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Matt Wilcox


Dec 06th 2014

Establishing Value by Communicating Cost

How do you price things so they'll sell when people have no clue about what things cost?

A while ago I hit on an idea for a book to help people in web development, or wanting to start out in it. I knew it would be a big endevour to write, and I thought that I could perhaps sell it. But there are a number of problems with that idea – beyond whether I could make anything good enough to be happy selling in the first place:

  • Paper books for niche technical stuff don't sell well from what I can tell – the audience is small and costs high.
  • eBooks are more viable because they cost less to produce and ship but…
  • Thanks to the EU VAT rules coming into force, individuals selling digital products is an untenable business model.

With regard to the last point; there's really nothing to be done other than hope the UK or EU governments can rapidly respond to the problem. A problem created by not properly considering how these rules will destroy a large number of small businesses. Who knows what will actually happen in 2015 when this comes into force.

With regard to the former points: the problem isn't that the market is small, but that to maintain profitability when the market is small the price must go up – yet people still expect to pay 'the price of a standard book'. They assume most of the cost is in the materials, so with digital products people expect to pay a lot less than 'the price of a standard paper book'.

The general problem

There's a divorce between the cost of making digital products and their perceived value to customers. The most obvious recent example of this is from the App Store, where people gave single-star reviews to Monument Valley based purely on the price of an optional expansion pack. For whatever reason, they expected things for free.

The problem I see is that the majority of consumers don't have a clue how digital content is made. If they think about it at all they assume it's pretty easy, and so they don't value it.

Establishing value by communicating cost

Cost is a measure of the resources put into making a product. Value is the worth the product delivers to a consumer.

Going back to the App Store example; People complaining about Monument Valley's additional levels being priced at $2 might have felt differently had they known just one level in that expansion pack took 7 months to build. Knowing stuff like that brings a products cost into perspective, and that in turn can re-frame the value of it. It's almost impossible, upon learning that, not to imagine what price you would set for someone to buy 7 months of your work. Monument Valley's expansion is a couple of hours of good, fun, entertainment. For $2. Once you know the cost, the value seems to go up, and that price suddenly seems a bargain.

I think it behooves people producing digital products to clearly communicate this sort of stuff. It doesn't need to be brazen, but it's worth communicating somehow. It's one of the smart things about the bonus discs that come with some movies; it's not just that the things they cover are interesting to know, it's that you get an appreciation for the cost of making a particular film in terms of time, money, skill, dedication, effort, expertise, and more.

As an aside; go watch every bonus disc from Lord of the Rings and The Hobbit films. They are worth your time, and you will value those films very differently after seeing them. Even if you love them already.

About that book

I'm not going to make a paper book. I'm not going to sell an eBook. But I am still writing the content that would have gone into it; because I feel it'll be interesting for me to do, that I'll learn stuff from doing it, and it might help some people. What I'm going to do is release it as a series of articles, as I complete them, as part of a new section in my re-worked personal website.

But, I do want to establish the cost of this sort of effort, so I'm going to try something different to what I've seen anyone else do – I'm going to put on each page the time it has taken me to write it. That won't reflect the time it's taken me to learn the stuff in the first place; but it's something immediately tangible to a reader. What I'm hoping to do is make it clearer that while it may only take a someone twenty minutes to read an article, it may have taken a day to write it.

I hope that by the end of that exercise I can put a cost in man-hours of authoring onto the book, and that this will help frame the value of it to readers. Hopefully it will make them think about this sort of thing on other digital products too.

Incidentally; this particular post has taken me about an hour and twenty minutes to write, proof, refine, and publish… It should take you about four minutes to read.