Software Pricing Demystified (The Basics)
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The document discusses software pricing strategies. It recommends that companies focus on maximizing revenue rather than minimizing costs. Pricing should be based on computing the value the software provides to customers. Common pricing models include charging per user or transaction, or offering tiers of service like bronze, silver, and gold packages. Segmenting customers and offering clearly differentiated options allows customers to self-select the right package for their needs.
Software Pricing Demystified (The Basics)
- 1. Software Pricing Demystified Rich Mironov BoS Conference Europe, Cambridge, April 2019
- 2. 1. How software companies make money 2. Pricing starts by computing customer value 3. Units matter as much as price points 4. Bronze/Silver/Gold packages instead of many separately priced features Agenda @BoSconference @RichMironov
- 3. Development Costs, Customer Revenue Goal is not to minimize costs but to maximize revenue • Your development team of 6-8 costs… • Implied revenue commitment… • Incremental cost per user/unit… £1M/year £6M/year < 3% @BoSconference @RichMironov
- 4. In the software business, all of the profits are in the nth copy, subscriber, unit or transaction @BoSconference @RichMironov
- 5. • Custom Development rewarded for more hours, more customization. Priced for effort. • Product rewarded for large number of frictionless, self- onboarding subscribers/units. Priced for value. Choose Your Business Model GrossProfit Software (users, transactions, features) Custom Development (hours) @BoSconference @RichMironov
- 6. Business customers buy most products to make money or save money • How do they describe value? • Assume we can capture a fraction of value (15% to 25%) Consumers typically less analytical, more emotion/fashion-driven Pricing Starts By Computing Customer Value @BoSconference @RichMironov
- 7. • Our super-special credit scoring application will reduce the number of credit checks your bank runs • Your bank currently does {insert number} credit checks per year at {insert price}. We’ll reduce that by {insert percentage} for a savings of {computed}. • We will only charge you {insert price} for savings of {computed} and ROI of {percent}. A Generic B2B Value Story @BoSconference @RichMironov
- 8. Your support calls/year 20,000 Total annual support hours 5,000 Current support team FTE 4 Average salary £40,000 Annual staff cost £160,000 My savings claim 30% Your expected savings £48,000 Your support calls/year 20,000 Total annual support hours 5,000 Current support team FTE 4 Average salary £40,000 Annual staff cost £160,000 “By using our tech support knowledge base, we can reduce your support time per call by 30%.” Hard Cost Savings Example @BoSconference @RichMironov
- 9. • Hotel • University • Automobile manufacturing line • Solar energy farm • High-end retail shop space Customer’s Natural Units? @BoSconference @RichMironov
- 10. “All You Can Eat” subscription: per user per month • Must drive subscribers up, support costs down • Capacity limits for abusers • Inactive users churn Transaction-based: free until you use it • Continuous marketing • Carrying costs • High volume users want “All You Can Eat” Two Default SaaS Models
- 12. • Clearly different goals, needs or users • Prospects sort themselves into right package or tier • Prices must be visible, simple • War story: mobile apps for churches Good Segmentation @BoSconference @RichMironov
- 13. • Customers define the value of software • Natural or native units (KISS) • Ideally, 3 packages for very distinct segments • Good pricing isn’t interesting • Avoid “specials” and “one-offs” like the plague Take-Aways @BoSconference @RichMironov
- 14. Rich Mironov Mironov Consulting San Francisco, CA, USA www.mironov.com +1-650-315-7394 [email protected] @richmironov