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How to create a smart pricing strategy with software?

by janeausten

This article discusses how to create a software pricing strategy that corresponds to the product architecture and, of course, the market potential. Ownership of the responsibility for pricing might vary greatly within a corporation. Price may be own by sale, deal desk, or market in certain circumstance, and product management in other. Whatever the primary tasks are, the product must be capable of provisioning, tracking, and reporting against the selling meters included in a price structure.

One of the most critical duties in a go-to-market pricing analytics software is developing an effective pricing strategy and business model. It is not a precise science, but rather a perpetual process of negotiation, market validation, operational validation, industry competitiveness, and consumer acceptability.

Maintenance Costs

Typically connected with licensed software, maintenance payments do NOT support services, but rather the fees associated with the right to receive new versions, upgrades, and bug patches. Maintenance services would normally not offer new feature capabilities unless expressly stated (through a legal contract) in the company partnership. Maintenance expense are include in the subscription payment in a SaaS business (and should be account for in your revenue breakdown).

Support Services

Typically associated with the opportunity to consult a knowledge source or with someone for assistance. Assistance services may also be coupled with a service level agreement (SLA), which sets the terms under which support will be delivered, as well as performance remedies (escalation, responsibility). Maintenance expenses are included in the payments in a SaaS business (and should be accounted for in the revenue breakdowns; as those departments will want to share the overall revenues).

Customer Success

An emerging professional service–for cloud service providers, leveraging a paid customer success offering can extend the customer lifetime value (CLV); provide the analysis to continue to demonstrate value, and demonstrate the company’s integrity by demonstrating that sales commitments are met (i.e. ROI analysis).

Professional Tasks

Typically, a team of developers who are paid one time to do certain services. These might include customer-specific feature additions, branding, product customization, and so forth.

Cost-based Pricing

Every business calculates gross margins, which are the expenses of supplying the product/service. Base on a company plan and estimate sale, price must be determine to achieve or exceed gross margin target. This should ideally NOT be use to determine the price that is disclose to the market.

Pricing based on the value

Consider a value-based smart pricing strategy, particularly in a SaaS scenario. Apply quantitative estimations to the differentiable worth of the product versus the existing consumer scenario in a value-based pricing model. Is it cost-effective? it profitable for them? Is it less risky or less liable? Does it add value? How much over what time frame?

Conclusion 

There are several techniques to arriving at a figure, but as a starting point, do market research. Find out what numbers other people are utilizing. Determine whether they are receiving discounts and, if so, what the basis for the discounts is. Make certain to investigate what link service are being charge for and at what price. Do your homework as a useful strategy for acquiring the confidence to defend price suggestions.

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