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This is why you should never ever give your product away for free. Pricing is key.

So a few weeks ago I ran a little experiment - to prove what I already knew. Call that bias in my experiment - but honestly people never fail at acting like people.


I posted this post on linked in - offering 299 Euros of valuable product - for Free to the first 7 people that signed up. No strings - no walls - no barriers - 100% free.


My free pricing experiment
My free pricing experiment

I set out to show an important lesson for all start ups, and for any one ever selling a product.

Several people wrote to me and asked "If you're so passionate about helping MedTech startups - why do you charge for your course? Why don't you give it for free?" My answer was - "Because you need to have skin in the game or you will not do the course. If something is given for free it has no intrinsic value. If you complete the course or not is no longer relevant to you because it has zero consequences. And basically you will do little to none of the modules."


This is a major lesson for any product when you go to market - so keep reading. AsI'll get to helping you on pricing.


So let me now show you the result of giving something very valuable for free:



The impact of free product
The impact of free product

So after more than a week - five of the seven people grabbed the free course - taking it away from others (as they knew spaces were limited) - and they just grabbed it - signed up and then. Did nothing. They've had two weeks and two weekends - so hard to say "Just not had a chance."


But it starts to demonstrate a key issue on pricing - and you need to take note.

Just take a deeper look at the progress people made...and the dates.



Low commitment in free product
Low commitment in free product

You can clearly see that even with just 1/3 of the course (not even the full 100 videos), for people that get it for FREE they clearly see little to no value. 299 Euros given for free = 0 euros of value. Keep that in mind.

Now look at some of the paying members of the full course.



High performance when people pay
High performance when people pay

So when we compare this performance of the people that paid full price for the 100 videos. These people had 799 Euros of skin in the game - and even the 35% participant that started the day after the "Free 40 videos" were given did way more progress. On a pro rata basis - that 35% = 35 videos so means they would have almost completed 100% of the equivalent course I gave for free. You get it?


So why did I run this experiment?


Part of the lesson for any MedTech startup is to know how to seed the market with new product. (or any company launching a new product.)

Our instinct is to get rapid seeding of the market by giving something away for free to get quick user feedback. But as I've demonstrated (again) here - the second you give it for free you give nothing of value. So the feedback is borderline useless.

If you want clinical user feedback - run a clinical trail. If you want market feedback - sell the F'in product.


Now I gave 299 Euros of online video lectures, three hours, 40 worksheets - on everything from establishing a startup to getting you all the way through series A. Massively important information for anyone doing a startup. It's basically the blue print for how to have a higher success in a startup. But because it was "free" the people taking it on decided in their minds Free = no value = no effort.


You will get that same human response no matter if you are selling a $250 disposable or a $2 million capital equipment. It's human nature.


DO NOT EVER GIVE FOR FREE !!!


The psychology behind this is quite well known and quite profound. But the process of evaluation of the value (what will I get for what I'll pay for) is a critical part of the commitment step. It is a mental process that sets whether you will then try and extract as much value as possible from a purchase. Or you will just say thanks and park it.


The second part - and this is SUPER critical for a start up product. The feedback you will get on performance is very different than if someone is paying for it. If it's free they feel an "obligation" to give you better feedback as part of the "Quid pro quo." So you can easily get lulled into a false sense of security of "The product is great." When it's not. If a user didn't get value on something free - then that's okay. If a user did not get value for something they had to pay good money for - and put effort into getting the approval to buy. If they don't get good value they will feel it and let you know. And that is super critical as you go to market !!!!!!


If you get feedback on something someone has had to sweat for - put hard effort into - commit to. The feedback will be way more accurate and based not on performance alone - but "Value." ie. Did it do what I paid for and what I expected to get for that money. That is the feedback you need because that is what the paying public will do with your product. Better to know early.


That commitment to use and the feedback is even more profound if they have had to go through a VAC committee or go and ask the C-suite to hand that money over. That entire process is critical to getting the usage and commitment that your product deserves.

If you give a large piece of capital equipment for free... then expect it to sit there and not be used. And no one complain.


It's not that people don't use it out of badness. It's just that anything for FREE sits at a lower priority in their mind. So it is not as "Important" to extract the value. So it gets less of your mind share, so less urgent, so not used.


That is what you see in the results of my experiment.


So where should you price your new product?


I can't give you an absolute number because I don't know your product. So let me tell you how I got to the 799.00 Euros for the price of my course. I'll use this as an example to talk around pricing.


Firstly I needed a comparative pricing to understand what value I was genuinely creating in my product. You can do that several ways - especially for a physical product.

You could do "cost plus" which is where you work out the cost of making your product and then add X% to make an acceptable gross margin on it. The way (foolishly) many medical devices get priced.

But that may not reflect the reality of what people can actually pay (maybe they are constrained in a reimbursement model.)


The second way is to look how you can fit into the current reimbursement / competitive pricing environment. And then see if your offering will be accepted in that framework. You may have little choice.

But at least this way (and that is why I say sort target pricing before you design your product) because if you are constrained to $X of maximal pricing and you want to make 70% Margin - then you know the upper limit of the cost of the product and can direct your R&D / manufacturing team to design and build a product in that constraint model. It really focuses the team on the killer features to draw out a valuable USP.


You can also do a value based assessment. What value will your product bring - and therefore what should you charge to deliver that value.


In the example of my course: 10 hours of exclusive knowledge you cannot (and I mean cannot) get anywhere else. 100 cheat sheets - and it will take you about 2 months to complete it all. It's a mass of real world - experience based knowledge.


And what "value" does a course participant get at the end of it?

Well I thought - it's like a mini MBA within a directed field. Those courses cost anywhere from $2000 to $10,000 depending on where you sign up.


I also estimated what this knowledge will do for the participant - well if you are a struggling medtech startup - it could help you either raise money at a better value - save time in development - help to have a better commercialisation - and host of benefits.

So if you are a start up leader - it could save you hundreds of thousands if not millions of $ (in theory.)


But then on the other end - (ability to pay) I'd understood that one of the big issues of all early stage start ups is they are "cash strapped" - so the barrier to entry had to be painful enough to appreciate the value and commit to the course... But...


I had to estimate at where the pain barrier was "enough" to gain commitment - but not so much that it was prohibitive. After some elasticity modelling - then it became clear that 1000 Euros was a psychological barrier at a top end for any early stage startup.

And 500 Euros was just "too cheap" so it has no value at the bottom end.


The sweet spot to create enough pain to merit the gain was about 800 euros. It acts as enough of a filter to make sure that only serious professionals that will commit - get on the course. But not so high that cash constraints mean "I cannot pay".


And that way I was able to build my product "The course" at an investment point for me that would reach a break even. I.e. I couldn't get Steven Spielberg to direct the videos !!!

I had to do the course at a cost point (to me) where I could make a break even in a reasonable time - paying back all the production costs. (plus marketing costs)


Pricing is an art in any business, but it's even harder in medtech because of reimbursement. But what you need to do it get the estimated pricing of your offering set - hyper early in the process. You must not let R&D teams just go and "build the idea" and then price it later based on their cost plus 70%. That is backwards, and you end up with a pricing that is often too high / prohibitive / more than the value you bring - and so sales fail.


The worst thing you can do is allow your R&D team to go off unconstrained and then end up with a cost of goods that can never allow a sales price that either makes profit - or becomes prohibitive in the market.


But how do I get early adoption without giving it away for Free?


Well this is the art of great commercialisation. And more than anything holding your nerve. You must start your value proposition and commercialisation strategy way way way earlier than you think - and start to get that value point in the head of the early adopters very early on. And you may have to go to a lot of "KOLs" opinion leaders who think "I deserve it for free to have my name associated" before you find the right profile of user that understands and appreciates the potential value. Those people are the ones you are looking for. It is those users that will get you honest feedback.


That is a critical - critical step. Any one that will only use it if it is "Free" (as I demonstrated in my experiment) will not appreciate the value you bring. Instead if they are willing to pay - it means they have internalised the potential value. Are willing to put skin in the game and do a full and formal evaluation for you based on performance and the VALUE that brings.


Now, of course, you can make payments "easier" (like my way to break the course into three parts) to reduce the psychological barrier. Or if it's capital - you can place for usage and have staggered payments (that is not Free and very different from free) as you must always get written commitments, penalties etc.

And your pricing (like my course) if you get the befits of deferred pricing - then it costs more over the long run. The three chunks cost about 100 euros more than buying it all up front.


This is one of the hardest things you will do at the start of your product launch journey - asking for money. But I can assure you - if you have to give it away for free to get ANYONE to use your product just to give feedback - well you have bigger problems - because it means either your product brings low to no value - or you will never be able to commercially convince people to swap cash for product. Either way - it's a disaster for your product launch.



This article is for education purposes only. Join Steve on his full course to get deeper insights on starting up a medtech business.









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