Getting Paid Fairly from Software Sales in Integrated Systems

233 Needham Street • Suite 300 • Newton, MA 02464 • (508) 647-0330

Jim GeismanPrincipal & Founder

Software Pricing Partners, Inc.

Getting Paid Fairly from Software Sales

© Software Pricing Partners, IncAll Rights Reserved

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Software Pricing Partners

Since 1987 Pricing software-based offerings Improving B2B pricing and revenue models

The Ends… More revenue from products & services Improve financial performance Increase sales effectiveness

The Means… Pricing Model Assessments Pricing Model Development / Improvement Deal Packaging, Pricing & Negotiations


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Technology Trends

HW

Time

• P

RIC

E•

Act

ual

Val

ue

• P

erce

ived

Val

ue

• W

illi

ng

nes

s to

Pay


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Lower Value Can Lead to Death Spiral

Hardware/Bundled Value

Pri

ce

Value Shift


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Pri

ce

Discounts = Lower Price



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Pri

ce

Freebies = Maintain Revenue



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Application Software Adds Value

Embedded Standalone

Value-Add


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Technology Trends

SWHW

Time

• P

RIC

E•

Act

ual

Val

ue

• P

erce

ived

Val

ue

• W

illi

ng

nes

s to

Pay


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Technology Trends

SWHW

Time

• P

RIC

E•

Act

ual

Val

ue

• P

erce

ived

Val

ue

• W

illi

ng

nes

s to

Pay


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Topics

Monetization and Pricing

Pricing Framework

Getting Paid Fairly

Meeting the Challenges

Wrap-up


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Software Monetization Hurdles

Internal Reliance on hardware sales Manufacturing focus In-house systems and processes

External Installed base Existing relationships Customer expectations


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Software-Specific Pricing Issues

Licensed not sold

No inventory

Low / no COGS

Complex, highly differentiated

Scalable, configurable

Many ways to charge for product

May be part of a systems sale


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Common Pricing Methods

Opinion

Size-of-wallet

Competition

Cost-based

Value-driven


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Topics


Pricing Framework

Getting Paid Fairly


Wrap-up


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MetricMetric

Bundles

Amount

Terms

Deliverables

Incentives

Software Pricing Framework

License Model

Price Setting

Transaction Structure


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MetricMetric

Packages

Amount

Terms

Incentives

Deliverables


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License Model

Metric Use more (product) get more (value) Can be “anything” Easy to estimate Easy to control, monitor Encourages use

Terms Balance customer and company needs Covers access and usage scenarios Applies to product and services Specifies payment stream and expectations Covers true-ups, product changes

Metric Terms


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Transaction Structure

Packages Logical grouping of features Obvious differences between editions Simple set of choices Minimize impact on sales channel Easily adapted to internal systems

Incentives Standardize on types Encourage specific customer behavior Apply consistently Set clear limits Use judiciously

Packages Incentives


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Price Setting

Amount Related to value-in-use “Vector in” on base price Make discounts and calculation uniform Start with domestic market Parameterize prices and adjustments

Deliverables Standardized grouping(s) and list(s) Easy to understand and use Includes products and services Maps to customer types, sizes Works with most transactions

Amount Deliverables


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Topics


Pricing Framework

Getting Paid Fairly


Wrap-up


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Biggest Challenge – Company Mindset

Source: Adrian Slywotzky presentation to Professional Pricing Society, May 2012. Demand: Creating What People Love Before They Know They Want It

Company-Think Customer-Think


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Company View of “Fair”

Objectives

Target customers

Market

Maturity

Differentiation

Transparency


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Customer View of “Fair”

WTPNeed

Knowledge

AlternativesWTP = Willingness to Pay = maximum amount a party would be willing to pay to receive something


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Fair Depends on What’s “It” Worth

Hard Dollar Impact of Better / Faster / Cheaper

Time to Value

SolutionPrice

Current solutions

Faster

Cheaper

Better


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“Worth” Depends on Value-Add

Base (Common)Features

Market / BasePrice


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“Worth” Depends on Value-Add

SoftwareValue-Add

IncrementalValue Add

Base (Common)Features

How Much Is THIS Added

Value Worth?

Market / BasePrice


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Build Offerings From Pricing Framework

Metric

Pa

cka

ges

Amount

Terms

DeliverablesIn

cen

tives

Offerings


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Topics


Pricing Framework

Getting Paid Fairly


Wrap-up


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WTA Need

Knowledge

Alternatives

Mindset Affects Revenue Generation

WTPNeed

Knowledge

Alternatives

WTA = Willingness to Accept = minimum amount a party would be willing to receive to give up something


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Customer Mindset

Software doesn’t cost you anything

I don’t need all this

We’ve never paid for software before

What will happen to budgets, staffing, etc.


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Sales Channel Mindset

Free software drives hardware sale

Deal is more complicated

More time spent on in-house negotiations

Financial impact


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Topics


Pricing Framework

Getting Paid Fairly


Wrap-up


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License Model Metric scales with value-in-use Terms balances payments with access, usage rights

Transaction Structure Bundles meet usage scenarios Incentives have clear purpose

Price Setting Amount paid depends on volume Deliverables are easy-to-understand

MetricMetric

Bundles

Amount

Terms

Incentives

Deliverables


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Using a Pricing Model Can Help

MetricMetric

Bundles

Amount

Terms

Incentives

Deliverables

Software Pricing Issues Customer Mindset

Sales Channel MindsetMonetization Hurdles


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Using a Pricing Model Can Help

Increase Sales ThroughputEasy to Do Business With

Treat Customers FairlyCustomer Focus

Software Pricing Issues Customer Mindset

Sales Channel MindsetMonetization Hurdles

Metric

Bu

nd

les

Amount

Terms

Deliverables

Inc

en

tive

s

Offerings


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Thanks!

Jim [email protected]

Software Pricing Partners, Inc.508-647-0330