Software Pricing Fundamentals Understanding the Difference Between Pricing Your Software and Monetizing it

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Audio Transcript

Jim Geisman: When people talk about pricing models they tend to fixate on the price level the amount that the customer’s charge list or net. But in fact, that price captures a whole bunch of deliverables.

Some of which are tangible and some of which are not tangible. All of the factors you see on the screen come into play in a customer’s evaluation of the amount you’re thinking about charging them. When you know you’re putting together prices, there’s usually some relationship between price points and value. Here we’re just illustrating that lower priced products have less value than the higher priced products.

“When people talk about pricing models they tend to fixate on the price level or the amount that is charged.”Jim Geisman, Software Pricing Partners, LLC

When you compare to SAP or a electronic computer-aided design system like cadence, I hope you wind up understanding is that a monetization framework really does you a alot more good than a pricing model.

A pricing model is important don’t misunderstand me, but there are other things that you ought to consider that the pricing model largely leaves untouched. The framework that we use has these three components the license model consists of the metric unit of measure.

Whatever it is that you are going to charge for and will scale with the value delivered. That could be proceed, that could be per transaction, that could be percent of revenue, it could be a lot of things. The other half of the license model are really the terms and conditions some of which are just normal commercial terms and conditions. But you know our air specific concern are the rights to use the payment stream and in terms like that.

“A pricing model is important…but there are other things that you should consider that the pricing model largely leaves untouched. “Jim Geisman, Software Pricing Partners, LLC

The reason that’s important is because it also adds value and it may be easier to sell subscriptions with lower price points and recurring revenue than it is to license products on a perpetual basis where there’s a large upfront component and then a much smaller ongoing stream.

The offering model, the second of the three elements, really deals with the products and services and how you bundle these things together. Many times people only focus on the product side and sometimes higher level tiers in an offering can have certain services attached to them.

But the offering model is very important and then finally once you know what the “it” is, and how it scales, and you know all of the details about how you’re going to charge for it, then you’re in a position to actually go into the pricing model and set prices.

In the pricing model we talk about list prices and then we talk about incentives because often when people talk about prices it’s unclear whether they’re talking about list prices or net prices after discounts.

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About the Author

Chris Mele

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Chris is a software monetization and pricing expert and former CEO of an award-winning SaaS company. An avid scuba diver, Chris should probably move closer to the beach.

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