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Software Pricing Notes

My notes on the MITEFC GET SMART seminar on software pricing held earlier this evening. Jim Geisman of softwarepricing.com gave a fantastic talk and moderated discussion.

  1. Modular packaging is important so you can reduce the price without diluting value (instead, you take away a module etc)
  2. Customer pays for the “economic core”
  3. Customer values the core plus intangibles
  4. Five Steps to Pricing:
  1. Configuration & Payments should fit usage
  2. Sensible Metrics that scale the pricing (per user, per transaction etc)
  3. Sensible price structure
  4. Value-based price levels
  5. Consistently-applied discounts (try not to give it away in negotiation - build it into the model)
  • Customers think about the price of the transaction, not the product
  • Think about the structure of the pricing model
  • Price point - what do you deliver at what price? (sets target zones in the price / deliverable co-ordinate grid)
  • Pricing Triangulation for a given price point:
    1. Value to customer (usually that which can be realized in the first 6 months) as compared with alternatives and substitutes, discounted for internal costs and risks related to implementation/change. (Determines price ceiling)
    2. My internal costs / cost structure (doesn’t matter to the customer, but does drive whether I can affordably sell a given price-point) (Determines price floor)
    3. Competitive prices (from direct competitors - indirect competitors are built into the value calculation) (should not decide the day, because you should be offering something different from the competitors, else this is a commodity, and we all know how to price those) 
  • 10x Rule: The net value realizable by the client in the first six months should be approximately 10 times the perpetual license fee.
  • Another way of estimating valid price: how much do customers spend trying to solve the problem you’re solving?
  • Negotiation/information gathering tactic: If the customer is stuck on a counter-offer, ask for a reason for the proposed price. Will give insight into the customer’s thinking of their value (per the first point of the triangle).

    • This entry was posted on Wednesday, February 22nd, 2006 at 4:17 am and is filed under Technology Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. Reddit This

    4 Responses to “Software Pricing Notes”

    1. 52 Bicycles » Blog Archive » Business vs Finance Says:
      March 8th, 2006 at 12:54 pm

      […] First, a plug: I attended the pricing session of the MIT Enterprise Forum’s GET SMART series, and it was great! First, Jim Geisman is a guy that any software entrepreneur wants to spend an hour with. Second, the whole idea of a focused, seminar-like event made tremendous sense. […]

    2. tellEsfera - A Esfera do Telles » Blog Archive » Fiz um software. Quanto eu cobro? Says:
      July 2nd, 2006 at 4:46 am

      […] Notas de uma apresentação do Jim Geisman do site softwarepricing.com. Mais curto, com dicas rápidas e regrinhas. Interessante é o tripe que ele cria, Valor para consumidor x custos internos x competidores. http://www.raydeck.com/2006/02/software-pricing-notes/ […]

    3. 52 Bicycles » Blog Archive » The best $55 you will spend all year Says:
      September 24th, 2006 at 5:27 pm

      […] I posted my notes from attending his session in February. It was a gold mine of information and insight on a difficult subject, turning a previously awkward area into a competitive advantage for my firm. […]

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