What Daniel Has Learned About Pricing and Discounts

Last year, my Gumroad products sold over $28,000 during the Black Friday period. This month, I'm already over $30,000, and the peak is yet to come. Here's everything I learned about Black Friday and discounts in general:

When selling digital products with no real marginal costs, pricing is almost all about human psychology. You can charge what you think people are willing to pay for.

However, experimenting with pricing is a delicate process because people infer some degree of fairness in how much you charge them, and how much you charge other people. In a fully rational world, it shouldn't matter if you charged someone $50 and charged others $25.

Those who paid $50 made the decision to accept that offer voluntarily. But we can all understand that if you paid $50 for something, and the next day it was on sale for $25, you would very likely feel upset. Maybe even cheated. It's not rational behavior, but that's the way we behave.

The problem (and opportunity) is that price sensitivity is real. There's going to be a pool of people who are willing to pay $50+ for your product, a different pool who are only willing to pay $25, and another pool who are only going to pay $10 at most.

If you never discount your prices, you will never access the lower-priced pools, and you'll be leaving money on the table. The challenge is to access those pools without upsetting customers who bought at your highest price, as these are often also your biggest fans.

I think the best way to access these lower-priced pools is to rely on structures that are already well accepted by the general public.

For example, movie studios do this all the time. When they release a new movie, they only make it available at the cinema for $15. After a few months, they make it available as a streaming purchase for $10. Then a few months later, they make it available for rent at $5.

And maybe a year later, they bundle it with some streaming service for free. The fact that people are accustomed to this makes it feel fair. When you go watch a movie at the cinema, you know that you have the option of waiting a year and watching the same movie for free on Netflix. But you choose to do it anyway, and that's great.

For digital creators like us, Black Friday is a similar opportunity.

Almost every business in the world runs some kind of discount. Consumers are accustomed to seeing price reductions during this time of the year.

And someone who buys a product just before Black Friday is aware that the same product will likely get discounted. So it's usually a safe excuse to reach customers at lower-priced pools without upsetting your early adopters.

And since you might not get many similar opportunities during the year, I say: Be aggressive. Don't discount by 10%. Discount by 50% or so. You might be surprised by the non-linear effects on conversion rates. And the more customers you have, the bigger your audience for future products.

Another tip that I found useful is to discount your prices a few days before Black Friday starts.

But don't announce the discount immediately.

Let a few sales go through organically at the reduced price, so that when you announce the discount you don't upset those that might have just bought your product a few days before. And you might also learn something interesting about your conversion rates with a reduced price.

Many times I've chosen to keep discounted prices beyond Black Friday because I realized I was making more money than when I had the original price.

Best of luck, and have a great Black Friday!

Go through our Black Friday course to learn tactics and strategies you can implement to grow your sales and take advantage of this time of year.

We’re excited to see what you accomplish, and we’re also excited to share a new Gumroad with you on Black Friday.

All the best with your sales,

Gumroad

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