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Forbes: The Dangers of Winging It In Software Pricing
Software leaders and their sales teams often improvise the pricing of their software solutions, quoting customers almost on a whim, making up prices in the hope that those prices will land deals. However, this approach can lead to a series of cascading consequences that can ultimately cause a software company to fold.
Winging pricing, and especially your pricing structure, may net you short term gains, but in the long run it mires the software company’s sales teams in lengthy sales cycles, intense price pressure and customers that become old hats at gaming the numbers.
Improvised pricing is especially problematic for companies with land and expand strategies. These companies typically lack carefully configured packaging with solid volume mechanics. In the rush to land the deal, sales teams fail to adequately describe to prospects and customers how pricing scales as the customer buys more.
“Contrary to what many software leaders think, users aren’t getting the full value of their solutions every time they access them. I would argue that anyone standing behind a flat rate per unit regardless of volume (for instance, charging $99 per user period) is failing to capture all the potential revenue from their customers.”
Software Pricing: The Partial Use Problem
Improvised pricing can open the Pandora’s box of the “Partial Use Problem” first proposed by Software Pricing Partners in the 80’s: when buyers can demonstrate that they are partially using a software solution and therefore not getting the full value, they garner both leverage in the sales process and empathy from the seller. This potent combination tells a powerful story, earning these buyers special treatment in the form of discounted prices by software companies with and without formal deal desk functions.
Winging your pricing is common inside of a dysfunctional pricing system plaguing the software industry, but it doesn’t have to be. Pricing is a game of math and science–backed with strong logic and rationale. No matter how you slice it, software companies that improvise their pricing are playing a losing game.
You can read our full article on Forbes: The Dangers of Winging It In Software Pricing
