Why Customers Overpay

There’s almost no scenario where your business is successful eventually if your first customers don’t overpay initially.

Not in the sense that they think they’re overpaying — but in the sense that your margin is much bigger than more established companies would ever dream of charging.

It all comes down to emotional vs. logical purchasing.

Here’s an example:

I have a big head and I like to run. Back in 2017, I decided I’d run the marathon and got into a rhythm of morning runs along the east river as the sun rose.

This was great, except for the whole “sun rises in the east” thing. The sun would be directly in my eyes, and since I have a big head, most running sunglasses looked preposterous on me. Like little Dumbledore-style reading spectacles sitting on the tip of my nose. And, they didn’t block the sun. I could’ve worn those giant wraparound glasses, but I thought they looked dumber than the tiny spectacles.

I mentioned this in a running group I’d joined, and someone responded immediately — “Goodr just launched running sunglasses for people with big heads.” Goodr was a new company, making affordable sunglasses that looked like Ray Bans specifically for running. And, they’d just launched them for folks like me.

The sunglasses were labeled:

And they even had a filter:

Goodr charged $10 more for the big head glasses than for their regular sunglasses ($25 vs $35) — an enormous premium (40%) for maybe $0.10 more material.

But, I happily paid it. And probably would’ve paid $60 without batting an eye.

There are two types of customers:

1) Customers that make buying decisions “rationally” — adding up inputs and looking at competitors and making a decision objectively based on the thing they’re buying. The value of it against competitors.

2) Customers that make buying decisions emotionally — imagining the life they’ll have once they buy the product and recognizing how valuable that leap will be.

Your first customers need to be that second group.

The first group sees the product as a commodity. One option in a sea of options. The second sees it as a gift. Somehow, someone saw their problem and solved it when no one else had.

I’ve had a number of founders, most recently Kat of House of Wine, say early customers have reached out and “thanked them for existing.” Which can feel weird, because you’re charging them money — but it’s completely normal for the second group. They don’t see you as a commodity, so, they thank you. The money is irrelevant — you saw them, and that’s rare.

Back to Goodr.

Initially, they only offered two styles for Big Heads — black and neon orange. I didn’t like either, but bought the black ones because they fit. I then wrote the founders an email, first thanking them for making big sizes and telling them how much they improved my morning runs — and second saying if they made more colorways for big heads, I’d buy another pair.

Eventually they did. And I bought another pair.

The value for our first customers can’t be in the objective quality of our first product. They need to be paying for the fact that we noticed them when no one else has.

No one else noticed that I had a big head and liked to run and didn’t want ugly sunglasses. Goodr did. So I didn’t bat an eyelash at a 40% premium for a slightly bigger size.

Your premium, your margin, will come from the customer thanking you for noticing their problem. Small margin means tons of people have noticed. Big margin means no one has.

In the long run, your first customers pay for the rest. That big margin will fund your operation, and, more importantly, your mistakes. It’ll fund your exploration of the next set of customers, your marketing tests, your product development, your partnerships. And, it’ll fund all the missteps you’ll make along the way. It’s your buffer.

If you’re operating on slim margins from day one you’ll either need to raise money — which no one will give you because no one likes businesses with slim margins — or be perfect, which, obviously, won’t happen either.

The value to your first customer needs to be that you noticed them. You can overcharge for that and they’ll happily overpay for it.

So…what will your first customers thank you for noticing?