Figuring out how to price your software is often considered the root canal of business. Both procedures are painful and can lead to downstream complications. However, both the pain and the complications of either procedure can be greatly mitigated.
We won’t lie and tell you software pricing is easy and painless. It isn’t. Pricing your software takes work, but many companies make it harder than it has to be.
Software pricing tends to be painful because it requires change, explicit decisions, and often exposes an organization’s weaknesses.
But easy or hard, software pricing has to be done if you want to get paid. Do pricing well and you will be paid well, too.
What Role Does Price Play?
Price plays many roles. On the face of it, price allows a prospect, who is in the information-gathering phase of their buying process, to decide if your offering will fit within budget and if it should be considered. In the later stages of your sales process, price is just one of the many elements a prospect uses to select a vendor.
The Offering Model
How you decide to package your products and/or services for different kinds of customers is called your Offering Model. The amount you charge captures everything a particular offer (i.e. Basic, Professional, or Enterprise) represents, including your product’s impact on revenue, associated risks and costs.
Therein lays the challenge. If you want people to consider the amount you want them to pay for your offer, then you must make sure they understand what they are getting for their money. That’s why it is important to highlight differences that are significant to the customer including: product features, service delivery, quality, reliability, future capabilities on the product roadmap and more.
Many customers also take into account intangibles such as your company’s reputation, business practices, people involved pre- and post-sale, references, and your website experience.
Price Sends A Powerful Message
Since the amount you charge for a particular offer, i.e. the price, captures “everything”, it also sends a message. If a prospect thinks the price is too high for the value you deliver, your price and company may be perceived as unreasonable. Similarly, if your prices are too low, people may wonder what’s wrong with your product or whether your company will survive.
When your offers and the amount you charge fit together, and your prospect understands the value delivered, you will probably hear feedback on the sales front that includes “reasonably priced”, “good value for the money”, or even “it’s a little on the high side”.
Getting the price you want is more likely when you support it with information about the value of your offers and the critical differences between your offers and the competitions.
“How to Price Software” the Definitive ebook
This post used to be part 1 of a 5 part series. In order to make the reading experience easier, we wrapped the entire series into one convenient ebook, available here.