Pricing Software

Joel Spolsky has an excellent piece on how to price software. He also discusses two bad ideas:

Bad Idea #1: Site Licenses.

The opposite of segmentation, really. I have certain competitors that do this: they charge small customers per-user but then there’s a “unlimited” license at a fixed price. This is nutty, because you’re giving the biggest price break precisely to the largest customers, the ones who would be willing to pay you the most money. Do you really want IBM to buy your software for their 400,000 employees and pay you $2000? Hmm?

As soon as you have an “unlimited” price, you are instantly giving a gigantic gift of consumer surplus to the least price-sensitive customers who should have been the cash cows of your business.

Bad Idea #2: How Much Money Do You Have? Pricing.

This is the kind used by software startups founded by ex-Oracle salesmen where the price isn’t on the website anywhere. No matter how much you search to find the price, all you get is a form to provide your name, address, phone number, and fax number, for some reason, not that they’re ever going to fax you anything.

It’s pretty obvious here that the plan is to have a salesman call you up and figure out how much you’re worth, and then charge you that much. Perfect segmentation!

This doesn’t work so good either. First of all, the low end buyers are just going to move on. They will assume that if the price isn’t listed, they can’t afford it. Second, the people who don’t like salesmen harassing them will just move on.

So, don’t do site licenses, and don’t try to make up prices as you go along.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.