Blog Entry

Jun 17
2010 

The Power of the Right Software Licensing & Pricing Models

One of the inherent dichotomies for software vendors exploring new pricing models is: Who do you talk to? The common response is “Discuss this with your existing customers – they know best” There’s only one problem with that. Your existing customers have already most likely validated your current licensing processes – via the act of purchasing your software. To put it another way, when they looked at your pricing and licensing models they most likely found them to be agreeable enough (or at least not a big enough impediment) to moving forward.

The risk then as you explore new software licensing and pricing models is that you poll your existing customers only. While they’re an important constituent they should not be the only constituent. You need to look at the potential customers who did not buy your solution. Find out why they decided to go in another direction.

Easier said than done of course. If you’re the incumbent or a very large player in your space there might be another way you can go about finding some of these answers. What are the smaller more nimble competitors doing? Too often large incumbent’s immediate reaction is to dismiss much smaller competitors as “low price leaders” picking up the scraps. Even if there is truth to that you might be missing some important data points. Firstly, start ups/new companies typically don’t have legacy pricing structures or SOX compliance issues. That fact, combined with the need to utilize their nimbleness to offset your entrenched position, means that they can listen and react much more effectively to their prospects.

If your small start up simply mirrors your licensing and pricing strategies then you’re either on the right track or they’re not very imaginative. If however, they’re pricing and delivering it in a significantly different fashion to you and they’re starting to build a customer base you might have the answer you need right there.

As an example from a few years back, I once knew a large company that dismissed a start up because it priced a product at 50% of their established product. The sales manager for the team that lost those deals dug a little deeper and called the prospects that they had lost. It turns out price was not the issue. The smaller company allowed them to download the application with no question, utilize a 30 day key and then buy the solution in 1 – 4 modules. The larger company had no ESD, only allowed a 30 day key upon stringent sales qualification and wouldn’t modularize their pricing model. This sales manager said “By the time we showed up we were really almost selling against an incumbent” – which every one knows is a more difficult sale.

Again, the message is that some navel gazing is helpful. However, ensure that you look outside your known universe as chances are there are telltale signs in the marketplace for where your customers want you to go.