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Predictable Pricing
Disclaimer: Jim Geisman, as always, is the expert on pricing ,and I encourage all to read and heed his words over any of mine.
I have found that pricing that is predictable is important to accelerating adoption. It is good to have a low entry point for customers (by which I mean an entry point with which they part with cash, and become customers instead of merely prospects that are trying it out).
This is where subscription pricing is handy:
- It is linear, so that people pay more as they add “seats” (or whatever)
- It is malleable, so that you can change the price for following terms (months or years), without having been locked out by a prior perpetual license
- It is recurring, so it can sustain a company on a current basis (assuming it is priced to cover marginal costs, and the sales costs are kept under control)
- But most important is that it is predictable - people can budget on the basis of it, and start to really go to town using it, since there is no marginal (out-of-pocket) cost of doing so, so they maximize their perceived return. And if your software is any good, the best way to maximize the real return is to maximize their use, so incentivizing that is key.
I have seen some alternative models, such as per-transaction, that are more linear, more malleable, tie more closely to the value model (to the extent that value co-relates to the transactions) and often tie more closely to marginal costs. However, I look at them askance, as do many prospective customers, because they do not feel confident in how much they will spend. Even if the differential is insignicant compared to the potential economic gain (in increased revenue or decreased cost) from the use, the perception potentially unlimited outlays, or at least outside a fairly narrow band, is disconcerting.
I posit that cell phones really started to take off when the carriers started offering significant per-month plans, where one could talk as much as one wanted, up to a limit, for a fixed fee. And one would just buy the package that matched expected usage - and the cell company actually suffers when a person goes over, because while they make short-term money on usurious overages, they harm the relationship with the customer, who could switch at end of term (or sooner, with the new plan-swapping sites out there). It is when people stay below their ceiling that the company solidifies the relationship and has the best prospect for future and expanding business (friends and family, more minutes, data services, EVDO, etc).
This is also true in software. The more we can make it low-cost-to-first-enjoyment the better, but a model that thinks another step ahead, making it low-risk-for-second-enjoyment is key to making it something people can use without fear driven by uncertainty. And those (along with doubt) are the killers in this business. Avoid them, and we live.