Software Pricing Hacks – Use Multiple Views to Identify Your Acceptable Range

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Audio Transcript

Jim Geisman: Don’t look at at price through one lens, look at it several different ways and I’m sure you know you do often. It’s a matter of research competition and then you run your numbers internally.

But I think what you want to do is use multiple ways of coming in on the price and what we found is when you look at economic value along with demand estimation, competition, profitability and customer research you wind up with some overlapping ranges that kind of makes sense. Then the issue is an acceptable range, where do you want to be in the range.

I think if you come at pricing multiple different ways you’ll be much better off than if you only come at it one way which may be just looking at what the competition does. You know by the way the large fonts economic value and voice of customer research are really the things that you ought to weight the heaviest of the demand.

“Don’t look at price through just one lens.”Jim Geisman, Software Pricing Partners, LLC

Estimation methodology that we use is you know, is just a very rough tool and competition. Our advice is that you don’t, you should never let the competition drive your business.

But you should be mindful of them because the competition often sets the market environment that you are selling into and many times competitors especially in well-established markets will set the tone for you or other new entrants. Therefore you have to know what the competitors are doing.

You know people are always chasing after competitive price points this is a bit of a sidebar, and I think the reality is you never really know how much a customer paid unless it was ordered off the web.

In which case the the prices there are standard, but of course, there are no standard prices when you’re doing big deals, but that’s beyond this discussion. But in any event the competition is something that you need to pay some attention to and often what happens is people run. to the project economics before they do the project and then try to make sure they cover the costs. This really is a backwards way of doing things.

“Customers really don’t care about your costs.”Jim Geisman, Software Pricing Partners, LLC

I think what you need to do is focus on the customer, figure out what is a fair price to pay for the package that you’ve constructed and then make sure that the numbers that result from that will do what you want to do internally.

I mean customers really don’t care about your costs, they only care about your cost in so far as you can stay in business but you know when you’re figuring out whether a project will be profitable. The profitability is pretty much up to you it represents how well you can control your costs how well you are able to develop your marketing efficiencies and things like that.

But again, the customers only care about you delivering a product being around long enough and then you get to worry about the rest. Now when you’re in an acceptable range it turns out that you just pick a point. The point you pick have to do with the pricing strategy you want to you want to follow. But the point is that people are not as price sensitive as you may think. In fact if you know you’ve got a range that may be plus or minus 10 plus or minus 15% from the center. People really don’t care where you are as long as it’s in an acceptable range and it’s a range that you and or a price point you can justify.

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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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