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Willingness to Pay: It's More Complicated Than You Think

Forbes: Why Software Pricing Shouldn’t Be A Greenfield Project

Published: May 14, 2024 | By Chris Mele |

Nothing but green fields

To read the original Forbes article, click here.

Software executives often make the mistake of ignoring historical pricing and transaction data when making new pricing decisions. Wanting a “fresh start,” they convince themselves pricing is a “greenfield” area where the past can be ignored.

However, this assumption is wrong.

“But the assumption software executives have—that they can ignore their historical invoice transactions—is an especially egregious one.”

Legacy customers who have paid certain prices over years are very unlikely to accept large or sudden price increases without clear added value being demonstrated. By glossing over quantitative transaction data showing exactly who paid what and when, executives risk alienating these bedrock legacy customers if they attempt pricing changes not supported by that data.

While quantitative transaction data is crucial, it lacks context. That’s why it must be combined with qualitative insights gathered from in-depth customer interviews to fill in knowledge gaps and provide insights into why customers make purchasing decisions. When these insights are mapped to insights from transaction data, these narratives put executives on the right pricing path.

Pricing should be an iterative, ongoing process tied to the product roadmap and value delivered, not a one-time event. Small, incremental price changes tested via continued data gathering are better than sudden large increases. For example, if a 30% increase is desired, starting with smaller increases for new customers while keeping legacy customers’ pricing stable, then slowly raising it while monitoring impacts on demand, is wise.

With major new features, legacy customers can be offered an opportunity to upgrade to new pricing, but this requires communicating the value added and having a plan for their successful transition. When executives do their homework on pricing using quantitative and qualitative inputs, and clearly convey the additional value brought to the table, legacy customers may willingly embrace new pricing schemes despite larger-than-normal increases.

SaaS Pricing: never lose sight of protecting legacy revenues

In summary, by leveraging both quantitative and qualitative data to make iterative, gradual pricing decisions tied to product improvements and value, and clearly communicating this value to customers, software executives can execute pricing changes without alienating their client base.

“Software executives emphasize iteration when it comes to products and marketing, and they need to take the same approach to pricing and packaging.”

You can read our full article, along with a recent example of a large misstep in pricing, on Forbes: Why Software Pricing Shouldn’t Be A Greenfield Project.

 

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Chris Mele

About The Author Chris Mele

Chris is Managing Partner for Software Pricing Partners, where he and his team have launched some of the software industry’s most transformative monetization strategies. As a former software company founder and leader, Chris focuses on the impact effective licensing, packaging and pricing strategies can make on the most essential software company metrics: revenue, profit and valuation. Under his leadership, Software Pricing Partners has become an influential voice for growth-oriented software companies both large and small.

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