How to price software/Saas

[Sam Ng]

Does anyone have any valuable insights into how to price software? I've done a bit of reading around but at the end of the day it still seems more guess work than science.

Love to hear any insights, personal experiences etc.

For us in particular, we have three software complimentary products as part of a single platform targeting user interface designers so it's about setting more than just "one price". But there are obvious questions such as:

- What type of "free" do you offer? Fremium, free for 30 days, free loss leading product...
- How do you do bundling?
- What type of a "message" are you sending with your price levels?
- If your customer is not using their own money (but needs to get permission to buy the software), how does that change the price? (ie, if you're asking for $50, you might as well as for $100 because it's the same hassle for them)
- Do you look to the market to price (external input) or do you primarily look internally (we think it's worth xyz and adds $x value therefore..)?

[Lars Trieloff]

When it comes to pricing, only external factors count. Take a look at competing products or alternative solutions and calculate the full pricing of their offering for your target groups. In most cases you will come up with a pricing range. If your product does not radically differ from other offerings in the market, which would give you the choice of having a disruptively low price or premium price based on added value and scarcity power, aim for a percentile in the pricing range that equals your percentile when it comes to the product offering.

[Marcus McConnell]

First, I would look at competitor pricing to get an idea of what range might work.

Second, I would consider the value your solution offers to the customer. If they can save $1000 with the software you can't charge $10,000 for it but could easily charge $500.

Third, I'd consider how your price affects perception. If I offered you a Rolex for $10 you'd value it a whole lot less than a real one at full price. However, the expensive Rolex is only prized because it is artificially expensive.

Lastly, there is a gap in software pricing between $999 and $5000 to $10,000. Most companies allow purchased under $1000 to be authorized by mid level managers or charged directly on credit cards. Above $1000 you need more approval. This leads to a pricing gap because the effort involved in selling the solution to the higher ups is much greater.

[racerrick]

37 Signals has a great post on this:

http://www.37signals.com/svn/posts/1287-ask-37signals-how-did-you-c...

Quote: We asked ourselves a couple questions: 1. What would we pay? 2. What numbers feel right?

[Bisi]

Is it subscription based ?
Well I would 1st of all give out some for free and see how users react to the software . Of they like I would get testimonials .. For pricing If I really want to test the market and leave room fo rprice adjustment ..
I would do something like
Regularly $199 ! but get it now for $50 - Limited Time Offer . Buy now 75% Off Regular Price
100% MONEY BACK GUARANTEE

If I can sell it for 50 then I may slowly creep up in price .. You can also say something like Offering only 20 copies at this price ..bla bla

[David Crow]

Check out Eric Sink's Product Pricing Primer or Joel Spolsky's Camels and Rubber Duckies.

[Salil Shibad]

Few thoughts, only worth maybe a penny.
1. I'm not really a big fan of the 'free stuff'. People value what they pay for. They will also use/experiment more once its paid, rather than wait for a month and cancel anyway. If you really "don't want to charge", offer cancellation after the first month. Fewer people cancel if they like your service
2. Offer limited bundles, 2-3.Make it easier on customers to pick. Don't make them think too much.
3. Price - what would you feel comfortable paying for the product? That's the right price.
4. Pricing model - I prefer a monthly subscription model. As a former CEO said to me once - "The toll booth business is a great business to be in. People don't think twice about dropping coins or swiping their card each time." If the price is low and attractive enough, customers will pay. Don't make people go to their bosses to get approval/expense reports signed.

[Brian Vogelsang]

Have a look at Daniel Shefer's pricing article here: http://www.shefer.net/Articles/Pricing_for_Software_Product_Manager...

Also, http://www.softwarepricing.com has some great articles on pricing. I read everything I come across that Jim Geisman posts/writes. He is one of the few software pricing gurus I've come across.

[Michael Wurzer]

Depending on your product, I'd be careful applying the "if it feels right to you" methodology, because I think we tend to undervalue ourselves. If it's a consumer product you would use yourself, the "feels right" method may be applicable, but, otherwise, you might want to ask some of the people who'd likely purchase the product in a short survey. As mentioned by earlier commentators, competitive pricing is often the easiest method because it's readily available and often definitive of the market.

[Greg Frank]

You really need to see what your competitor prices are, and not just direct competitors, but others that offer similar solutions in a different space.

If you can clearly quantify your value proposition, then the pricing becomes a lot easier. As one other commenter mentioned, if you know you can save them $1000, then you can surely charge $500.

I prefer an unlimited free version with limited functionality (but enough to keep them coming back) - one day they will need the additional features and you will constantly try to upsell them through their use.

[David Locke]

Free works only if you can capture market leadership. Does your category already exist? Are you a supplier or a complementor? Complementors can forget free.

Free might work as marketing. Do you have a remarketing campaign designed to keep those that leave? Do you have a loyalty program designed to keep the ones that try? Its not about price. Its about exit barriers, but SAAS doesn't have exit barriers, or ideally will not. Even free software costs the installing user and their company time, salary, and opportunity costs. Learning, file conversions, all the non-real work stuff you do with software constitutes a hidden, off-TCO cost. What is their time to return (TTR)? If their TTR is longer than the free period, you may be marketing yourself into a market that is running away.

SAAS needs to be priced in the out of pocket or within expense account range. Salesforce.com is priced low enough for anyone to start using it. That's what utility computing is supposed to be. If you have to convince an economic buyer, then you've turned yourself into a service outsourcer, and your cost of sale will be phenomenally high.

Use value-based pricing, which requires value-based messaging. It also requires you to catelog the value you provide and to price each element of value provision. This enables you to bundle at some price, but unbundle when a buyer demands a lower price.

What is the bare-bones minimal functionality that someone has to use to perform the primary task your software enables? How much value, in dollars, does that provide to the user? What timeframe is required for that user to capture that value? Take some percent of that value as your price. Take that time period to be your subscription period.

From the bare-bones, what additional functionality is needed to move the user to the next higher-order task? Ask the value and timeframe questions again. Repeat until you've run out of functions. This leaves you with a set of tiers in terms of functionality and price. Then, bundle or unbundle as you see fit, and establish the simplest subscription period that you can that covers all the tiers.

Your assumption that $100 is easier than $50 is incorrect. You want your payment to be habitual and automatic. It absolutely cannot be a hassle to them regardless of price, or they will move to your competition.

Looking to the market is just asking for a downward spiral of pricing. Everyone needs to avoid that. Instead, find out where your markets are exclusive and price higher there. Features can be parity, differentiators, or contention features. Differentiators become parity over time. The same is true of price components. Price your differentiators higher so you are taking the premium for them. As soon as a differentiator goes away, so should its price premimum.

Read the "Art of Pricing," if you want a deeper understanding of price strategy. SAAS is a commodity regardless of the functionality it delivers, so take care with pricing.

[Steven Farrell]

What is your market willing to pay?

Who is you competition? Do you offer something they don't? If so interview your potential market customers and find out from them what they are willing to pay, then look at your cost. If you can make a profit your set.

[Dave Motheral]

This is a great blog post on how to price. How-To Price Your Software Product

We at Centripetal Media have looked at both competitors and also worked to make "price discrimination" with different packages based on usage barriers.