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
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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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Lower Value Can Lead to Death Spiral
Pri
ce
Discounts = Lower Price
Hardware/Bundled Value
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Lower Value Can Lead to Death Spiral
Pri
ce
Freebies = Maintain Revenue
Hardware/Bundled Value
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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
© Software Pricing Partners, IncAll Rights Reserved
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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
© Software Pricing Partners, IncAll Rights Reserved
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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
Monetization and Pricing
Pricing Framework
Getting Paid Fairly
Meeting the Challenges
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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Software Pricing Framework
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
© Software Pricing Partners, IncAll Rights Reserved
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Topics
Monetization and Pricing
Pricing Framework
Getting Paid Fairly
Meeting the Challenges
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
Monetization and Pricing
Pricing Framework
Getting Paid Fairly
Meeting the Challenges
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
© Software Pricing Partners, IncAll Rights Reserved
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Topics
Monetization and Pricing
Pricing Framework
Getting Paid Fairly
Meeting the Challenges
Wrap-up
© Software Pricing Partners, IncAll Rights Reserved
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Software Pricing Framework
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
© Software Pricing Partners, IncAll Rights Reserved
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Thanks!
Software Pricing Partners, Inc.508-647-0330
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