1

My site, APOAds.com is a local business locator/classified ads merged into one - in Japan, for the U.S. Department of Defense (DoD) members while they're living here (long, run on sentence, sorry).

The DoD members use the site for free - to find local businesses off-base, and to buy/sell their goods.

The local Japanese businesses pay a monthly subscription to enter their businesses into APO Ads. APO Ads uses Google maps to draw directions to their business, and gives them space to upload photos, enter details about their services, a text link ad that gets promoted throughout the site - and if they use the classified ad system, their ads appear under their business page (sort of like a mini e-commerce site). There are more features, but you can see it in action on www.apoads.com/en/Yokota/Biz/Show/Ruby%20International.

I'm looking to charge ¥9,950/mo which is around $100/mo. I based that off what it takes to take out a single square ad in a local newspaper (¥10,000 for for a two week run).

My gut feeling is many businesses will have no problem with that, they are used to paying more for advertising. But there have been a couple of American owned businesses that complained about the price immediately (they wanted to pay more like ¥1,970/mo - about $20/mo).

All that story to lead up to: How do you know if you're charging too much?

And then, how do YOU handle the ones that complain about the price? I could offer them the discount, at least I'd capture some income from them (otherwise they'd probably not join at all).

Thanks in advance, and sorry about the length.

flag

4 Answers

1

Let me start by saying that the answer I give is over simplified, you will need to expand on the ideas and principles. First let me say that to maximize profit you minimize cost and maximize revenue. This means that the cost you sell it for is not very dependent on the cost of the ad but more accurately dependent on the marginal cost. I am assuming your marginal cost is fairly constant. You set your price so that the marginal revenue is zero for a change in price. To give an example, if you have 50 customers paying $100 (50*100=5000) and you raise the price by $1 and you loose a customer then (101*49=4949) this means that $101 is to high, what of you lower the price $1 and you gain 2 customers (98*52= 5096) This was good. So you would keep lowering the price until you had no increase in revenue. If the cost of the ad (to you) stays the same then you don’t need to consider it in setting price, if it changes that you need to take it into account in a similar way. Google spreadsheet can actually solve this problem.

http://docs.google.com/support/bin/answer.py?hl=en&answer=139704

How do you actually find this price? Offer it at many prices, with discounts, rebates starting offers….. Yes these are marketing tools but also an opportunity to get data. The question you about those that think it is too expensive is one of the challenges of charging all customers the same price. Ideally you would charge each as mush as you can. You need to think of how you can allow some flexibility, size of the ad, color, fonts, strategies that would allow some to pay $200 and some to $50. This of course makes your revenue optimizing difficult more difficult.

There is a lot more that can be said about this. But if you think about marginal cost and revenue rather that total costs and revenue you are are your way to optimizing you business. Also apply this same strategy to your marketing.

Let me also add that as a startup or for other reasons you might place more value on the customer than just the revenue.

link|flag
well written, thank you for taking the time to write this. – Chad Nov 23 at 14:05
1

If you want to know more about how to charge your customers, you can always learn from starbucks!

Sorry I don't have recommended book names, but I have flipped couple of books in book store talking about similar theory on how starbucks making bucks from selling just coffees. Please let me know also, if you decide to search and find one or two good title(s).

Don't have direct answer (since I have no hand-on experience to provide one), but sincerely hope it helps.

link|flag
Thanks, I'll do some searching - see if I can find the book you referred to. – Chad Nov 22 at 13:06
Was this the book you were referring to? www.amazon.com/Tribal-Knowledge-Business-Starbucks-Corporate/dp/1419520016 – Chad Nov 22 at 13:15
Sorry, I can not recall which book by title or its cover. :S Pick a day with reading mood, go down to a large bookstore of your choice and find 'starbucks' books in business genre. Flip around to find 'price model' or similar section of the book. I'll try to visit a bookstore too, this weekend :) – rockacola Nov 22 at 14:48
0

I'm a believer of charging whatever is considered fair to the customer. In this case, it will probably be a cost-per-view type of pricing (similar to cost-per-click).

Your ad gets seen, you pay for that lead.

link|flag
0

Two great articles on pricing here, well worth the read:

http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

http://www.neildavidson.com/dontjustrollthedice.html

(Written for pricing software, but the principles are the same.)

link|flag
Thank you for the links! They look deep, will get back with you when I've read, and re-read them a few times. – Chad Nov 23 at 14:04

Your Answer

Not the answer you're looking for? Browse other questions tagged or ask your own question.