How to lower costs while keeping your price the same

Assessing and addressing the hidden costs of your products or service

Photo by John Cobb on Unsplash

Welcome to A Founder’s Life for Me! I’m Alek, and I provide practical recommendations on how to build your company (or career) through my experiences building tech companies. To get free access to all past and future posts, please subscribe below.

Why I’m writing this now

In “Four principles for successful, long-term customer relationships,” I shared my equation for strong customer relationships:

Customer Relationship Strength = Personal Relationships + Trust x Value - Cost

Over the past two weeks, I’ve covered Trust and Value. Today, I’m talking about “Cost.” I’ll provide my framework for identifying the costs you are asking your customer to pay and practical ways I’ve found to reduce those costs.

How to assess costs

To quickly assess the costs of your product or service, ask yourself, “Why wouldn’t a customer move forward from here?” at each stage of the process. Most of the costs will be in one of the four categories:

1. Time and effort - how much time and perceived effort is this going to take them?

2. Patience - how long will your output take to deliver?

3. Inertia - will this require them to learn new things or work in new ways?

4. Money - how much money will it cost?

I like to simply write down a list of all of these costs by the stage of the customer relationship. You can get started listing costs on your own. But the list really starts to grow when you start talking to your customers. I maintain my cost list over time, removing costs as they are addressed and adding costs as they are discovered.

How we assessed costs for GBA

At my first startup, GBA, we built an AI video game coach. The AI coach would watch you play games and report back with insights on how to get better. There were three main “phases” of the customer relationship, and costs differed for each phase.

1. Sign-up - the time before the customer has login information

   1. “I don’t want to have to go to a website for video game coaching.” Inertia cost, they’d need to learn a new platform and incorporate it into their day.

   2. “I don’t have a Twitch account.” Time cost, they’d need to set up a Twitch account.¹

   3. “I don’t want to publicly stream on Twitch.” Effort cost, the idea of publicly streaming on Twitch wasn’t something people inherently wanted to do.

2. Setup - the time between when the customer has login information and when they receive their first AI coach insights

   1. “Setting up my device to stream on Twitch takes too long.” Time cost.

   2. “The AI coach takes too long to get back to me with insights.” Patience cost.²

   3. “I forgot to go to the website to view my first AI coach insights.” Inertia cost.

3. Ongoing - every moment after the customer receives their first AI coach insight

   1. “I forget to start streaming on Twitch before I start playing.” Inertia cost.

   2. “There are a lot of insights. It’s hard to know where to start.” Effort cost.

   3. “My network bandwidth isn’t consistent enough to always be streaming when I play.” They could upgrade their internet, but that involves time, effort, and monetary costs.

Some of these costs were things I anticipated at the start of rolling out GBA, but other costs were things that I learned along the way from my customers.

How we addressed costs for GBA

Once you understand the costs limiting your business, you can figure out ways to address them. From your list, you can identify themes and come up with ideas that address multiple costs at once. For GBA, a lot of the costs were related to Twitch. So, we explored supporting other streaming services and building our own.³

The most effective strategy we used to address our costs was actually to lean into creating more trust and value with our customers:

• We increased the value our customers were getting out of GBA by automatically generating shareable highlight reels of their gameplay.

• We increased the trust that the AI was giving them valuable insights by showing video examples of their own gameplay where the AI was suggesting they do something different.

Costs can be addressed head-on or by recognizing that customers are willing to pay a high “cost” if they value your output enough and trust you’ll deliver it.

When costs are high, you can address your costs by increasing the other three components of your customer relationship: trust, value, and personal relationships.

High costs can kill a relationship

Even if the other components of your customer relationship are strong (personal relationships, trust, and value), it can be hard to overcome costs that are too high.

In an early iteration of my current startup, SolidlyAI, we were creating an AI that plugged into Slack channels to summarize everything going on across an organization. Potential customers would say that they trusted Solidly would deliver a valuable outcome. However, there was a lot of fear around installing an AI that could listen to their internal conversations. Therefore, getting Solidly approved would take time and political capital. This killed a lot of early sales processes.

Assessing and reducing your own costs

To quickly assess the costs of your product or service, ask yourself, “Why wouldn’t a customer move forward from here?” at each stage of the process. There are four common types of costs that will come out of this exercise:

1. Time and effort - how much time and perceived effort is this going to take them?

2. Patience - how long will your output take to deliver?

3. Inertia - will this require them to learn new things or work in new ways?

4. Money - how much money will it cost?

You can address high costs directly by reducing or removing them. Or, you can offset the costs by increasing trust, value, or personal relationships.

If you aren’t managing the costs you’re asking your customers to pay, customer relationships will end before they even have a chance to start.

Recommendation: For your product or service, assess costs at each stage of the customer journey by asking, “Why wouldn’t a customer move forward from here?” List out the costs and come up with ways to address them. Reduce or remove the costs directly. Or, work around the costs by providing more value, increasing trust, or building deeper personal relationships with your customers.

If you are interested in more content like this, subscribe through the link below. If you want to discuss how to apply this, email me at newsletter@alekhagopian.com.

1. We primarily used a streaming service called Twitch to collect the customer’s gameplay footage

2. The latency between the person playing and the coach providing insights was often 12+ hours.

3. We were acquired before rolling out any of these changes, so the impacts were never directly measured.