How to Price Software

The fundamental elements to effective software pricing.

TABLE OF CONTENTS

What role does price play?

Clarifying terminology.

Where does a pricing model fit?

Should cloud, SaaS & mobile affect how you price software?

Do you really have a pricing problem?

Looking for profitable growth?

Figuring out how to price your software is often considered the root canal of business because both are painful and can lead to downstream complications. However, both the pain and the complications of either procedure can be mitigated – if not avoided altogether.

We won’t lie and tell you software pricing is easy and painless. It isn’t. How to price your software takes work, but many companies make it harder than it has to be.

Software pricing can also be painful because it requires change, explicit decisions, and often exposes an organization’s weaknesses. But easy or hard, software pricing has to be done if you want to get paid. Do pricing well and you will be paid well, too.

What role does price play?

Price plays many roles. On the face of it, price allows a prospect who is in the information-gathering phase of your sales process to decide if your offering will fit within budget and should be considered. In the later stages of your sales process, price is just one of the many elements a prospect uses to select a vendor.

The amount you charge captures everything a particular offer represents, including your product's impact on revenue, associated risks and costs.

How you decide to package your products and/or services for different kinds of customers is called your Offering Model. The amount you charge captures everything a particular offer (i.e. Basic, Professional, or Enterprise) represents, including your product’s impact on revenue, associated risks and costs.

Therein lays the challenge. If you want people to consider the amount you want them to pay for your offer, then you must make sure they understand what they are getting for their money. That’s why it is important to highlight differences that are significant to the customer including: product features, service delivery, quality, reliability, future capabilities on the product roadmap and more.

Many customers also take into account intangibles such as your company’s reputation, business practices, people involved pre- and post-sale, references, and your website experience.

Price sends a powerful message

Since the amount you charge for a particular offer, in other words the price, captures “everything”, it also sends a message. If a prospect thinks the price is too high on the value you deliver, your price and company may be perceived as unreasonable. Similarly if your prices are too low, people may wonder what’s wrong with your product or whether your company will survive.

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