The comprehensive guide to pricing digital products and profiting

You’ve done all the hard work -- conducting customer research, testing your minimum viable product, and designing a stellar digital download.

But there’s one last hurdle to jump:

Pricing.

Price incorrectly, and some not-so-great things can happen -- you might devalue your product, hurt your bottom line, and cheapen your audience’s perception of your brand.

Price correctly, and you’ll get increased sales, loyal customers, and an enviable brand reputation.

So how are you supposed to price a digital download profitably when so many people are selling them for single-digit prices -- or giving them away for free?

There are several steps to picking the best price for your product, from calculating your expenses to determining the value that your customers see in your product. Today, we’ll take you through all of them.

First up on the docket is figuring out how much it costs you to create and launch your digital download.

How should I price my digital downloads?

When it comes to pricing digital products, there are two main models: cost-based pricing and value-based pricing.

Neither model is necessarily more profitable than the other, but one may be a better fit than the other depending on your products and financial goals.

Let’s take a look at cost-based pricing first.

What is cost-based pricing?

Cost-based pricing is when a product is priced based on how much it costs to produce that item, plus how much the seller wants to make after taxes and expenses.

On the plus side, cost-based pricing is straightforward when it comes to justifying your price to your audience.

But on the other hand, cost-based pricing is not a perfect strategy.

With this model, you could hurt your bottom line by underestimating your expenses or assuming that your audience’s preferences will stay predictable over time.

It’s also quite easy with cost-based pricing to charge a price so high it deters customers from purchasing your product.

Cost-based pricing doesn’t leave much leeway, either, when offering discounts and promotions since those lost earnings will come out of your profit after taxes and expenses.

Despite these drawbacks, cost-based pricing can be a profitable pricing strategy, especially when paired with transparent pricing.

Transparent pricing is when a business is honest and “transparent” about the costs involved in making their product and how much they plan on earning from it.

Now, I know what you’re thinking: Letting people know how much I want to earn from my product? I’ll never make a sale!

But hear us out:

Transparency is a hit with consumers.

Contrary to popular belief, some consumers “. . . may relax “self-interest” in the face of transparent prices.”

In other words, some shoppers will choose to pay for a higher but transparently priced product even if it makes financial sense to buy a cheaper competing product.

Consumers aren’t just interested in price transparency, however; they often want the products and brands themselves to be more transparent.

70% of consumers have said that they are most interested in a product’s transparency rather than that of the company.

Similarly, 85% of consumers have said they would be willing to stay with a brand during a crisis if they had a history of being transparent.

But how does transparency work in real life?

Consider clothing company, Everlane, and home products retailer, Iuiga, both of whom give a breakdown of how much it costs to produce their items, how much they charge for said items, and what you could expect to pay from traditional retailers.

Unlimited Brewing used a transparent pricing model from the company’s beginning and believes that it has helped to build customers’ trust in their brand.

So how could a digital product creator adopt transparent pricing?

You could start by publicly outlining all of the expenses necessary to create and maintain your digital product, like website hosting fees, software subscriptions, and taxes.

If you frequently work with freelancers or have employees, you could also share with your audience that you pay fair wages to both or note any charitable donations.

If the idea of making all of this information publicly available makes you uncomfortable, that’s not a problem -- transparent pricing isn’t for everyone.

There’s also value-based pricing to consider.

What is value-based pricing?

Value-based pricing is when a company determines their product’s price based on what their audience members are willing to pay for it and how they perceive the value of your product.

One of the benefits of value-based pricing is that even if your product costs relatively little to produce, you can achieve a higher margin than you would using the cost-based pricing model.

For a real-world example, look at car-maker Aston Martin.

They released a car model in the early 2010s that was very close to a Toyota car model but cost around $28,000 more than the Toyota version.

Despite this price difference, the Aston Martin model was made in the same factory and by the same workers as the Toyota model.

So even though the two cars were very similar in appearance and function, the value Aston Martin’s audience assigned to purchasing an Aston Martin car likely contributed to its being priced higher than the Toyota model.

The same holds true for digital downloads, too.

Now that you’re aware of two major pricing strategies, how do you determine which one is the best fit for your download?

It’s time to do some (simple) calculations.

How can I find out what price works best for my products?

To determine what price is the best for your product, there are four things you need to figure out:

• What expenses are involved in creating and hosting your digital download -- and your business more generally?

• What percentage of every dollar you earn will go to taxes?

• How much money do you want to make after taxes and expenses?

• How much would your customers realistically spend on your product?

To answer the first three questions, you'll need to calculate your monthly operating expenses and what kind of profit you want to make after taxes and expenses.

And for the final question, you’ll need to conduct customer research to learn more.

Let’s tackle figuring out your expenses and after-tax profits first.

What are the costs associated with selling digital files?

Even though it’s entirely possible to sell and profit from selling digital downloads online, there are often more hidden expenses to creating a download than most creators realize.

Let’s say that you’re designing an ebook.

In the beginning, your only expenses are the time it takes you to write the ebook, a Canva or Venngage subscription so that you can format it nicely, and an editor to give it a few touch-ups before you publish it.

Sounds pretty reasonable, right?

But you also need somewhere to host and sell that ebook.

Selling on Amazon may seem like the most straightforward option but may not be the most profitable considering Amazon’s royalty fees.

Selling ebooks on your website can be the more affordable option, but you’ll still need to minimally buy a domain name and website builder for that.

If you’re in the market for a site builder without hosting fees, check out Podia's website builder.

You can design a beautiful yet functional website with a product page in minutes without ever having to touch a line of code. Sign up to create your website with a 30-day free trial of Podia.

Either way, after calculating expenses, you’ll still have to allocate a portion of your earnings to taxes, and likely pay transaction fees to payment processors like Stripe or PayPal.

As for taxes, we aren’t just talking about paying income tax; your country, state, or city may also require you to collect sales tax on whatever downloads you sell plus pay use tax on items you purchased to produce your digital download.

We know that sales and use tax can throw even veteran creators for a loop, so let’s take a moment to refresh your memory.

Sales tax is an additional tax that you pay on top of the price you paid for an item, and something that your state may require you to collect from your customers.

Currently, 45 of the 50 American states charge sales tax, with many cities and counties charging an additional sales tax.  

Besides sales tax, there’s a good chance you’ll need to pay a use tax on the items you purchased to create it.

Now with all of the expenses, taxes, and fees that come along with being a digital product seller, you’re probably wondering how you could ever profit from selling one-time downloads.

The good news is that it’s not as hard as it seems, and you don’t have to charge triple digits to see a profit -- just consider the examples below.

How much do successful digital downloads charge?

There are successful digital downloads available at all price points, so there’s no concrete rule about how to price an ebook (or similar digital download).

As a general rule, if you’re just starting your business out and haven’t built up a brand reputation yet, price on the lower-middle end of what your competitors are charging for similar products.

Convincing someone to pay $30 for your ebook if you’re relatively unknown is a hard sell and high risk, but $10 to $12 is far more palatable and no riskier than a complicated coffee order.

However, while keeping a low price will attract more leads, you don’t want to set such a low price that you have to double-time to hit your profit goals.

We’ve seen significantly more creators make $1,000 by selling 10 of a $100 product than 100 of a $10 product, so there’s value in higher fees, even for first-time sellers.

As for how much other successful digital downloads charge -- it varies. A lot.

For instance, conversion copywriter and co-creator of Copy Hackers, Joanna Wiebe, sold $10,000 in ebooks in the first week after their release.

Her ebooks started at $12.99 each.

Sounds pretty reasonable, right?

But Joanna had an even sweeter offer for her clients.

She offered a discount for customers who purchased a four-book bundle and an even steeper discount for the Hacker News community.

Want to know the best part?

Joanna has sold over 5,000 ebook bundles since her books launched in late 2011.

Scott Britton, on the other hand, made $1,000 in the first eight days after releasing his first ebook priced at $2.99.

He didn’t write his ebook from scratch, either; instead, he hired a ghostwriter to put together a manuscript using a series of emails he already had on hand and which he could later refine.

Excluding the time it took him to create the initial content, Scott estimated that it took only six hours of his time for the ebook to go from its inception to being published.

To follow in Joanna and Scott’s footsteps, your first step is calculating your profit margins.

If your calculations turn up a slim profit margin at first, don’t sweat it -- the average net margin for companies across a variety of industries is just under 9%, so you’ll probably have to do some tweaking to find a profit margin that aligns with your financial goals.

Once you’ve narrowed down your prices to a handful of options, then it’s time to test.

While there are multiple ways that you could test your prices, three of the simplest methods are:

1. Seeing how much your competitors are charging

2. Creating a minimum viable product

3. Testing your product on different landing pages

Let’s tackle competitor pricing first.

One of the simplest ways to see if your prices are realistic is to see how they compare to your competitors.

When looking at your competitors, don’t review the prices of your two or three closest competitors only; check out several secondary and indirect competitors as well so you can better understand what prices your audience is willing to pay and for what features.

Don’t rely on your competitors’ pricing pages for information, either; discussion forums like Reddit can be a goldmine for learning about your audience’s pricing preferences.

Now, what if there’s a significant difference between your competitors’ prices?

Try releasing a minimum viable product (MVP) to see what prices resonate with your audience.  

An MVP is simply a bare-bones version of your intended product that lets you test out your assumptions about your audience before releasing your final product.

For example, let’s say that your digital download is a 60-page ebook about urban agriculture for city dwellers.

Even though it’s full of the information you know your audience needs, you’re afraid that the price tag -- $125 -- is too steep.

So before writing it, you release a 5- to 10-page ebook for a lower price instead and see how well your audience likes it.

Do they like the content? Did you get as many sales as you were hoping for?

Using feedback from your early customers, release another version of your MVP with some proposed changes, as creator Reuven Lerner did for his collection of online programming courses.

And as you release successive versions of your MVP with more upgrades and improvements, keep testing the price point until you find the sweet spot between the highest gross sales and highest net profit.

Alternatively, like Reuven, you could offer discounts to certain groups of people like students or retirees to learn more about your audience’s makeup and the most profitable price point for your product.

Do this until you reach a point where you’ve reached the maximum amount of customers who are willing to pay for what you have to offer, whether that’s your 60-page ebook or something shorter or longer.

Your pricing journey isn’t over just yet after this, though most of the hard work is done. From here, once you’ve analyzed the data and settled on a price, it’s all about maintaining your best practices.

Here’s how.

Best practices for selling a one-time download

Pricing strategy #1: Get customers to join your email list

Email is one of the most profitable marketing tools out there, with nearly 75% of respondents saying email has a “good” or “excellent” ROI (return on investment) and 59% of marketers saying that email was their highest source of ROI.

But just what makes email a high-ROI marketing tools?

Perhaps it’s high conversion rates, with one report finding that 17.75% of emails resulted in a conversion in 2018.

By collecting your customers’ emails, you can keep them informed about the latest developments, promotions, and exclusive offers from your business.

Most importantly, you can use this point of contact to nurture your customers, learn more about their needs, and provide valuable information.

If spending all this time building a relationship sounds time-expensive, it is, but it pays off exponentially in the form of repeat customers, word-of-mouth referrals, and brand reputation.

Still, while email is a comparatively low-cost and straightforward way to connect with customers, it’s far from the only way to maximize your profits from a one-time digital download.

Pricing strategy #2: Use your one-time download to promote other products

Did you know it’s generally much more profitable to sell to an existing customer than a new prospect?

Your download could have several calls-to-action (CTAs) throughout it to encourage your customers to take the desired action, or perhaps offer an exclusive discount for some of your other products.

(Just don’t use too many CTAs. Few people want to buy an extended sales pitch.)

For both first-time and returning customers, you could use features like upselling and bundling to encourage your customer to place a higher-priced order.

Upselling involves encouraging customers to purchase extra items at a discounted price if they buy the original and recommend items all at once.

Bundling, on the other hand, involves putting multiple products together and selling them as a package, usually at a slightly lower rate than if they were purchased separately.

Of course, tactics like discount codes and bundling will only work to a certain extent. To increase your chances of sales success, you should make your download’s value readily apparent to your customers.

Pricing strategy #3: Always ensure value is apparent to your customers

Especially if you opt for a value-based pricing model, you want to guarantee the value is apparent to your customers.

Will your download teach them a new skill?

Help them save time and money?

Entertain them?

Whatever it is, you should ensure the value of your product is obvious not only in your sales and product pages but also throughout the download itself.

One way to understand your customer perceived value -- the value that your customers assign to a product like yours after measuring its benefits and costs --  is by continuously researching and seeking feedback from your audience.

To that end, you don’t want to limit your value exclusively to your product -- it should also be apparent in your customers’ experience (CX), which is a term for the cumulative interactions your customer has with your brand over their lifetime.

CX isn’t some marketing buzzword, by the way -- customers who feel that they had a very good experience were 79% likely to recommend a company to others and 87% likely to make more purchases from a company.

While giving your customers an excellent experience should be a top priority from the very beginning, don’t worry if it’s not perfect from the get-go -- just continually seek feedback from your audience about what could be better, and do your best to act on those suggestions.

Once you’ve made your value apart, it’s time to release your digital download to the public.

Good luck!

Profit from one-time digital downloads with the right price

Pricing one-time downloads can be tricky, especially if you’re a new creator.

But that doesn’t mean your first few products will be hopelessly undervalued or so expensive no one will buy them.

When pricing your digital download, it’s important you:

• Pick a price that will cover your expenses, taxes, and desired profit.

• Compare the cost- and value-based pricing models to see which works best for your audience.

• Conduct audience and customer research to learn how to more competitively and profitably price your products.

• Test your prices using methods such as an MVP and/or A/B testing.

• Follow pricing best practices such as making your product’s value apparent, giving your audience an excellent customer experience, and encouraging customers to join your email list.

As you can see, pricing one-time digital downloads doesn’t have to be complicated, but if you want to profit from them, it does have to be thoughtful.

You got this.