Do not overly intellectualize; return to the truth

You must start with the principles.

A first principle is one of the foundational building blocks of something that is true.

For example, in physics, a first principle is the law of the conservation of energy, which cannot be created or destroyed but only transformed.

When we attempt to apply first principles to marketing, we must return to the fundamental basics of how business operates, society functions, and how people think.

A quote from Elon Musk:

“Boil things down to the most fundamental truths and ask, ‘OK, what are we sure is true, or as sure as possible is true?’ And then reason up from there.”

It is quite difficult to agree upon a subset of first principles for marketing because it is not a scientific field with empirical truths.

However, we can still employ the same reasoning and logic to try and deduce what the most basic things probably are.

Going back to basics fights the detached over-intellectualization of marketing.

I have seen many people entering the realm of marketing with little knowledge beyond some specific details, usually just about channels (“marketing involves using social media, email, and LinkedIn to sell products”).

The concept of channels is a subset of marketing, but it does not encompass the philosophy itself.

Similar to studying the greats like Kant and Socrates, we must start with the basics and remind ourselves that all other knowledge builds upon these basics.

Let’s go through two first principles that I find important:

First principle: Your customers are spending money they worked hard for. They want a return that compensates for how hard they worked for it.

Every dollar that exits your customer’s pockets, whether they are an individual or a business, originates from a lifetime’s accumulation of effort to arrive there and have the capacity to make that spending decision.

Everyone desires to realize a return on their investment; this is how they evaluate whether something holds great value or some value.

Remarkable offerings provide a big return on investment.

This return can be financial, emotionally, nutritionally, in terms of status…

When you opt to sell something, you must place it within the context of the individual who purchases it.

If you are selling to a VP of Sales at a major corporation, you must consider how whatever you are selling will benefit not only their business, but also themselves. How will this impact their future ROI in their work and, consequently, the job market?

First Principle: Money is merely a measure of value.

One of the most significant errors that founders repeatedly commit is that they don’t price on value, rather some almost arbitrary measure or figure that somehow sounds reasonable.

“A software tool shouldn’t exceed $20 per month.”

This is completely irrational.

The most crucial step you can take is to genuinely comprehend the value you provide to your customers.

If you are not restricted to adhering to market prices, established due to saturation and awareness, you must make a value calculation.

(You are always competing with the market, although sometimes implicitly.)

When you are delivering human effort, it is quite straightforward:

The price of human work = person or team's market value(experience * impact)

However, for products, particularly digital ones, a simple approach is to envision that the solution you are presenting exists in human form.

If your customer genuinely needed a problem resolved and could hire a human to complete that specific task on-demand, how much would they be willing AND able to pay that human (per month)?

I cannot emphasize enough the significance of the term “able”, as these are the financial constraints that completely bind your customer, regardless of their intentions.

However, it is not about the final absolute figure derived from comprehending the human value of your work.

It is about understanding how badly your customer desires what you are offering.

For instance, suppose you are marketing a social media tool for $x per month that generates content:

• The average customer is willing to pay $400 per month for the same result.
• The tool’s content quality is 70% of what a human could produce.
• It consumes 4 hours of the customer’s time per month, valued at $20 per hour.
• The customer seeks a 50% return on investment (ROI) with your tool.

The calculation, accounting for the time cost, is as follows:

1. The value of what the customer would pay a human: $400
2. The tool’s content quality: 70% of $400 = $280
3. The time cost of using the tool: 4 hours * $20/hour = $80 (an expense)
4. Adjusted value of the tool to the customer: $280 (quality) - $80 (time cost) = $200
5. Desired ROI: 50%

Now, inputting the above figures:

Tool Price = Adjusted Value to Customer / (1 + Desired ROI) = $133.33

Thus, the tool’s price should be approximately $133.33 per month factoring in the quality, time cost, and their desired return on investment.

This is a simplified model to aid in comprehending the mental process behind determining price and returning to fundamentals and first principles.

In general, you would want to expand this to attain as accurate an estimate as possible.

Rather, performing mathematical calculations like this provides you a reference framework for establishing your pricing.

Contemplate what other first principles are relevant for marketing, your business, and the industry and niche in which you operate.

You will find that thinking through these principles yields much greater value than your typical LinkedIn post on x arbitrary topic that excites you.

Think first principles. Only once you have accomplished that, move on to the second.