This article won’t tell you what to price your online course. It will tell you how to think about pricing your online course. Writing this article made me change the price of mine.
After reading this, you’ll have the tools to understand the consumer psychology that goes into pricing anything. That’s ultimately what a price is: a psychological symbol for the relative value we expect to get from a product or service.
In fact, there will be very few numbers at all. This may seem odd for an article with this title, but the actual price you end up choosing (I’m talking about the string of digits you end up on) is somewhat arbitrary.
“Pricing is not a math problem. It’s a judgment problem.” – Michael Dearing, Stanford professor and former head of pricing at eBay.
Let’s get into it.
Table of Contents
- Why Pricing Matters
- The Messy Middle
- Common Pricing Mistakes
- Price, Positioning, and Perception
- Changing Perception
- Know What You’re Selling – The Course Offer Pyramid
- Three Lenses for Pricing Your Course
- Tying It All Together
Why Pricing Matters
It’s no secret that getting your price right is important. But what might be less well known is just how much of an impact it can have on your bottom line. According to McKinsey & A.T. Kearney studies, a 1% increase in price can have a greater influence on a firm’s earnings than any other change, including reducing costs or increasing volume sold. Put simply, of all the things you may spend time tweaking, increasing your prices will provide the biggest increase in profit.
Another reason to get your pricing right is because of how visible it is to customers. My business coach, Steven Wilkinson, once said to me, “Pricing is the single most intimate communication you can have with your customers”. Pricing communicates what your customers will get in exchange for their money. It’s not just about making a sale; it’s about establishing trust and credibility by communicating value.
The first thing to know about the price of a course is that it exists on a spectrum.
The Messy Middle
Proctor & Gamble discovered something very interesting about one of their products, Olay Total Effects, when A/B testing prices.
From the book, Playing To Win: “We started to test the new Olay product at premium price points of $12.99 to $18.99 and got very different results at those price points.”
- There was a positive response and a reasonably good rate of purchase intent
- Most of the subjects who signaled a desire to buy at $12.99 were mass shoppers.
- Very few department store shoppers were interested at that price point.
- Purchase intent dropped considerably.
- Purchase intent went back up again — way up.
“$15.99 was no-mans land — way too expensive for a mass shopper and really not credible enough for a prestige shopper.”
In the online course world, there are two distinct categories of course prices. You get the Sub Four Hundred courses, which are typically self-paced or short courses sold much like commodity products. Prices like $97, $197, and $297 are ubiquitous.
Then you get the Four Figure courses, anything running you more than $1,000. These tend to have communities and live events for people to connect with teachers, mentors and each other.
In between, you get the Messy Middle. Unless you’re an established course brand that has worked its way up from the Sub Four Hundred land (like Marie Poulin’s Notion Mastery), this is the course no-mans land.
You know what you’re getting from a Sub Four Hundred course or a Four Figure course. It’s just not clear for prospective students what to expect when you’re in the Messy Middle.
Other Common Pricing Mistakes
In addition to sitting in the Messy Middle, here are nine other common pricing mistakes to avoid.
Believing everyone should be happy to pay for your product
They won’t. And that’s ok. Stop trying to please everyone and aim for those super fans who will keep buying from you for a lifetime.
Believing there is some mythical “perfect” price
The “perfect price” which extracts maximum revenue from every single customer is a myth.
That’s because there are more factors to consider than just price. For example, some students may want their courses asynchronous while others prefer community. There will always be those willing to pay more for certain outcomes than others.
Comparing your price to others
If there is one thing you’ll learn from this article, it’s that there are so many variables that go into pricing, not the least of which is the perception your customers have of your product.
You are not your competitors’ products. With courses, especially, the differentiation between products is extreme. You as the teacher are a completely different person from your nearest competitor after all!
The best thing you can do is work through the tools and frameworks in this piece and set the price that’s right for you. Resist the urge to compare to others.
Believing pricing decisions can never be changed
I know you don’t think this, you’re smarter than that. But what can be confusing is knowing which direction is easier to change.
In general, increasing prices is easier on your overall business than lowering them. It comes down to perception, which we’ll discuss in more detail later.
For now, think about a course you know. How would you feel if the price came down without any explanation?
Now think about how you’d feel if the price went up. Any different?
If you’re like most people, you’d assume the increase in price was because the course was becoming popular, and for good reason. An increase in demand was justifying the rise in price. The price drop, unless temporary, may cause you to believe the opposite: the course wasn’t really doing well.
The takeaway, if you’re unsure what price to set, is to err on the side of starting lower and slowly increase your price. Your early adopter students will love the deal they got by getting in early, and new students won’t know the difference. Steph Smith did this really well with the launch of her first digital product, Doing Content Right. She raised the price every 30 orders until she settled on her final price.
Asking customers what to charge
If you’ve ever tried asking your customers what they’d be willing to pay, you’d find that what they’re telling you is what they want to pay. This is much less than what your course is actually worth.
Making it even worse, what people say they will do is often very different from what they actually end up doing.
Don’t ask your customers what you should charge. Do what Steph Smith did and make them vote with their wallets.
The Paradox of Choice
I remember when I arrived in America 11 years ago and went to a grocery store for the first time. The aisles stretched for miles with so many choices for simple things like milk. In South Africa, there is one brand of milk with varying fat content levels. In America, there are probably 13 different brands and varieties of each that included ‘half and half’ (of what??). The first time I saw this I left without buying anything, for fear of buying the wrong thing.
This is known as the Paradox of Choice. Barry Schwartz wrote the book on it. He describes excessive choice as causing a cognitive burden on consumers. He shows how too much choice can result in unrealistically high expectations, blaming ourselves for failure, perpetual stress, and even clinical depression.
“Economics teaches you that making a choice means giving up something.” — Russ Roberts
The lesson here is to limit the choices a student needs to make to purchase your course. Offering all sorts of upgrades and features at higher price tiers may seem like a good idea, but it could be preventing the sale in the first place. Choose clarity over complexity.
Premium pricing at all costs
Legendary management guru Peter Drucker has a list of Five Deadly Business Sins. The most common sin he saw in businesses was what he called the “worship of high profit margins and of premium pricing”. He pointed to the example of Xerox, who kept adding features to the fax machine in order to justify price increases. But this allowed the Japanese to come in and re-engineer the product, creating machines that got the job done at a cheaper price, eating Xerox’s lunch in the process.
Very high prices create an almost risk-free opportunity for your competitor to jump in seize your market.
What you need to understand from this lesson is that total profit is price times volume sold. What you should be optimizing for is total profit. Charging $5,000 for your course might feel great when one or two people buy it. But what if 10 more would’ve bought it at $3,000?
There are three reasons why discounting is a bad idea (unless temporary to take advantage of a common sale window like Black Friday or as a scholarship to include students who can’t afford full price).
The first relates to perception, which we’ll discuss in more detail shortly. To summarize here, discounting creates the opposite impression of a premium product. Check out the Evernote example below to see what I mean.
The second reason relates to the type of customers a discount attracts. Customers who want big discounts are the wrong ones to get feedback from. They tend to focus on additions to the product instead of improvements. They are also, in my experience, the most likely to complain about small things. Their expectation of value is just completely out of whack compared to someone willing to pay full price.
The final reason relates to your business. When you discount your course, you need to ask yourself, can you run your business forever at this price? If you can’t, then what is the point in discounting it now? You’re not going to build a sustainable business like that.
Delaying charging indefinitely as a result of the above
Finally, you just need to set a price and test it. The mistake a lot of course creators make is analysis paralysis: delaying launch because they’re “working on pricing.” You won’t know what your ideal price is until you start getting feedback from potential customers. And remember, you can always change it.
Price, Positioning, and Perception
The Messy Middle, and many of the nine other common mistakes, is a classic example of the role positioning and perception play in pricing a course.
“The personality of a product is an amalgam of many things – its name, its packaging, its price, the style of its advertising, and, above all, the nature of the product itself.” – David Ogilvy
Take a pair of shoes for example. If you saw an image of the shoes online, it would be hard to tell how much they’re worth. But if you saw the shoes being worn by a skateboarding teenager, you might assume they were worth less than if you saw the same shoes being worn by a smart-looking entrepreneur sailing a boat off the Amalfi coast. Instead of assessing the shoes (requiring all sorts of research), we substitute a question that’s much easier to answer: how much would a skateboarding teenager or a smooth-sailing entrepreneur spend on shoes?
Starbucks is the stellar example of this: they justified charging $3 for a cup of coffee when others were charging $1 by changing the experience of buying coffee: trendy coffee shops and fancy brew names and sizes (I’ll have a grande macchiato please).
The note-taking app Evernote has a keen sense of perceived value too. The CEO of Evernote killed promotions that let people get premium Evernote accounts bundled with other software while extending a bundling deal with Moleskine. The difference? Moleskine is seen as a premium notebook and the bundle costs more than the subscription would on its own. “If all you want is Evernote premium you can’t get a deal,” their CEO said. “It’s a way to keep the perceived value from falling.”
Usually, course creators fixate on the difference between how much it costs to run their course and what they charge for them. But you should also focus on the difference between the price of your online course and how much people think it’s worth.
eBay understood this when they analyzed a feature from their early days. For 25 cents you could add a photo next to your listings. It wasn’t really used much, but remember Michael Dearing from earlier? He noticed that sellers who included the pictures had much higher click-through rates and tended to command a higher price for their goods. He decided to show this data to sellers. eBay’s sellers now saw that the pictures helped them sell more and so the perceived value of the feature skyrocketed. The feature, along with other optional upgrades, eventually generated hundreds of millions a year in pure profits, Dearing says.
The lesson here is to do the work for your customers of identifying and explaining the hidden value in your course. Write down all the things someone might associate with your course. Include things like whether it’s cool or expensive, but also other products that someone who buys your course would buy. See which of these associations will allow you to increase the perceived value of your course. This will allow you to raise prices to match it.
And remember to align your price with your overall value proposition. If your positioning is that of a simple, straightforward way to achieve an outcome, perhaps a simple straightforward price is for you.
There are two more psychological effects worth discussing when it comes to how customers may perceive your course: the Decoy Effect and Round Pricing vs Precise Pricing.
The Decoy Effect
The Economist once ran a promotion for 3 types of subscriptions:
- Web Subscription – $59
- Print Subscription – $125
- Web and Print Subscription – $125
The third option looks like an absolute bargain compared to the other two right?
MIT professor Dan Ariely used this to prove a theory known as the asymmetrical dominance effect to professors, and the decoy effect to us.
First, he asked his students which of the three options they’d choose.
The results were:
- Web Subscription – $59 (16 students)
- Print Subscription – $125 (0 students)
- Web and Print Subscription – $125 (84 students)
Total revenue: $11,444
He then performed a second test and removed the decoy product (the print subscription for the same price as print + web).
The results were:
- Web Subscription – $59 (68 students)
- Web and Print Subscription – $125 (32 students)
Total revenue: $8,012
By adding a decoy product, The Economist improved sales by 30%.
Round Pricing vs Precise Pricing
Ever wonder why items are priced at $49.99 instead of $50? There is a massive body of research to support why Precise Pricing pays off. For example, one study showed that both $4988 and $5012 caused subjects to estimate a higher real value for a product than for the same item priced at $5000.
Yes, we are completely irrational beings.
However, in conflict with this, other research showed that visually simpler prices like Round Pricing seemed lower to customers.
What’s going on here? Luckily we have research in Singapore to help us out. A study found that rounded prices, like $100, matched purchasing decisions that were driven by emotion. Non-rounded prices, on the other hand, felt better when the purchase decision was a logical evaluation process (cognition). Emotional decision-making is easy for the brain, while logical analysis is energy-intensive and tiring.
The key here is to keep your customer in “easy” mode.
I’d argue that courses are more of an emotional decision rather than a logical one in which students are comparing curriculums of similar courses and doing pros and cons of features and delivery methods.
With that in mind, it’s probably best to opt for Round Pricing for your course.
Know What You’re Selling – The Course Offer Pyramid
In 2005 LinkedIn decided to start charging for some of its services. Similar to eBay in our earlier example, they began by asking themselves which features most of their customers didn’t use regularly. They knew that their service was worth more to their heavy users than to casual ones and so they took those seldom-used features (like power search and the ability to DM people you are not connected to) and packaged them into bundles available to premium accounts. It’s fair to say the strategy worked. LinkedIn revenue before Microsoft’s acquisition in 2016 shows that Talent Solutions made $960 million for the company, Marketing Solutions made $109 million, while Premium Subscriptions made $162 million.
Different customers want different things.
It’s the same with students for your course. Some want the content and will plow through it in their own time. Others want the accountability and network that a strong community brings. Then there will be those who want direct access to you. Understanding the relative and perceived values of each of these components of your course offer is a massive unlock in pricing.
That’s why I created the Course Offer Pyramid to give some perspective on the types of things you could be offering as part of your transformation.
Nicolas Cole, co-creator of Ship 30 for 30, talks about giving away 99% of your content for free and monetizing the last 1%. I couldn’t agree more.
The bottom of the pyramid is all the content you give away for free on YouTube, Twitter, TikTok, and your own blog.
As Cole says, “if people love what you’re sharing, they’re going to want more of it. And they’re going to want it more efficiently organized, they’re going to want help implementing it, and they’re going to want to be part of the more engaged community surrounding your ideas.”
The next step up is the organization that Cole is talking about above.
Or you could pay $5 and get it in an organized sequence of ten emails.
A further rung up is the implementation Cole says your students may want help with.
You could take my $5 email course and rely on your own willpower to take action.
Or you could pay the current price of Course of Action and get assignments that prompt you to take specific action plus a community of like-minded course creators who keep you accountable to doing the work.
Even further up is the much-misunderstood value of a network.
If you are able to attract high-caliber students to your course (which you will if you’re delivering transformations), then new students benefit from this too.
Take Write of Passage for example. Because of the reputation and reach of the creator, David Perell, the quality of transformations delivered and, to be honest, the price point, Write of Passage now attracts students and creates alumni of the highest caliber. Just check out the amazing quality of these folks (this author excluded 😄).
In this case, the rising price attracts a higher caliber student, which creates more value for all students, which justifies the higher price. It’s a beautiful flywheel.
Finally, at the very top of the pyramid sits you. The creator. The expert. The mind that everyone wants a piece of.
It’s a common phenomenon in courses that people sign up just to “hang out” with the course creator. To see how their mind operates. How they work. How they organize themselves and their material. It’s like getting to hang out with your favorite author.
Access, of course, also means a level of personalization for your students. The ability to get your specific questions answered by the person who created the course is, well, priceless.
Now that you have an idea of what you’re selling (bonus: read this for more on how to sell), let’s look at the final piece of the “how to price your online course” puzzle through three different lenses.
Three Lenses for Pricing Your Course
Pay What You Wish Pricing
In October 2007. Radiohead launched In Rainbows online. They allowed fans to download freely and pay whatever they liked. They later said that the album generated more online profit than the accumulated downloads from all previous albums.
This approach doesn’t work for all products though. Panera had early success with a “pay what you want” approach at a Portland store, but it didn’t last long.
How do you know if Pay What You Wish Pricing is for you?
In the book Smart Pricing, the authors uncovered five core characteristics needed for successful Pay What You Wish Pricing:
- A product with a low marginal cost (i.e. the cost to deliver to the next customer).
- A fair-minded customer.
- A product that can be sold at a wide range of prices.
- A strong relationship between buyer and seller.
- A competitive marketplace.
These are all characteristics common to online courses, so if you’re unsure what price to charge, perhaps Pay What You Wish Pricing is for you.
This is my favorite form of pricing and the one most closely aligned with my Transformational Online Course philosophy.
Clay Christensen had a keen insight when he created his Jobs To Be Done (JTBD) framework.
“When [customers] find themselves needing to get a job done, they essentially hire products to do that job for them.”
Check out this excellent video of Christensen explaining why hiring milkshakes for breakfast does the job better than any other competing product.
“If [you] can understand the job, design a product and experience to do that job, and deliver it in a way that reinforces its intended use, then when customers find themselves needing to get that job done they will hire that product.” – Clay Christensen
Applied to courses, the “job” you need to understand is the transformation or outcome your student is hoping for.
When you purchase Jack Butcher’s Build Once, Sell Twice course, you’re not buying it to learn how to create digital products, you’re buying it for financial freedom.
When you purchase Ali Abdaal’s Part-Time YouTuber Academy, you’re not buying it to learn how to make YouTube videos, you’re buying it to earn a side income.
When you purchase Dann Petty’s That Portfolio Book course, you’re not buying it to make a pretty portfolio, you’re buying it to land a job.
To create a JTBD for your course, ask yourself the following two questions:
- What are the results?
- What will it take to get my students there?
Let’s apply this to the three courses mentioned above:
- Jack Butcher’s BOST
- Gain financial freedom by productizing your knowledge.
- Productize a service, create digital training products, and leverage social platforms to scale.
- Ali Abdaal’s PTYA
- Earn a side income from YouTube.
- Consistently publish at least one video a week and understand how to monetize your audience growth.
- Dann Petty’s TPB
- Land a job as a freelance web designer.
- Create the perfect portfolio to showcase your work and understand how to stand out and get noticed.
What’s unique about each of these three examples is how specific they are.
You see, the transformation is the combination of the answer to those two questions. There are a lot of people teaching you how to make money from YouTube, but only Ali Abdaal teaches it this way.
It’s the same thing with my course, Course of Action. The outcome is validating and launching an online course. A lot of people teach this. But my approach, which involves a lot of 1:1 “Teach Me” sessions, the creation of a short workshop, and then only the build-out of a full course is unique to me. In fact, the entire course is set up to facilitate this, with the ability to schedule Teach Me sessions with other students on your own time.
Once you’re clear on your transformation you can ask yourself the all-important final question in this section: what is it worth to my students? Remember, they’re hiring your course to do a job for them. Don’t waste your time trying to calculate what the combination of videos, live sessions, and resources is worth. Price the outcome.
Ask yourself, how much is the transformation worth?
As you work through this article on pricing your course, make sure you’re clear on what your transformation is. For more on how to create a transformational curriculum, check out this video I posted on YouTube.
McDonalds is arguably the king of quick-service restaurants (QSRs) and for years much of its success has been built on a famous “barbell” approach to pricing its menu items. The recognizable customer favorites like the Big Mac and Quarter Pounder exist in the middle “barbell handle”. Flanking this, on the one end is the array of budget-friendly options on the dollar menu and on the other, premium offerings like the McCafe line of fancy coffees and the Angus Third Pounder burger.
Without compromising its overall brand promise, McDonalds captured market share at both the low-end and high-end of the fast-food market that previously belonged to competitors.
This strategy has interesting implications for course creators.
You need to start with a stable “barbell handle” for your core offer. Use Pay What You Wish or Results-based Pricing to establish this. From there, you can add what we often refer to as upsells and downsells to capture the attention, and ultimately share of wallet, of customers that otherwise wouldn’t have bought from you.
Use The Course Offer Pyramid for ideas on what to offer as your end “weights”.
For example, for downsells you could offer:
- eBooks with the bulk of your curriculum in text form.
- Self-paced video courses if your core offer is always live.
- An email course like my $5 Email Course.
For upsells, you could offer:
- Coaching calls, either in a private group or 1:1
- Mentor support from your team
- Exclusive communities
Whatever you end up offering, remember to not give too many options, or risk creating a Paradox of Choice for your customers.
Tying It All Together
To price your online course, start with getting clear on what your transformation is. What results does your course offer, and what will it take to get your students there?
Next, identify all the hidden value in your course. If you have a course already, ask your current students what they find valuable about it.
Finally, use the Course Offer Pyramid to identify the specific components of your offer. Laying all this out in front of you should help you anchor either side of The Messy Middle.
Then use Results-based Pricing to put a value on your transformation. Use Round Pricing to keep your customers in “easy” mode.
Next, use Barbell Pricing to identify your downsells and upsells. Consider making one of your prices a Decoy Price and resist the urge to give too many options to would-be customers.
When in doubt, start lower than you’re comfortable with and increase your prices for every certain number of sign-ups.
Resist the urge to offer discounts.
If all else fails use Pay What You Wish Pricing, see what the market is willing to pay, and adjust from there.
Using the models and frameworks in this article, I created my own Offer Stack for my products.
Do you remember I said writing this article made me change my price?
I used to offer Private Group Coaching and Course of Action used to have an $800 coaching call option, but in doing the research for this piece I realized I was in The Messy Middle and undercharging for my time. I am now optimizing for total profit at a lower price point, and adding my high ticket (far right of the Barbell) offers to the same page. I’ll let you know how it goes.
As you work through pricing your online course, remember that it’s a journey. Experiment. Use this playbook as a guide. Pay attention to what your customers are saying with their wallets. And let me know how it goes.
If you found this helpful, you’ll also enjoy this article on how to sell the course you just priced.