund your project as soon as they’re interested. Your page can get long – it could take a visitor minutes to finish reading through everything on your project page. When you’ve got their attention, allow them to back your project from anywhere on the page, so they don’t have to scroll back to the top and potentially lose interest.

We added different types of calls to actions: Buttons and hyperlinks directly to perks. About halfway down the page, which takes a few scrolls to reach, we added links to the perks so that people who were interested didn’t have to scroll back up and look through all the perks to find the one that they just read about.

In some cases, we used images of buttons and hyperlinked them. Buttons look like they can be clicked, so they help visitors take action and fund your project. Add these hyperlinks directly to perks often, especially towards the middle and bottom of the page where it could be confusing to associate a perk they just read about with the actual perk link.

This is an example of a text-based link:

This is an example of a button link:

Measure & Optimize

You can’t just set and forget your crowdfunding page. Once you launch a specific set of changes or even receive organic media coverage, give it a few days to take effect and then measure the results.

There’s a different amount of time you’ll want to allow a campaign to run before you hastily make changes. For us, we allowed a paid campaign or press hit to run 3-4 days before looking at the final numbers. With a press hit, we often say upticks happen on Day 2 instead of Day 1, so you’ll want to wait it out a bit. The same concept applies to changes in taglines or designs – let the change run for a few days before you freak out and change everything.

Here are two ways you can change and measure effectively, without spending any money:

1. Track the performance of each marketing channel

Use UTM, and other link trackers for your external media links to better understand what is working for you. The tools I listed here are all free to use.

We wanted to understand which type of media hits drove the most backers for our product: was it mass consumer media, technology-specific coverage, mommy blogs, or all of the above? When we shared links with the press, we would append a UTM codes to our URL with the Google URL builder, or shorten links using to count exactly how many people clicked through from another site to our project page.

Below is an example where we linked to a piano bench we were offering and distributed the link through someone else’s email newsletter. Divide the clicks by the email list size and you have your click-through rate.

Note that the Google URL builder results can only be seen in your Google Analytics if you are linking to your own website. If you are linking to your Indiegogo page, you can use the native link tracker, which is simply[your-URL] and shows up in your dashboard, or you can use

2. Understand your product’s value

Don’t undercut your own costs – raise your perk prices in step functions to get backers excited about funding today. For example, we started out offering a very early bird discount at $799. We eventually raised this price to $849, so we raised this by $50 without going through a smaller increment first, such as $829. That is a good amount to increase if you’ve got a product worth hundreds of dollars. This one can seem counterintuitive, but you have to remember that crowdfunding isn’t purely a sales machine. You’re trying to secure funds to carry your business forward, not so that you lose money on every transaction made.

It’s nice to offer a discount to early backers, but it comes at a cost. Don’t forget that you still have a delivery timeline to catch and you will need your contributors to help you with that. In our experience, pricing low doesn’t necessarily help backers understand your product. We wanted to showcase a premium piano offering, but we priced too low to start with. When we adjusted the price upwards to better align with our cost of goods sold, we found that backers were more excited to learn more about the premium features we were offering.

Equate your pricing with your value. Offer a good discount, but use discounted prices as a way to draw attention, and then raise that in a step function when you want to showcase the value that you will bring to contributors.

Other things to keep in mind

The biggest takeaway for crowdfunding is that there is no formula for success, and your product category and market fit matter more than you expect. There are some product categories that will allow you to find pockets of success easier, and some that will tough to grow an audience for right out of the gate.

There are a lot of free and low-priced solutions for measurement and optimization. You don’t necessarily need to dish out your marketing dollars for high-end solutions because there is not fitted model of success for everyone.

Personalize everything you say, design, and price. You can reach out to your hardcore advocates or the mass market, but just make sure your message is sticky with someone. You can’t have taglines that work for everyone but make sure it reaches the people who count.

Don’t panic, don’t try to change everything on Day 2, and get some sleep so you can let the data speak. Break a leg!

Glossary of terms used:

  • Landing page: Your Indiegogo project page.
  • Above-the-fold: This is the height of your page visible in your browser, and is the first image that your page visitors will see.
  • On-site: Things that happen on your Indiegogo project page, versus off-site like on Facebook, Google, press hits, etc.