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Selling a Product That Doesn't Exist (Day 22)

One Startup. 30 Days. No Secrets. Start at the beginning. 

 

It's true, we are taking orders for a product that doesn’t actually exist. Yet.

Despite the narrowing 30 day timeline, or maybe because of it, we are incredible proud of what we have built in just three weeks. Pride in hand, we are now sharing MixedMade with our community and are accepting pre-orders.Bees Knees Spicy Honey Pre-Order

To begin accepting pre-orders, we believe we need two key items to convey our offering:

  1. Photos of the product
  2. A price, based on actual costs

But instead we’ve settled on:

  1. Digital renderings of what we think the product will look like
  2. A price, based on estimated costs

MixedMade Homepage

That is to say, we have no finished product. We have no finished packaging. We haven’t even sourced our honey yet. Thus, we can’t show photos of our actual product or know the actual cost. We are skipping ahead a few steps to figure out the detail that truly matters – will people buy our product? 

If we were strictly following The Lean Startup method, we should have began pre-sales more than a week ago in case no one wants to buy spicy honey. Accepting pre-sales last week would have been possible, but we feel less risk given just a week more of progress. We now have a recipe, packaging options identified, beekeepers in contact and confidence that we can pull this off, so we are gladly accepting pre-orders.

With help from crowd-funding sites like Kickstarter and indiegogo, customers are familiar with the idea of buying a product before it is completely developed. In fact, I think some consumers prefer being early adopters and sharing some risk in a new product or new technology.

Pricing

Bees Knees Spicy Honey Text

We will reveal full financial details in the future, but in short, it will cost roughly $8 in raw materials and labor to make an 8 FL OZ bottle of Bees Knees.  Given that Bees Knees is unlikely to sell in high volumes, we need to sell each bottle for at least $10-12 to justify our time and effort. 

Based on prices of premium hot sauce and similar products, we believe the high end most people will pay for a bottle of Bees Knees is around $15.  As consumers, we have a hunch that a $14 price is substantially easier to swallow than $15 and have decided to test our luck at $14 per bottle.  “Maybe $14 feels like a $10 bill and some change, instead of nearly a $20 bill?”

 

Source: Curtis William Readel

Based on our cost of $8, this will result in a gross profit of $6, or a profit margin of 43%, which I feel pretty good about.  If we can scale and produce / sell more bottles, our costs should decline and our margin will increase.  However, if we sell to retailers, we will have to sell at a lower price and take a reduced margin. 

Eventually we should become more sophisticated about our pricing and test if we would, for example, sell 300% more bottles sold at $12.  Until then, we will sell at $14 unless overwhelming feedback suggests a price adjustment.

And already, the first order is in for a total of $40 (2 Bottles + Shipping) - celebratory backflips off the deck are in order!

Action: We’d love to hear if you have any objections to accepting pre-orders for a product that isn’t 100% complete yet.  Comment to share.

Source: iCharts.net

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