For software companies, 2020 has been boom or bust. While some of us have benefitted from the massive disruption and reorientation of the business world — cheers to you, Zoom — others are struggling to keep their heads above water in a sea of customer implosions and budget slashes.
These extremes have set the tone for some high-stakes 2021 planning sessions.
Yet, whether the challenge for your software company is capitalizing on spiking demand or reclaim its path to success, one thing is certain: your software pricing practices must be part of the planning.
Consider the pricing-related chaos created by this year’s unusual circumstances and its impact on your business:
- Your competitors may have made changes to their business or product offerings.
- Your user base may be different if some of your customers reduced headcount. This may have changed their licensing needs or affected their power-user or IT support staff resources.
- Your customers may need your software more than ever, or even less than before. Business may have expanded, or even morphed, into new products and services, which may affect how they use your software.
- Some of your customers may be in a financial bind, affecting their ability to keep paying for your solution. In the same vein, some of your competitors may be desperately lowering prices to buy business.
Each of these circumstances creates a threat or opportunity for your business that must be considered within your overall pricing and monetization program. Let’s look at some of the key pricing-related actions you should consider taking as you plan for 2021:
Refresh your competitive intelligence
With change swirling everywhere, keep in mind your competitors have been changing, too. Maybe they’re responding to the market by adding key features or product extensions…or tweaking their licensing or packaging to provide a more appealing customer entry point. Or maybe they’ve been discounting heavily to either shore up short-term cash or buy their way to higher market share. Regardless, the more you know about what is really happening, the better decisions you can make about your monetization strategy. Here’s a good overview of how to approach competitive intelligence gathering.
Review the alignment between your offerings and your customers
A well-constructed software monetization model addresses three key elements to ensure the software company is paid fairly for the features and services its customer’s value. To be successful, these elements must align and scale with customer objectives:
Licensing: What you charge for, the rights to use, and the terms and conditions.
Packaging: The packages of capabilities (features, services, etc.) you offer.
Pricing: The amounts charged, and the incentives offered to each class of customers you serve.
Recent changes in customer objectives could affect your ability to attract, retain and grow your customers. For example, features that enable team remote collaboration may be more valuable now than before, as might integrations with HR systems to track employee social distancing compliance. A thorough review of your alignment with customers in all three areas is essential in planning for 2021.
Talk to your sales team and customers
As you work to understand your customers’ changing needs, go directly to the source. Ask your sales team what your customers are talking about, which capabilities they’re focusing on, and what they hear about competitor offerings. Do the same with customers with an emphasis on how they really feel about their needs and situations.
Review your discretionary discounting and software pricing policies
No doubt software buyers are trying to take advantage of a down market, and many software sellers are desperate to keep the sales engine moving. This combination has produced wild discounting throughout the industry. One of the key challenges for your 2021 success will be to rein in your discretionary discounting. Moreover, many software companies include pricing-related policies in their agreements, such as auto-renewals and annual price increases. In light of the heavy discounting and current economic conditions, these policies might now be perceived as tone-deaf or even unfair to customers. As you plan for next year, review your pricing policies and conduct a thorough audit of your discounting activity. It might shock you.
Make a plan for 2021 and address any pricing issues
The circumstances of 2020 have made it essential for software companies to address pricing-related issues in their 2021 planning, and the actions discussed here will help you do that effectively, but don’t do a one-and-done. Our current state of flux isn’t likely to go away soon, so revisit your pricing regularly throughout the year to stay on track.