When setting the business model, sometimes we overthink; we conduct a lot of market research and analyze numerous pricing scenarios, trying to have everything perfect through trial and error. However, sometimes a direct approach is better. One lesson that struck me came from Derek Sivers when defining his pricing strategy for CD Baby.
In the small town of Woodstock, New York, Derek Sivers found inspiration in a local record store’s simple consignment model. Musicians set their CD prices, and the store took a flat $4.00 per sale. Sivers saw the beauty in this simplicity and mirrored it on his website, allowing artists to set their prices while he took a consistent fee for each CD sold.
To account for the time he spent on album setup, Sivers initially set a fee of $25. But he soon had a realization: to the customer, $35 was not significantly more than $25, yet it provided him with a cushion to offer discounts, which could enhance customer relationships. This insight led him to establish a $35 setup fee alongside the $4 per sale.
This straightforward, customer-centric model, influenced by a local store’s practice and a moment of clarity, sustained his business for over a decade. Derek Sivers’ story is a testament to the power of keeping business models simple and focused on customer satisfaction.
Find out more about him here: https://sive.rs/
