DISQUS

Richard · 1 year ago

Ben,

Really interesting posting, thanks! From the other side of the fence, when buying software some of the things that are really important:
- attitude of the vendor - do they know the RFP
- how much money with this software save / generate?
- is it cheaper to buy or to build
- how can the charges be capitalised and over what time period
- how flexible is the vendor
- will they implement the additional functionality requested?

A lot of these points can also help with pricing and sales arguments. I think the big one is trying to understand and put a figure on the value your product can bring to a company because in theory that's logically their purchase limit. It's a hard one to calculate though.

One trap to avoid is accepting to build customisations / adaptions and not pricing them correctly. I've worked with vendors that make a loss on their customisations, some of which the customer has just requested on a whim. It's not a good position for a start-up to be in.

Some big companies like to spread the charges over different periods as it's good for their financial statements. So it may be that they take a one-off purchasing model, but spread the payments.

Freewarehoney456 · 1 year ago

Hubby has been having a hard time pricing the software he made for a shipping company because of a lot of freeware and open source nowadays.

Inflecto Systems (Software Dev · 1 year ago

Pricing software is always difficult when we first came in to the market we completely under priced all our services but as we become to grow had to put our rates up as we found lots of extra costs. Putting our rates up cost us a lot of clients which was a shame but most of the people who left were clients who had a lot of freebies and occupied a lot of time for not very much income.

Currently we do OK on the larger projects but were at a stage in our development where big projects come in now and again and make us a descent profit but we still have to rely on very small projects for the bulk of our work.

We often find on these smaller projects when speaking to clients that they have had quotes from project websites on the Internet or have approached outsourcing partners directly. This has had a big impact meaning on a lot of projects we just can't compete on price. Some of these clients that have gone for cheap outsourcing options though have got back in touch again after having their hands burnt.

I guess the key point is to make sure you sell your costs. You have to justify them to the client and help make them make the right decision.

Hudson Atwell - · 1 year ago

When purchasing software for webmaster tools, I refuse to go over $30.00

Most people these days are putting out quality software for free. They needed it, designed it themselves, and released it to the public.

In fact, I have been using Adobe Photoshop for 10 years, and currently my employer provides me with a license, but if their asking price had to come out of my pocket, I would not pay it, and would accept my entrance barrier and peruse a different trade. But I would pay $50 dollars for it.

For some reason, non material tools do not win my monetary vote.

Hudson

Noni · 1 year ago

Pricing a software is like deciding your own hourly rate. There should be a balance because giving a price too low or too high will yield a negative result for both. Customers will be dubious when a product is too cheap; and will turn away when too expensive. I sometimes get my 'balanced' rate after checking the going rate for a particular skill. This method could work on software pricing, too.

David · 1 year ago

nice blog,

Pricing software is a very difficult art and in cases like microsoft can cost millions, there is lots of research on competitors to do then beat there prices and CUSTOMER SERVICES.

Daivd
from
Product Sourcing

Dave · 1 year ago

Pricing up ANY product is always a tricky manoeuvre, whatever you're selling, but I imagine software is especially tricky, what with companies like Microsoft and Adobe sell theirs at a premium, while at the same time there is perfectly viable freeware on offer that does the same thing such as OpenOffice and The GIMP. Your post certainly helps to explains how prices are reached, thanks!

Jonathan Drain · 1 year ago

The Dungeons & Dragons community has updated to the Internet age and companies now sell D&D books online, in PDF form. What they've noticed is that people will balk at paying $30 for a book that's purely digital, but they'll readily buy a shorter book for $3 or $4. The risk of disappointment is lower, the product focus is tighter, and the perceived value of a digital product that doesn't do anything but sit there is much more satisfying at that price point.

Gift Guru · 1 year ago

Never realized there was so much involved. Gift are easier.

Business Minder · 1 year ago

Excellent article. I highly agree with "Dont sell yourself short". If what you are selling is worth the value, sell it at that value!

Phil Daigle · 1 year ago

Ben, I'm not a software developer but I own software that was developed for my firm. I've thought about marketing it to other businesses, so I was attracted to your article. I must say you are very comprehensive. I had no idea there was so much involved. I think I'll just put that project on the back burner and concentrate on my health insurance business.

Rick · 1 year ago

Pricing is one of the most important decisions of marketing (part of the 4Ps, after all), and it follows that a lot has to go in to it, especially with software, which is harder to price than physical goods.

Olivier Lalonde · 1 year ago

Very interesting post.

By the way, seems like we have a little CSS issue here: http://jobs.standoutjobs.com/people

Aleksandar Atanasoski · 11 months ago

Here is a funny story...

We increased the price of our product from $27 to $47 ant we got more sales.
Sometimes if you want to give to much for a small price people may think it's a scam.

Ben Yoskovitz · 11 months ago

@Aleksandar - thanks for the comment, and it doesn't surprise me that an increase in price resulted in more sales. Who knows if other things you were doing also had an affect on sales, but generally a lot of people do equate PRICE with VALUE. That won't be the case all the time, especially with consumers who expect to get everything for free (tsk, tsk) but it's definitely true in other areas.

marcusherzog · 3 months ago

Hi Ben, great article, I can only underline all points made. That sounds very familiar to me. Well done analysis. I wonder if you have any insight on the issue of price testing in the software industry, especially in the B2B market with rather large tickets and lower volume.

Eileen McS · 2 months ago

Ben, nicely laid out guide. With regard to looking at competition, one trick I use is to create a simple price level chart: I plot the list price on the Y axis and functionality (as packaged) on the X axis, starting with baseline functionality and moving to "premium features."
First, I plot my client's position on the chart and then add those of chief competitors (most useful to include price points higher and lower) according to what they do/don't include in their offering. It's a good way of visually evaluating whether a price is competitive and also for identifying "premium" features competitors charge extra for.

Benjamin Yoskovitz · 2 months ago

Eileen - Thank you for sharing your tips on tracking competitive pricing, much appreciated!