Pricing: Physical Goods

In this section, you will set up pricing and other settings for your physical goods. Make sure you have the "Physical Goods" business model activated (see Setting up Your Revenue Model).

To get started, scroll down to the "Units (Items / Devices / IoT — With Manufacturing and/or Inventory)" section starting on row 350.

1. Set Up Product/Service Tiers

Startup Virtue supports up to three pricing tiers for physical products. If you have more than three product offerings and prices are similar, I recommend activating one tier and setting your assumptions to reflect a single average price across your products. If you have more than three product offerings and prices vary widely, I recommend activating all three tiers and setting up your tiers to represent three different classes of products. For example, assume Tier 1, Tier 2, and Tier 3 represent your low-, medium- and high-priced products, respectively.

Tier 1 is always active by default. Use the drop-down menus to activate or inactivate each tier.

Start month of sales based on manufacturing assumptionsNext, input the share of new sales that occur between product tiers. Note that the percentage for Tier 1 is automatically calculated based on how many tiers are active and the percentages entered for Tiers 2 and 3. This is to ensure that the percentages total 100%. Please do not change % calculation for Tier 1. Please also make sure you are entering values for Tier 2 and Tier 3 as percentages.

Next, input the month that each Tier offering will be available for sale. For example, you may launch your company with a single product in Month 6 and deploy a Tier 2 offering in Month 25 and a Month 3 offering in Month 37. If all tiers are already active or you plan to offer all three tiers at the same time, include the same month for all three.

The grey calculated fields below each start month show the suggested month to begin sales based on the availability of inventory. These calculated values are based on COGS and manufacturing assumptions in a later section of the model. Note that these are only suggestions. You can start sales after the suggested month; however, if you start sales before the suggested month, the model will register sales as backorders until inventory becomes available. We will cover this in more detail in the COGS and manufacturing section.

2. Repeat Purchases and Returns

For each year in the model, enter the percentage of new customers who become repeat customers. Next, enter the average number of months it takes for a customer to make a repeat purchase. For example, if you expect the average customer to make repeat purchase every month, enter 1. If your customers are more likely to make a repeat purchase every 6 months, enter 6.

The grey calculated fields will preview how many repeat customers are forecasted for each year based on sales funnel assumptions you will refine later in the model.

Next, set the monthly rate of returns/refunds for each year. The rate entered here means that X% of previous month's sales are refunded, which is subtracted from revenue in the current month.

3. Tier Pricing

Enter the retail price for each product tier. Pricing can increase, decrease or be consistent across all five years.

Next, enter the average number of units purchased per retail transaction, an average discount per purchase, and a setup fee (if applicable). They grey calculated field will show the effective revenue earned per retail sale (on average) after accounting for discounts and marketplace fees (see App Store / Sales Platform Assumptions).

Next, enter a wholesale price and associated setup fee per unit sold (if applicable). Wholesale prices should reflect the unit price after volume discounts (the discount and number of units purchased per retail transaction do not apply here). Wholesale pricing is linked to assumptions about channel partners and distributors, which you will set up in the sales funnel section of the model.

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If you are selling some or all of your products through an online marketplace like Amazon, continue to the Sales Platform Assumptions section. Then continue to the top-down and bottom-up sales assumptions sections to estimate sales. Return to the Guidance page for more options.