Software Pricing Strategies

Proper software pricing is a key component of optimizing your software marketing strategy.

In the current software marketplace, many vendors are moving to a multi-level pricing strategy: They may continue to have a higher-priced one-time license software product, but are also trying to take advantage of the move to various services business models to create a lower-end subscription-based product to reach a broader customer base. There may be multiple such products. And often the service or subscription-based product is sold and marketed through the channel or partners.

Channel Software Pricing

How does one define an effective pricing strategy to make sure you're capturing as much as possible of the available market, while at the same time minimizing any channel conflict?

How do you create a win-win situation so that as the software vendor you can maintain your brand equity in your customer's eyes, while at the same time the hosting or SaaS vendor may have the primary end customer relationship?

Channel conflict happens when a new sales avenue for software or services threatens to cannibalize existing sales channels for essentially the same product or service. For example, a licensed software product direct from the software vendor, versus a software service from a SaaS provider. There could be other channels you utilize for your software product also, such as VARs, OEMs, retail, etc. Channel conflict can cause significant loss of profit margin for both you and your channel partners.

To avoid this, it is important to proactively develop a comprehensive pricing strategy prior to venturing into new channels. You should do this by:

Defining All Channels - which channels might you sell into, given the new software business models? Consider both software products and services, and potential partners for both.
Understanding Channel Expectations - what are the typical margins for each of these channels? How does licensing typically work in each channel? Some are still in definition and undergoing realtime evolution (such as SaaS), but you should make you best current estimation, and tweak over time as needed.
Assessing Your Costs - what are your actual costs to deliver into each channel? This can help you determine which channels you should even be in.
Developing Your Software Pricing Levels - assuming you need to cover your costs for each channel, and meet channel expectations, this should allow you to develop a multi-level pricing scheme that will work for your product and what the market will bear.