Four Keys to Fair Software Pricing

Published on: June 19, 2024
Last updated: June 21, 2024 Read in fullscreen view

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IMHO, too many vendors complicate software pricing. Rather than providing a clear, fair price for their customers, software vendors often charge different prices for different hardware configurations, make customers pay for modules they don’t need, and surprise customers with hidden fees when they make even the tiniest change to their hardware platform.

If I could talk collectively to the IBM software industry, here’s the advice I’d give on the ideal way to price software products for both the vendor’s and the customer’s own good. And for customers, look for these items in any IBM isoftware packages you purchase to get a better deal before you buy.

Provide straight-forward, flat pricing with no haggling

Set a fair price that covers development costs, technical support, and other associated costs, along with profit. Then charge everyone that same price.

Don’t punish customers running more powerful machines by setting pricing at different tier levels or charging one price when they’re using four processors and another price when they’re using five processors. Don’t charge more based on the number of output queues, the number of users, or any other arbitrary measurement. And don’t haggle with your customers. When you give a great deal to one customer, you’re relying on other customers making up that revenue through a higher price. Don’t play favorites.

Software pricing should be fair, consistent, and affordable. If the customer truly sees the ROI in your software, you shouldn’t have a problem selling it.

Freeze software maintenance when a customer purchases your software

Many companies tack on yearly software maintenance increases so that over time, their customers’ yearly maintenance cost approaches what the customer originally paid for the software. This practice serves as a retroactive price hike.

Fix your customer’s annual maintenance costs when they purchase your software, and keep it at that price as long as they keep their maintenance active.

I also think software companies shouldn’t charge maintenance for the first year after a customer buys the product. The first year’s maintenance should be included in the purchase price.

Make it easy for customers to upgrade their hardware

Don’t charge license transfer fees when the customer upgrades their machine. Hardware upgrades shouldn’t be revenue events.

There’s no reason to collect a check when the customer moves your software from a Power 7 to a Power 8 machine or when they activate another processor. IBM software doesn’t take any special tweaking to run the same package on different processors, and new software keys are easy to produce.

Updated software keys should come with a smile, not an invoice. Software should be transferable when the customer changes machines.

Don’t make your customers pay for capabilities they don’t need

Make your software as modular as possible so customers can select and purchase only the capabilities they need. This gives them more freedom in what they buy. Modular software also provides an opportunity later on to make add-on purchases by buying additional modules.

In my experience, these are some of the better techniques for pricing software. I use them in my own software pricing and they work well for us and for our customers. If you’re a vendor, I encourage you to try these techniques out. If you’re a customer, I believe you’re better off buying from companies that believe in these principles.

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