How Do Software Companies Choose the Most Efficient Pricing Strategy?
There are three key questions businesses should ask to determine their software license pricing:
- 1. WHAT aspect(s) of my offering does the customer need or want access to?
- 2. HOW does the customer need or prefer to pay for my products or services?
- 3. HOW MUCH does the customer perceive the value added by my product or service?
Once you have answers to these questions, you can develop the right software pricing strategies.
To create multiple software packages with a variety of pricing options across varied markets, you must first establish a value for each feature you offer and decide how to package it. By doing so, you can quickly and cost-effectively deliver the optimum solution to each customer, ensuring you meet all their needs without missing a revenue opportunity.
For example, you can deactivate or remove premium features from lower-cost “basic” software packaging that you offer to capture low-end markets. You can also charge a premium for access to innovative features that provide additional value to high-end customers or niche markets.
Access to Flexible Licensing Models
Flexible software license pricing helps your customers budget for and consume your services or offerings in a way that works best for their business. The reality is no matter how good or necessary your product for a company, if you do not offer a software license pricing model that aligns with how your clients do business, you risk losing out to a less attractive but more flexible competitor.
Flexibility is not always easy, as each individual customer is likely to have specific preferences for how they purchase goods and services. This means you must carefully consider your software pricing strategies.
Small, or start-up customers may prefer (or even need) to make many small payments with no long-term commitment. Large, complex enterprise organizations may prefer long-term, quarterly or annual unlimited-usage plans. Large or small, companies want the ability to increase their usage as demand increases. Likewise, they should be able to easily reduce the number of licenses. At the heart of both scenarios is consumption-based pricing. Using this system means the company will only pay for the number of licenses they need. This is easy to measure, track and manage using a third-party solution.
In addition, there are multiple factors influencing consumer preferences that will impact your software price management. These include everything from the market segment, the size of the organization and even how critical the application is to your customer’s business.
Companies also demand business agility. Since businesses are always growing and adjusting their product by changing, adding or removing features, customers do not want to be locked into a product that is not giving them the best ROI.
They want to have the right to stop paying for features they don’t use or which they no longer use. They also want to be able to add features that they either overlooked in their initial purchase or which you have added to your service offering. This means if you don’t have the ability to quickly change or update your software packaging to easily add features, it is much more difficult to monetize new R&D through existing customers. The outcome is that you add a lot of additional engineering work (and expense) to your go-to-market process.
If you cannot respond to evolving market and customer demands you create a significant opportunity for your competitors. This means that when you are designing your service offering, you must establish a clear separation between engineering and software packaging/delivery. Being able to adapt your services in real-time, without additional coding, prevents competitive evaluation and reduces your engineering costs and time to market.
How Can a Software Pricing Solution Help Your Business?
There are multiple ways to refer to a pricing solution: price engine, price tool, price management or pricing software. No matter what you call it, software pricing enables you to track and change your pricing to ensure you are always optimizing your revenue opportunities.
Software pricing can also help you keep track of your competitors’ prices, giving you even more information about how to position your own pricing, and keeping up to date with their products.
A software pricing solution removes the confusion and effort of how to price software licensing. Pricing, especially on a large scale, can become complicated. Using transparent and reliable software makes it easier to see and resolve pricing conflicts as and when they arise, for example, during a sale or special promotion.
Using flexible software price management allows you to optimize prices to ensure you remain at the sweet spot where pricing is as high as possible without jeopardizing revenue and profit growth. It also allows you to alter pricing without hours or days of complicated or time-consuming back-office input.
Benefits of Using Packaging and Pricing Solutions
Using software packaging and software pricing strategies means you can easily change your software pricing models and also integrate new products, services, and packages as you evolve. The right software packaging and software license pricing solution also gives you the ability to experiment with different software pricing models and a way to offer bespoke price solutions for individual customers.
Using packaging optimization software gives you full control over your pricing, allowing you to move away from the traditional cost-plus pricing system towards a model that will enable you to grow.
With so many options on the market, if customers do not get want they want, or feel they are paying too much for what is being offered, they will look for a provider who will give them what they want at a more attractive price.
In a global and complex marketplace, knowing how to price software licensing and understanding software pricing strategies makes selling services much simpler and enables companies to optimize prices to achieve their financial goals.