How Do Software Companies Decide the Most Effective Pricing Strategy?

Software Company

The success of not only IT, but also any business is largely influenced by the right price: too low will not allow you to earn money, and too high can scare away customers. In addition to an excellent product, a winning pricing policy helps in the competition. Price is the message that the buyer reads between the lines. Before bidding on a product, think about what you want to say.

  • If you sell cheap, then you tell the buyer: “With us you save.”
  • If it is more expensive than the market, you declare: “We are the best.”
  • You charge a monthly fee – you hint that “you don’t need to lay out a lot at once.”
  • One-time – say that “It’s more profitable than paying forever.”

The goal of “price messaging” is to show a clear advantage and make your product stand out from the competition. This is not always possible, but it can and should be striven for. In this article, we will analyze the basics of the pricing strategy in the IT industry.

Pricing options for software companies

The choice of pricing policy should be taken seriously. This is a strategic step that determines the future of the company. Ideally, an effective pricing policy helps to capture a highly competitive market, pays off, is hardly amenable to plagiarism, works both on the local market and internationally.

1. Price per time

In outsourcing firms, this kind of product or service evaluation is frequently employed. Charges can be made per hour, day, or week. Determine the pricing after calculating how many hours you will need to complete a certain project.

There will, however, always exist an interest conflict because the customer benefits from your faster labor and you from a longer project. In the meantime time, you can finish the assignment in five hours rather than ten, but you will need to extend the duration in order to receive money. This method of pricing used to be effective, but there is a claim that it is no longer appropriate in a society where results are valued over talents.

2. Price for paying bills

Some refer to this as a “break-even” plan, suggesting that you shouldn’t expect more than the expenditures to be paid. In other words, this model is better suited for new, young businesses. When you are first exploring a new market, it can be helpful, but in general, you should utilize it with caution. This strategy works well for drawing in plenty of new clients who will eventually spend money with the company.

3. Price formed from the average 

Entrepreneurs frequently calculate the average price by simply adding the prices of the three top rivals and dividing by three. This usually works in a scenario where the worth of the offer is the main consideration for buyers.

But if you set prices 5-10% higher than competitors, but your product does not have tangible differences, then you may have trouble finding customers. In addition, you will have to respond to price changes from other sellers: raise and lower them after competitors. To make your pricing more independent, try to stand out by offering your customers something unique.

4. Price for value

If the client pays for the result, he will be more than happy to give more, because he sees how the costs pay off. So, your software should not just work, but solve some problem of the customer, bring value to the customer. Let’s say you tell an entrepreneur, “We’ll help you increase your company’s revenue because our software streamlines some internal processes and saves time for your employees by allowing them to focus on profitable processes.” Are you ready to pay +20% for it?

5. Price skimming

When you use a price skimming strategy, you’re launching a new product or service at a high price point, before gradually lowering your prices over time. This is a great way to attract consumers – especially high-income shoppers – who consider themselves early adopters or trendsetters.

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Let’s summarize

The market can instantly turn upside down due to the actions of newcomers. This has already happened with taxis, the music market or online banking. Make a unique product, sell differently than others, and develop at your own expense. This will give you a chance to change the rules of the game in your favor.

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