May 7, 2013

Notes on pricing

Vendor clients often ask me about pricing. Everybody knows that there usually are:

But the whole process has to start with some concept of a single-unit price.

What kind of price? Well, for appliances, you usually should just charge a one-time fee for whatever is in the carton, plus annual maintenance; most alternatives are gimmicks. But for packaged software, there are numerous choices. The easy part is timing:

Tougher is deciding what kind of “unit” you should price by. My standard advice has become:

Generally one pricing algorithm will be suited for most of your customers, while the others will be meant for minority or edge cases.

By “simple pricing approaches” I primarily mean the usual-suspect proxies for valuable work done, such as:

Alternatively, some pricing schemes focus more on development effort averted — e.g., ETL vendors may charge according to the number of different databases you connect to.

For example:

Virtues of such approaches include:

My advice is similar for SaaS (Software as a Service), for similar reasons, with variations such as:

In most cases, there’s a whole other dimension of pricing complexity — you want to carve your offering into tiers, e.g.:

I’m not going to address those in detail now, but I’ll leave you with one cardinal rule:

Don’t provide anybody with software that gives them a bad experience.

Even your crippleware should be good.

Related links


5 Responses to “Notes on pricing”

  1. Software delivery and pricing — the first 55 years | Software Memories on November 17th, 2013 10:35 pm

    […] Last May, I offered advice about the specifics of software pricing. […]

  2. The core of strategy | Strategic Messaging on December 29th, 2013 3:27 am

    […] … and another one to pricing. […]

  3. Pricing advice: Avoid the looking-glass | Strategic Messaging on March 14th, 2014 5:05 am

    […] May, I summarized and explained my standard pricing advice […]

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    […] have ever more business-advice posts up on Strategic Messaging. Recent subjects include pricing and stealth-mode marketing. Other stuff I’ve been up to […]

  5. Strategy for IT vendors: a worksheet | Strategic Messaging on June 29th, 2014 7:30 am

    […] appear to them as sufficiently simple, fair, and free of risk or surprise. (Edit: I offered tips on how to achieve those pricing objectives in May, […]

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